Government mulls lowering 2021 growth target

MANILA, Philippines — Government economic managers are likely to cut their 2021 economic growth target to a range of six to seven percent from the original target of  6.5 to 7.5 percent due to the imposition of another strict lockdown in the metropolis and adjacent provinces amid the resurgence of COVID-19 infections, according to Bangko Sentral ng Pilipinas (BSP)Governor Benjamin Diokno.

In an interview with Bloomberg TV, Diokno said the two-week lockdown in the National Capital Region and nearby provinces (NCR Plus) would result in a 0.8-percentage-point cut in the GDP projection of the Development Budget Coordination Committee (DBCC).

Malacañang placed NCR Plus under enhanced community quarantine (ECQ) from March 29 to April 4 amid the resurgence of COVID-19 cases. The strict lockdown was extended by another week or until April 11 as infections breached the 820,000-level, with more than 14,000 deaths.

Diokno said Metro Manila and nearby provinces covered by the strict lockdown and quarantine measures account for more than half of the country’s total economic output.

“So my guess is that maybe the economy can still grow at around six to seven percent this year,” the BSP chief said.

Finance Secretary Carlos Dominguez sees the lockdown shaving off 0.5 percentage points while acting Socioeconomic Planning Secretary Karl Kendrick Chua sees a higher 0.8-percentage-point reduction from the target.

“The economic managers will meet this month to reassess where we are at the moment,” Diokno said.

The lowered forecast is in line with the revised 6.9 percent GDP growth projection set by the International Monetary Fund (IMF) for the Philippines in its April 2021 World Economic Outlook (WEO), higher than the previous 6.6 percent set in its January 2021 WEO.

The Philippines slipped into recession last year as the economy stalled when Luzon was first placed under ECQ in the middle of March last year. As a result, the country’s GDP shrank by a record 9.5 percent last year, ending 21 years of positive growth even if the economy was partially reopened when NCR and nearby provinces shifted to general community quarantine in June.

Diokno emphasized the need for fiscal stimulus coming from the national government.

“I think there is still a need for fiscal stimulus. We need to take care of the poor and the vulnerable who are affected by the lockdowns,” he said.

Diokno said the central bank has agreed to roll over the P540 billion non-interest bearing loan to the national government to finance the country’s COVID-19 response measures.

“We have acted on it, they have requested for a renewal. We feel that the national government needs this assistance from the BSP. We are fortunate that under the revised charter of the central bank of the Philippines, we are really allowed to lend to the government in extraordinary times,” he said.

Diokno said the BSP is likely to maintain an accommodative monetary policy stance despite the breach in its two to four percent inflation target to help the economy get back on its feet.

Inflation averaged 4.5 percent in the first three months of the year after easing to 4.5 percent in March from 4.7 percent in February, exceeding the central bank’s two to four percent target.

The BSP chief acknowledged that inflation is a little bit high this year, but would ease back to within the two to four percent target next year. The latest assessment of the Monetary Board sees inflation averaging 4.2 percent instead of four percent this year, and 2.8 percent instead of 2.7 percent next year.