ING Bank Manila senior economist Nicholas Mapa
MANILA – An economist of ING Bank Manila is keeping his 9.9-percent contraction forecast for the Philippine economy this year on expectations economic managers will reign in spending to “protect fiscal targets”.
This projection is higher than the government’s 5.5-percent economic contraction target for this year on account of the pandemic.
“Despite a bounce in most economic indicators from the lows in April, we continue to expect the Philippine economy to remain in recession for at least the balance of 2020 as consumption and capital formation remain sidelined by double digit unemployment and as Covid-19 new daily infections keep consumers indoors,” ING Bank Manila senior economist Nicholas Mapa said in a report.
Mapa said government spending, which “was the main driver of GDP (gross domestic product) in 2Q (second quarter), will likely ease in the second half of the year as government officials pull back on spending to protect fiscal targets.”
Growth, as measured by GDP, contracted by 16.5 percent in the second quarter this year in line with the imposition of the enhanced community quarantine (ECQ) from middle of March to end of April for Luzon, and until end-May for the National Capital Region (NCR).
The movement restrictions only allowed people from select sectors like medical workers and those involved in food business, among others, to go out of their houses thus, hampered economic activities in Luzon, which accounts for about 70 percent of the country’s annual output.
To address this, the government increased spending, especially for social protection programs, to address the quarantine’s impact on the economy and the vulnerable sectors like the poor and the small businesses.
Government spending last April rose 108.14 percent year-on-year to PHP461.7 billion. It rose by 12.38 percent last May, 26.65 percent last June, 10.40 percent last July, and 0.38 percent last August.
Economic managers said the ratio of budget deficit to GDP could hit as high as -9.3 percent of this year’s domestic output.
“With four months left in the year, the budget deficit to GDP ratio stands at 3.9 percent of GDP and we expect this ratio to close below 4 percent before year end as revenue collections improve while (the) government keeps a lid on spending,” he added.
Data from the Bureau of the Treasury (BTr) released Wednesday showed that revenues for August contracted by 13.05 percent to PHP243.2 billion, while expenditures rose by 0.38 percent to PHP282.3 billion.
This resulted in the rise of the budget gap by 1,510.61 percent to PHP40.1 billion.
As of end-August 2020, revenues posted an annual decline of 7.67 percent to PHP1.931 trillion, while expenditures rose by 20.79 percent and budget deficit by 515.03 percent to PHP740.7 billion.
Economic managers’ revised revenue target for this year is PHP2.52 trillion, while the spending target is PHP4.34 trillion.
Budget gap target for this year until 2022 is about 8.4 to 9.6 percent of GDP. (PNA)
