Dominguez says balanced pandemic response to drive economy back to rapid growth
Finance Secretary Carlos Dominguez III said Tuesday the government’s strategy of balancing the exigencies of economic concerns and the health requirements of its COVID-19 response measures will drive the Philippines back to its pre-pandemic path of rapid economic growth. The better-than-expected performance of the Philippine economy, which grew 11.8 percent in the second quarter over the same period last year, demonstrates the clear results of this balancing strategy, he said..
Despite this generally positive economic outlook, Dominguez said both poverty and unemployment remain the primary concerns of the Duterte administration, which is why it plans to continue investing in the Philippines’ young and skilled workforce–one of the country’s strongest assets that will sustain demand and create the wealth for the national economy.
The government is also improving revenue generation through digitalization; increasing public spending on infrastructure, health care and other social services; and consistently exercising fiscal responsibility by keeping the budget deficit and debt-t0-GDP (gross domestic product) ratio within manageable levels to “blaze a clearer path to recovery,” Dominguez told over 300 Japanese business leaders who took part in the virtual Philippines’ Economic Briefing hosted by the Sumitomo Mitsui Banking Corporation (SMBC).
President Duterte also intends to rapidly modernize governance, continue with market-friendly reforms that are attractive to investors, and intensify the government’s climate change actions during the remaining period of his term, Dominguez said.
He invited Japanese investors to take a closer look at the Philippine economy “and take part in its strong resurgence this year and beyond.”
“In the second quarter of 2021, our economy grew by 11.8 percent over the same period last year. This is the best quarterly performance in more than 30 years,” Dominguez said in his keynote speech during the virtual forum.
“This strong rebound is driven by more than just base effects. This is the result of a better balance between meeting the exigencies of economic concerns and the health requirements of our COVID-19 response. This underscores the strong capacity of the Philippine economy to return to the path of rapid expansion,” Dominguez added.
Dominguez said the Duterte administration already has a plan in place for the government’s fiscal consolidation efforts in 2022 to assist the next administration in addressing possible fiscal and economic risks.
To ensure a legacy of a “dynamic and market-driven economy for the Filipino people,” Dominguez said that in the remainder of its term, the Duterte administration will push to further deepen the Philippine capital markets by building a sustainable corporate pension system; and seek amendments to the Foreign Investments Act (FIA), Public Service Act (PSA) and Retail Trade Liberalization Act (RTLA) to bring dynamism to the economy, spur more innovation, better products and services, and jobs.
It will also sustain its climate actions by eyeing a clean energy plan for Mindanao and asking the Congress to pass a law banning single-use plastics; and maintain the pace of the “Build, Build, Build” program by spending above 5 percent of GDP on infrastructure until the end of its term, Dominguez said.
The Duterte administration is likewise committed, he said, to pursuing the remaining packages of its Comprehensive Tax Reform Program (CTRP), which aim to improve the real property valuation system and reform the taxation on passive income as well as financial intermediaries.
Dominguez said “there is much economic energy waiting to be unleashed in the coming period,” with the Philippines’ recovery getting a boost from the implementation of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law.
With almost 220 billion yen (about P100 billion) worth of tax relief to be granted to enterprises annually in the form of lower corporate income tax (CIT) rates, CREATE is the largest economic stimulus program for businesses in recent history, he said.
“In recent press releases of publicly listed companies, they always mention that CREATE helped them maintain or increase their profitability and their ability to cope with the pandemic,” Dominguez said.
Besides significantly lowering the CIT, CREATE also enables the Philippines to attract high-value investments by incentivizing industries that will introduce new technologies and innovations, and create more jobs through a rationalized fiscal incentives system.
Dominguez also cited the implementation of reduced personal income taxes (PIT) for 99 percent of Filipino taxpayers starting in 2018 under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, as another key intervention on top of CREATE that “will bring better business conditions in the near term.”
“Even as we intend to harness the trapped economic energy to produce rapid growth, we need to ensure that fiscal responsibility is constantly observed. We must be prepared to fight a long battle by conserving our resources well,” he said.
To strengthen the people’s defenses against the pandemic and pave the way for the economy’s reopening, Dominguez said the government has been beefing up its COVID-19 vaccination program, with 15.3 million Filipinos as of September 6 having been fully inoculated against the virus.
“So far, the Philippines’ vaccination program is in the right direction. We have been receiving a steady supply of vaccines from multiple sources and have been vaccinating our people apace,” he said.
Dominguez thanked the Japanese people who, through the government of Japan, donated more than 1 million doses of AstraZeneca vaccines to the Philippines last July 8.
The 142 million doses of vaccines that will be added to the current stock of 52.8 million received so far by the Philippines are expected to be delivered by pharmaceutical companies by the end of this year, Dominguez said.
With the goal of taking out the pandemic as a determinant of how the economy performs, Dominguez said the government will continue building up the public healthcare system and improving the tracking, tracing and treatment methods to withstand any possible surge in COVID-19 infections.
He pointed out that the Philippines came fully prepared to meet the pandemic head on, given its strong fiscal position that is buttressed by its tax reforms and better tax administration.
This strong fiscal standing is supported by the Philippines’ highest ever revenue effort of 16.1 percent in 2019 from 15.1 percent in 2015, when the Duterte administration took office. Despite the pandemic, revenue effort remained high at 15.9 percent of GDP in 2020.
Prudent fiscal management, appropriate economic investments and improved revenue collection also brought the country to the highest credit ratings it has ever achieved, which has proven useful when the government had to borrow more to support the country’s increased health and economic requirements arising from the pandemic, Dominguez said.
While its debt-to-GDP ratio rose to 54.6 percent in 2020 owing to its unplanned spending spawned by the pandemic, the Philippines is still in a better position than other countries because it entered that year with a historic low ratio of 39.6 percent, while others were already struggling at 60 percent.
The Philippines’ debt-to-GDP ratio will begin its downward path in 2023, Dominguez said.
Dominguez said he expects tax revenues to reach the pre-pandemic level of JPY 7.3 trillion (P3.3 trillion) or equivalent to 15 percent of the Philippines’ GDP in 2022, and JPY 9 trillion (P4.1 trillion) in 2024.
Public spending is expected to rise to about JPY 11 trillion (P5 trillion) or 22 percent of the Philippines’ GDP in 2022 to largely fund investments in infrastructure, healthcare and other social services, including the procurement of COVID-19 booster shots.
Starting in 2022, he said revenues are projected to exceed the growth in expenditures, which will translate into a narrowing budget deficit of 7.5 percent of GDP by 2022, from 9.3 percent in 2021.
This will further settle at 4.9 percent by 2024, Dominguez said.
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