Budget OK, vaccines to help lift economy

RCBC sees country’s GDP to grow 6-7% in 2021

The timely signing of the 2021 national budget and the widening distribution of coronavirus disease 2019 (Covid-19) vaccines would help the Philippine economy return to growth next year, according to the Rizal Commercial Banking Corp. (RCBC).

In a report late Tuesday, RCBC chief economist Michael Ricafort projected the country’s gross domestic product (GDP) to grow by 6 to 7 percent in 2021. He expects GDP to shrink by 9 to 10 percent this year.

Next year’s outlook falls below the government’s revised 6.5- to 7.5-percent growth forecast, and compares with the Asian Development Bank’s 6.5 percent, Nomura’s 6.8 percent, and DBS Group Research’s 7 percent.

It is lower than the Security Bank Corp.’s 7.1 percent, ANZ Research’s 8.1 percent, the Atram Group’s 10.9 percent, and Capital Economics’ 11 percent, but higher than Sun Life Philippines’ 4.5 percent and the World Bank’s 5.9 percent.

The “timely approval of the P4.5-trillion 2021 national budget [will] expedite government spending, especially on infrastructure, which is an important pillar of the economic recovery program,” Ricafort said, referring to President Rodrigo Duterte’s signing of Republic Act 11518, or the “2021 General Appropriations Act,” on Monday.

In next year’s outlay, the government allocated P1.1 trillion, or about 5.4 percent of GDP, for infrastructure projects. This is expected to generate about 1.7 million direct and indirect jobs.

Ricafort also said progress on the government’s priority reform measures would also help economic recovery. He identified these as the proposed Corporate Recovery and Tax Incentives for Enterprises (Create), Financial Institutions Strategic Transfer (FIST), and Government Financial Institutions Unified Initiative to Distressed Enterprises for Economic Recovery (Guide) laws.

Approved on third reading in the Senate on November 26, Create is the latest version of the Duterte administration’s Comprehensive Tax Reform Program.

It proposes cutting the country’s corporate income tax (CIT) rate from 30 percent to 20 percent for local businesses with a net taxable income equivalent to P5 million and below, and with total assets (excluding land) not exceeding P100 million; and to 25 percent for other corporations.

The measure also looks to modernize fiscal incentives by making them performance-based, targeted, time-bound and transparent.

FIST aims to encourage financial institutions to sell their nonperforming assets to asset management companies that specialize in resolving distressed assets by providing fiscal incentives. Both the Senate and House of Representatives ratified a bicameral conference committee report on it in mid-December.

Guide proposes measures to strengthen the capacity of state financial institutions in providing funds to micro, small, and medium enterprises, and other strategically important companies. Both houses of Congress have separate versions of this bill, which remain pending.

Vaccine deployment

Ricafort said the development and deployment of Covid-19 vaccines worldwide would not only reduce new infections, but also boost recovery prospects and increase businesses’ operating capacity.

One possible growth driver, he added, is the continued reduction in “banks’ reserve requirement ratio (RRR) from the current 12 percent to help further lower borrowing costs.”
According to him, risks to the growth outlook include the still-high number of Covid-19 cases in the United States and the coronavirus mutating further, which could complicate vaccination efforts.

The number of Covid-19 cases worldwide rose to almost 8.2 million, of which more than 1.7 million are in the US, according to the latest Johns Hopkins University tally. And a new strain of the coronavirus that first emerged in the United Kingdom has now reached at least 20 countries and territories.

This comes are more countries begin their vaccination drives using doses developed by pharmaceutical giant Pfizer and its German partner BioNTech, and British drugmaker AstraZeneca.

The RCBC economist also forecast the country’s headline inflation to reach 2.5 or 2.6 percent in 2020 and settle within 2.8 to 3.3 percent in 2021.