Philippine Economy Maintains Growth Momentum Amid Challenges

By Francis Allan L. Angelo

The Development Budget Coordination Committee (DBCC) has revised the Philippine government’s medium-term macroeconomic assumptions and fiscal program for fiscal years 2024 to 2028, highlighting strong economic growth, low inflation, and a commitment to structural reforms.

The adjustments reflect evolving domestic and global conditions and are aimed at sustaining the Philippines’ position as one of Asia’s fastest-growing economies.

Composition and Functions of the DBCC

The DBCC is a key inter-agency body tasked with ensuring the alignment of fiscal policies with the government’s development agenda. It is composed of the following members:

• Secretary of the Department of Budget and Management (DBM) – Serves as the chairperson and is responsible for formulating and implementing budgetary policies.
• Secretary of the Department of Finance (DOF) – Acts as co-chair and oversees fiscal policies, revenue collection, and government expenditures.
• Director General of the National Economic and Development Authority (NEDA) – Provides guidance on macroeconomic targets and development priorities.
• Governor of the Bangko Sentral ng Pilipinas (BSP) – Advises on monetary policies and financial stability, ensuring alignment with fiscal goals.

The DBCC performs several critical functions:

• Sets annual economic growth targets and fiscal indicators such as revenues, expenditures, and budget deficits.
• Determines macroeconomic assumptions, including inflation rates, foreign exchange rates, and oil prices, which underpin the national budget.
• Monitors fiscal performance and ensures budget allocations align with the Philippine Development Plan (PDP).
• Coordinates strategies to enhance revenue generation and fiscal discipline while addressing emerging economic challenges.

These coordinated efforts ensure that government resources are efficiently allocated to support sustainable economic growth and social development.

Economic Growth Projections

The Philippine economy expanded by 5.8 percent in the first three quarters of 2024, outperforming regional peers like Malaysia (5.2 percent), Indonesia (5.0 percent), China (4.8 percent), and Singapore (3.8 percent). Despite domestic challenges, the DBCC remains confident in achieving the year-end growth target of 6.0 to 6.5 percent.

“Our optimism is buoyed by increased holiday spending, disaster recovery efforts, low inflation, and a strong labor market,” the DBCC stated. For 2025 to 2028, growth projections have been set at a broader range of 6.0 to 8.0 percent, reflecting anticipated structural reforms and fluctuating global conditions.

Key reforms under the PDP 2023–2028 will play a crucial role in driving growth. These include infrastructure investments, improved ease of doing business, and enhanced national competitiveness. The impending implementation of Republic Act No. 12066, also known as the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE), is expected to attract foreign investment and further stimulate economic activity.

Inflation and Macroeconomic Assumptions

Indicator	2024	2025	2026-2028
Inflation (%)	3.1 – 3.3	2.0 – 4.0	2.0 – 4.0
Dubai Crude Oil (USD/bbl)	78 – 81	60 – 80	60 – 80
Foreign Exchange Rate (Php/USD)	57.00 – 57.50	56 – 58	55 – 58
Goods Exports growth, BPM6 (%)	4.0	6.0	6.0
Goods Imports growth, BPM6 (%)	2.0	5.0	8.0

 

Inflation has remained within target, averaging 3.3 percent for the first ten months of 2024, significantly lower than the previous year’s 6.0 percent. Government initiatives such as reducing rice import tariffs and boosting agricultural production have contributed to price stability. For 2024, inflation is expected to average between 3.1 and 3.3 percent and is projected to stabilize at 2.0 to 4.0 percent for 2025 to 2028.

Energy prices are also projected to decline over the medium term. Dubai crude oil prices for 2024 have been adjusted to USD 78 to 81 per barrel, with expectations of USD 60 to 80 per barrel from 2025 to 2028 due to improved global production.

The Philippine peso is expected to remain stable at PHP 57.00 to PHP 57.50 per USD in 2024, supported by robust remittances, recovery in travel services, and a thriving business process outsourcing (BPO) sector. This stability is projected to continue with exchange rates ranging from PHP 55.00 to PHP 58.00 from 2026 to 2028.

Trade and Fiscal Consolidation

(in billion pesos)

PARTICULARS	2024	2025	2026	2027	2028
	Full-Year Outlook	Projections	Projections	Projections	Projections
Revenues	4,382.7	4,644.4	5,063.2	5,627.5	6,249.6
% of GDP	16.5%	16.2%	16.2%	16.6%	17.0%
Disbursements	5,907.5	6,182.1	6,540.1	7,027.0	7,621.5
% of GDP	22.3%	21.5%	20.9%	20.7%	20.7%
Deficit	(1,524.8)	(1,537.7)	(1,476.8)	(1,399.5)	(1,371.9)
% of GDP	-5.7%	-5.3%	-4.7%	-4.1%	-3.7%

 

The DBCC revised its growth forecast for goods exports to 4.0 percent in 2024, citing a slowdown in export revenues and a weaker outlook for the semiconductor industry. Meanwhile, goods imports are expected to grow by 2.0 percent, reflecting sustained domestic consumption.

On the fiscal front, revenue collections from January to October 2024 reached PHP 3.77 trillion, a 16.8 percent increase year-on-year. By year-end, revenues are projected to hit PHP 4.383 trillion, or 16.5 percent of GDP. Medium-term revenue growth is expected to remain steady, reaching PHP 6.250 trillion (17.0 percent of GDP) by 2028, aided by measures such as the VAT on Digital Services Act and enhanced tax digitalization efforts.

Government disbursements, a major driver of economic growth, are forecasted at PHP 5.908 trillion (22.3 percent of GDP) for 2024. Over the medium term, annual disbursements are expected to average 21 percent of GDP, reaching PHP 7.622 trillion by 2028. Infrastructure spending will be maintained at 5.0 to 6.0 percent of GDP annually, complemented by investments in human capital and transformative programs aligned with the PDP.

Deficit Reduction and Credit Ratings

The DBCC aims to reduce the fiscal deficit from 5.7 percent of GDP in 2024 to 3.7 percent in 2028. The country’s fiscal discipline has been recognized internationally, with S&P Global upgrading the Philippines’ credit rating outlook to “positive” and affirming high ratings from other agencies. This improved standing will allow the government to access cheaper financing for growth-enhancing projects.

“Our fiscal consolidation strategies are focused on balancing deficit reduction with strategic investments that create jobs, raise incomes, and reduce poverty,” the DBCC emphasized.

Legislative Reforms and Structural Changes

Structural reforms such as CREATE MORE and tax reforms are central to the government’s economic strategy. These initiatives are designed to enhance the competitiveness of domestic businesses and attract foreign direct investment, driving sustained economic growth.

Moreover, the government’s ongoing digitalization efforts in tax administration are expected to streamline revenue collection and enhance efficiency. These reforms will be pivotal in achieving long-term fiscal stability and economic resilience.

Challenges and Outlook

The government remains cautious about potential risks, including global economic uncertainties and domestic issues like disaster recovery and infrastructure gaps. However, the DBCC is confident that its proactive measures and policy reforms will mitigate these challenges.

“Despite headwinds, the Philippines is well-positioned to achieve its medium-term economic goals through a combination of sound fiscal management, strategic investments, and structural reforms,” the DBCC concluded.

The revisions to the fiscal and macroeconomic assumptions reflect the government’s commitment to navigating global uncertainties while fostering a resilient and inclusive economy. With a strong foundation in place, the Philippines is poised for sustained growth and improved living standards in the years to come.