The Duterte government now expects the Philippine economy to contract by 2 to 3.4 percent this year, with the Covid-19 pandemic estimated to slash gross domestic product (GDP) by a whopping P2 trillion.

In a statement, the Development Budget Coordination Committee (DBCC), an interagency body tasked to set the government’s macroeconomic and budget assumptions, also said economic recovery was expected next year with GDP expanding by 7.1 to 8.1 percent.

“These adjustments reflect the Duterte administration’s priorities of saving lives and protecting communities, while providing support to vulnerable groups and stimulating the economy to create jobs and support growth,” it said.

“These revised assumptions will also allow the government to operate with a more realistic and prudent fiscal stance as it flags the downside risks to the economy and the fiscal program for the rest of the year,” it added.

The DBCC also revised the revenue collection assumption to P2.61 trillion or 13.6 percent of GDP, 17.7 percent lower than the P3.17-trillion program approved on March 27, 2020.

Lockdowns imposed mid-March to stem the pandemic have frozen the economy and severely reduced tax collections. GDP contracted by 0.2 percent in the first quarter for the first time since 1998

READ: Locked-down Philippine economy contracts by 0.2 percent in Q1

Disbursements were estimated at P4.18 trillion, or 21.7 percent of GDP, higher by P12 billion from the original program.

“The emerging disbursement program takes into account the releases for Covid-19 initiatives charged to savings coming from austerity measures, among others,” the DBCC said.

As a result, the budget deficit is expected to balloon to a record P1.56 trillion, or 8.1 percent of GDP.

“The DBCC maintains that the debt level remains manageable, especially as the Philippines enjoyed its lowest-recorded debt-to-GDP ratio of 39.6 percent last year,” the interagency body said.

The “deterioration” in the country’s fiscal outlook had led Fitch Ratings to revise its outlook on Philippine sovereign debt to “stable” from “positive.” Moody’s also retained its stable outlook on Tuesday, citing the Covid-19 risk.

“Fitch expects the authorities to finance the higher deficits through a combination of domestic and external financing,” the ratings agency said on May 7.(