PH economy still strong despite lower growth forecast: economist

MANILA – Philippines’ investment grade credit ratings, along with strong foreign reserves, among others, are expected to assure investors of the economy’s strength amid the impact of the global pandemic, an economist of a local bank said.

This, even after authorities revised their economic targets and assumptions for this year, with growth seen to post a contraction of between 2 to 3.4 percent from an earlier revised target of zero growth to a contraction of 0.8 percent.

Next year, the economy is expected to recover and post a growth of 7.1 to 8.1 percent.

In a reply to an e-mail from the Philippine News Agency (PNA), RCBC chief economist Michael Ricafort said the government has the “flexibility” even if economic managers changed some of their macroeconomic targets for this year due to the impact of the coronavirus disease 2019 (Covid-19).

“Greater fiscal prudence/discipline, in terms of structurally increasing tax revenue collections and preventing unnecessary leakage in government spending in recent years during normal economic conditions especially before Covid-19 has allowed the government greater leeway/flexibility to increase stimulus measures when needed most especially during the Covid-19 pandemic,” he said.

Ricafort said the result of the government’s fiscal discipline “would fundamentally help the country’s fiscal performance and credit ratings especially once the economy normalizes again.”

Aside from the growth target, the inter-agency Development Budget Coordination Committee (DBCC) also lowered the revenue collection target this year to PHP2.61 trillion from PHP3.17 trillion during the Committee’s meeting last April.

Expenditures are now estimated to reach PHP4.18 trillion, or about 21.7 percent of gross domestic product (GDP), from about PHP4.163 trillion earlier.

Budget gap is now seen to hit PHP1.56 trillion, or about 8.1 percent of GDP, from an earlier estimate of 5.3 percent of GDP.

In a statement Wednesday, the DBCC said that even with the projected rise of deficit, the country’s debt level “remains manageable, especially as the Philippines enjoyed its lowest-recorded debt-to-GDP ratio of 39.6 percent last year.”

Ricafort said the latest macroeconomic assumptions of the government for this and next year “look reasonable” but added average growth for the two-year period remains below the 6-percent average level registered from 2012-2019.

“Thus, (the) economy might not be back yet to normal/pre-Covid-19 levels by 2021,” he said, citing that a gradual or “u-shape” recovery may be achieved in about one to two years.

He said economic recovery primarily depends on the duration of the enhanced community quarantine (ECQ), how Covid-19 cases will be controlled or contained, and the successful development of a vaccine against the virus.

He added some economic recovery may occur in the second half of this year once the lockdowns are lifted or eased but confidence among the business sector and the public may take some time.

Ricafort, however, remains optimistic on the economy.

He said aside from the government’s fiscal leeway and low debt-to-GDP level, the country’s foreign reserve remains high, monetary policy remains effective, and the investment grade credit ratings remain intact.

The fiscal and monetary stimulus measures being implemented by the government to prevent the risk of recession and to partly help protect the country’s credit ratings are commendable, he added.

“Continuation of the fiscal reform measures and improvements in fiscal performance would be key to help sustain the country’s gains in its credit ratings especially after/beyond the Covid-19 issue, provided that relatively strong economic growth is likewise sustained,” Ricafort said.