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The Philippines is set for more challenging times ahead as the Development Budget Coordination Committee (DBCC) now foresees a steeper 5.5% contraction of the economy in 2020.

DBCC adjusted its projection from the 2% to 3.4% decline projected last May as the COVID-19 crisis is expected to impact tourism, trade, and remittances all year long.

READ: Dire forecast for PH economy in 2020

The Philippine has fallen into technical recession with gross domestic product (GDP) plummeting 16.5% in the second quarter of 2020. This marks the country’s lowest recorded quarterly growth for almost 30 years as the months-long pandemic quarantines took their toll on the economy.

The potential impact of the pandemic on the economy could reach P2 trillion or about 9.4% of GDP this year, the National Economic and Development Authority (NEDA) estimates.

But the DBCC believes the country is on track for recovery next year, with GDP growth expected to reach 6.5% to 7.5% by 2021 to 2022, “as the national government continues its pump-priming activities.”

“The priority implementation of the Build, Build, Build infrastructure program and revitalization of the industry and services sectors are expected to lead the recovery,” DBCC said in a statement.

This projection, however, is lower than the 7.1% to 8.1% forecast last May.

The committee primarily reviews and approves the macroeconomic targets, revenue projections, borrowing level, aggregate budget level and expenditure priorities, and recommends to the Cabinet and the President the consolidated public sector financial position and the national government fiscal program.

Goods exports and imports are also anticipated to further contract this year, declining by 16% and 18%, respectively. This is a bigger drop than the earlier -4% and -5.5% respective growth assumptions, a consequence of the COVID-19 induced slowdown in global trade, the DBCC said.

But growth of exports of goods should still pick up to 5% while growth of goods imports will still reach 8% by 2021 to 2022, consistent with the expected pace of recovery in global and domestic demand in the following years, the committee said.

Estimated revenue collections for 2020 were reduced from the P2.61 trillion projected last May to P2.52 trillion, or 13.4% of GDP.

The decline is a result of the deeper contraction in real GDP growth and the P42 billion in estimated foregone revenues from the implementation of the proposed Corporate Recovery and Tax Incentives for Enterprises Act, DBCC said.

The bill seeks to reduce the corporate income tax rate from the current 30% to 25% to assist the struggling business sector and help micro, small, and medium enterprises retain their workers.

For 2021, revenues are projected to slightly recover to reach P2.72 trillion, or 13.2% of GDP. For 2022, revenues are estimated at P3.03 trillion, or 13.3% of GDP.

The proposed budget ceiling for next year is P4.506 trillion, equivalent to 21.4% of GDP. This is 9.9% higher than the P4.1 trillion general appropriations for this year.

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