Finance Secretary Carlos Dominguez III said Monday the game-changing reforms carried out by the government over the last five years have cemented the country’s overall macroeconomic stability–and indicate that “expectations have been met and the promises kept” by President Duterte since he assumed office in 2016.
These reforms, which the administration owe in large part to legislators who saw the need to pass them on time, had enabled the government to respond decisively to the global health and economic crises spawned by the protracted COVID-19 pandemic while ensuring the fiscal sustainability of these initiatives, Dominguez said.
Dominguez said that in both the economic growth and pandemic response periods of the Duterte administration, the government demonstrated great political resolve in pursuing and delivering on its socioeconomic reform agenda, armed with its policy of fiscal prudence that has enabled it to accelerate investments in infrastructure and social services in record levels.
Such fiscal discipline and prudent spending has allowed the government to later on source funds here and abroad for the massive emergency spending needed to quickly and effectively respond to the coronavirus-induced pandemic, he said.
“Amid the extraordinary challenge we continue to face, we will not waver in our commitment to ensure that our macroeconomic fundamentals remain strong. We want to make sure that we can face the future with a deep war chest. We will continue to demonstrate our firm resolve of maintaining fiscal prudence while revitalizing the economy,” Dominguez said during the virtual Sulong Pilipinas 2021: Partners for Progress forum of the Cabinet’s Economic Development and Infrastructure Clusters this morning.
The event is part of the series of Pre-State of the Nation Address (SONA) forums this year by Cabinet officials in the runup to the President’s SONA on July 26.
Dominguez said the Philippines’ direct response to the COVID-19 crisis has so far amounted to P2.76 trillion, equivalent to 15.4 percent of the country’s gross domestic product (GDP).
These responses included safety nets and stimulus measures under the Bayanihan to Heal As One Act (Bayanihan 1) and the Bayanihan to Recover As One Act (Bayanihan 2) to assist pandemic-hit families and businesses; strengthen the health sector to fight COVID-19 and ensure the safety of medical frontliners; and keep the economy afloat and support its quick recovery.
Dominguez said that instead of throwing money at the crisis, the government adopted the more prudent strategy of expanding lending to pandemic-hit enterprises by infusing more capital into government financial institutions (GFIs) for them to lend more money to productive sectors of the economy.
While securing adequate funding for COVID-19 response was a challenge, the Philippines’ historic low debt-to-GDP ratio kept its budget deficit within controlled and manageable levels, he said.
Complemented by high investment-grade credit ratings, this low debt-to-GDP ratio enabled the country to pull down its borrowing costs, as shown by the ratio of debt interest payments to revenue significantly dropping to only 11.5 percent in 2019 from 14.7 percent in 2015.
Also, the ratio of interest payments to expenditure dropped to 9.5 percent in 2019 from 13.9 percent before President Duterte assumed office.
“This means that more of our fiscal resources are being funneled towards meaningful and productive spending rather than debt servicing. This also indicates that our additional debt is being beneficial to our development agenda rather than being a burden to growth,” Dominguez said.
Dominguez said the unplanned expenditures for the COVID-19 response and the drop in revenues as a result of the stringent lockdowns to curb the spread of the lethal virus led to an increase in the debt-to-GDP ratio to 54.5 percent, but which is still well within the prescribed bounds of fiscal viability and the experience of the Philippines’ rating peers.
He said the government’s strong fiscal position and its feat of maintaining its high credit ratings throughout the COVID-19 crisis are among the notable achievements of the Duterte administration over the last five years.
“We accomplished much in consolidating our economic growth during the first period of this administration. We grew at an average rate of 6.6 percent—making the Philippines among the fastest-growing economies in Asia,” Dominguez said.
“The expectations have been met and the promises kept,” he added.
Dominguez said that among the promises kept and achievements done by the Duterte administration are the following:
· The passage of the Ease of Doing Business Act (EODB) and the National ID System that will bring the country closer to the goal of achieving e-governance;
· The Rice Tariffication Law (RTL) that was finally passed and implemented after more than 30 years of failed attempts under previous administrations. The law opened the Philippine rice market, lowered the price of the country’s staple for the benefit of more than 100 million Filipino consumers, and earmarked at least P10-billion for the Rice Competitiveness Enhancement Fund (RCEF) annually to help modernize the agriculture sector and increase farmers’ incomes. Since the law’s effectivity, the Bureau of Customs (BOC) has collected a total of P31.9 billion in rice import tariffs for the RCEF;
· The Tax Reform for Acceleration and Inclusion (TRAIN) law, which significantly reduced personal income taxes (PIT) for 99 percent of taxpayers, imposed excise taxes on sweetened drinks from which the government collects almost P100 million a day, mandated the implementation of the first-ever nationwide fuel marking program to curb oil smuggling, and raised P305 billion in incremental revenues during the first three years of this law’s implementation;
“I would like to point out, however, that the success of the tax reform measures cannot be attributed exclusively to current efforts. In fact, this is a logical continuation of the decades of reforms arduously passed by previous administrations,” Dominguez said;
The congressional approval of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), which is the largest fiscal stimulus for businesses in the country’s recent history. CREATE is estimated to provide private enterprises more than P1 trillion worth of tax relief over the next 10 years. Micro, small and medium enterprises (MSMEs) will be the biggest beneficiaries of CREATE through the grant of the largest ever corporate income tax rate reduction in the country, from 30 percent to 20 percent. The law introduces an enhanced incentives package that is performance-based, time-bound, targeted, and transparent.
The enactment of the Financial Institutions Strategic Transfer Act (FIST) to allow banks to efficiently offload their bad loans and non-performing assets during this economic downturn so that they can extend more credit to pandemic-hit enterprises.
· The increase in the excise taxes on “sin” products by three times within President Duterte’s term, which has resulted to collections averaging P200 billion annually from tobacco and alcohol products .
· These reforms improved funding for the Universal Health Care (UHC) Program, which is another landmark achievement of the Duterte administration;
· Ridding the domestic cigarette business of tax cheats, which led to the biggest tax settlement in the country’s history amounting to P30 billion;
· The aggressive digitalization efforts of the Bureaus of Internal Revenue (BIR) and of BOC, which enhanced the collection efficiency of these agencies;
· Instilling fiscal discipline among government-owned or controlled corporations (GOCCs) to increase their dividend remittances to an average of P57 billion annually, which is more than double the average yearly collection of the past administration;
· Raising the revenue effort from 15.1 percent in 2015 to 16.1 percent of GDP in 2019, which was the government’s best performance in more than two decades;
· Increasing spending for infrastructure from only about 2 percent of GDP during the previous four administrations to an average of 5 percent of GDP. Since President Duterte took office, the government has sealed 22 highly concessional loan agreements for its flagship infrastructure projects, including its most ambitious undertaking, which is the Metro Manila Subway project.
Dominguez said spending for infrastructure under the “Build, Build, Build” program, which is the President’s main strategy to help lift Filipinos out of poverty, is a “perfect example of productive spending” funded by borrowings that are beneficial rather than a burden to the economy and the people;
· Increased spending on human capital development, which includes housing, unconditional cash transfers for poor and low-income families, and free education at state universities and colleges (SUCs); and
· The establishment of the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM), and the sustained campaign against criminality, particularly against the illegal drug trade.
As a result of these reforms, Dominguez said the Philippines entered 2020 with the prospects of becoming an upper middle-income country, with its poverty rate falling to 16.7 percent in 2018 from 23.5 percent in 2015, and lifting six million Filipinos out of poverty.
The unemployment rate also dropped to a low of 4.5 percent by the end of 2019 from 6.3 percent in 2015, he noted.
Dominguez said that “clearly, we had realized better economic and social outcomes for the Filipino people,” until the once-in-a century pandemic of COVID-19 swept the globe and disrupted everything.
But even with this unprecedented crisis, Dominguez assured the Filipino people that the Duterte administration “will stay true to (its) promise of real change.”
“We will make sure that the programs we have pursued will be irreversible and form the foundation of an inclusive, sustainable, and investment-driven economy for the Filipino people,” Dominguez said.