alignment in the economy

11.17.2008/BSP The Philippine Government has adjusted the country’s growth targets for this year and next following a continuing and careful assessment by the Cabinet-level Development Budget Coordination Committee (DBCC) of the possible effects of adverse global developments on the domestic economy. “Given the extreme volatility in the global economy, we are taking a very conservative stance in our economic projections and, because of this, we have chosen to align our growth targets with recent external developments that may generate knock-on impact on our overall economic activity,” DBCC Chairman and Budget Secretary Rolando Andaya said. In doing this, the DBCC changed this year’s target GDP growth range to between 4.1-4.8% from the previous 5.5-6.4% range submitted to Congress in August. The DBCC also considered global economic data regarding projections for 2009 and revised the GDP growth target for next year to between 3.7-4.7% from the previous 6.1- 7.1% range, which was made before the severe unwinding of the global financial crisis. These targets are a downward adjustment from the initial adjustments made in September. “Against a backdrop of recession expected in some of the world’s largest markets, we have to be realistic with our expectations for our economy now and in the coming year. Having said that, what we are projecting is a respectable level of growth that has been made possible by the economic reforms that our government has instituted in recent years. Those reforms have helped to make our economy more diversified and more resilient than before,” Secretary Andaya added. National Economic and Development Authority (NEDA) Director General Ralph Recto said that the Philippine economy expects to benefit from the increase in government spending on agriculture and infrastructure. “We also see bright spots in areas such as halal exports, telecommunications, real estate, utilities, and the very successful BPO industry that is already expanding as companies around the world seek more cost-effective outsourcing alternatives,” he said. Finance Secretary Gary Teves said that the adjustments in the growth targets will result in a small reduction in government revenues and a slight increase in expenditures arising from higher interest payments but he agreed that the conservative approach to projecting GDP growth is prudent during this period of global economic uncertainty. With the change in the growth target, the government revised the 2009 programmed budget deficit to P102 billion from P75 billion this year. Secretary Teves said much of this deficit increase is due largely to “the need for additional government capital outlay to take up the expected slack in private investments.” Secretary Teves added that while the Government has had to make minor adjustments to its fiscal program in view of continued challenges in the global economy, “our commitment to fiscal reform and deficit reduction remains unchanged and we will continue to strike the appropriate balance in meeting these objectives in a way that will address the real needs of our people and at the same time maintain fiscal discipline.” In line with the revisions on GDP growth and fiscal program, the DBCC has also revisited other key macroeconomic indicators. Export growth has been revised from 5% to between 2-4% in 2008 and from 7% to 1-3% in 2009 while imports growth is expected to grow between 10-12% in 2008, which is largely consistent with the original forecast of 10%. Imports are forecast to grow between 4-6% in 2009, a revision from the original projection of 10%. The forecast for the average Peso/USD exchange rate for 2008 remains unchanged at P42-45 while for 2009, the DBCC’s earlier forecast of P42-45 has been revised to P45-48. Inflation forecasts also remain largely unchanged at 9-11% for this year and 6-8% in 2009 as global oil and food prices have started to decline. Commenting on the change in the projection for the Philippine economy, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo noted that such is broadly consistent with the projection of the International Monetary Fund (IMF) which showed a lower world growth forecast of 2.2% in 2009 from 3%. For the ASEAN region, the IMF is now projecting a growth rate of 4.2% for 2009. Secretary Andaya said that the DBCC and the other members of the Economic Team will continue to closely watch the global economic situation to ensure that the country’s macroeconomic assumptions and targets are attuned with external developments.