A combination of tough bureaucratic and economic reforms, a long-due tax system overhaul and an unprecedented infrastructure buildup is guaranteed to enhance the country’s image as an investment haven at a time when advanced industrial economies are adjusting to their aging populations, according to Finance Secretary Carlos Dominguez III.
With President Duterte’s firm leadership and strong political will to push reforms to grow an inclusive economy, Dominguez told a gathering of economists there is “reason to be optimistic” that the government has what it takes to capitalize on the country’s “demographic dividend” in having among Asia’s youngest–and skilled–workforces.
Under the President’s leadership, he said the government is dramatically raising investments not only in infrastructure to sharpen the country’s global competitiveness, but also in education and skills training to spell jobs for millions of young Filipinos and thus avoid shutting them out of a domestic economy that is targeted to expand about 7 percent into the medium term.
“Achieving our goals requires firm leadership and the political will to see through the reforms. We are fortunate to have that in abundance,” said Dominguez in a speech read for him by Finance Undersecretary Gil Beltran at a recent forum.
“Because of that, there is reason to be optimistic about our economy’s sustained performance. The targets will be met; the goals will be achieved,” Dominguez added.
Led by its current president, Jose Camacho Jr., the PES gathers the Philippines’ best economic minds and aims to improve the standards of economic research and instruction in the country.
Dominguez said achieving a truly inclusive economy with a strong manufacturing base that would provide meaningful jobs for Filipinos is “not unreachable goal” but an “eminently achievable outcome of doing the practical things we need to do.”
In this practical to-do list is ensuring quality governance through a series of bureaucratic reforms that aim to curb corruption and adjustments in the economic policies, Dominguez said.
“Corruption and poor governance are a heavy lag on our growth. They create costs where there should be none. They penalize our consumers. They result in substandard public works. They create inefficiencies everywhere. If we want our economy to be competitive, we should reduce corruption by reinventing administrative processes. We need to build a world-class bureaucracy,” Dominguez said.
Along with such reforms, Dominguez said the Duterte administration is also pushing a comprehensive tax reform program that would make the current system fairer, simpler and more efficient so that the government can broaden the tax base and guarantee ad “robust and reliable” flow of revenues for its public investment program.
Tax reform in turn, will support the government’s massive “Build, Build, Build” infrastructure program that would provide the country the base for a “dynamic and competitive economy.”
“Combined with bureaucratic reforms and adjustments in our economic policy, tax reform and the infra program should enhance our investment attractiveness at about the time the advanced industrial economies adjust to their aging populations,” Dominguez said.
“We face what some have called a ‘demographic sweet spot’ or a ‘demographic dividend.’ In the coming years, we will have among the youngest workforces in Asia. We either suitably grow our economy or face the disillusionment of millions of young Filipinos shut out of an economy that could not provide them employment,” he said. “We win the demographic dividend only if we invest heavily in training our young.”
The finance chief said the Philippines also stands to benefit from the “supportive tailwind provided by economic regionalization,” which will be done via the envisioned ASEAN common market in 2022.
According to Dominguez, the Duterte administration came at an opportune time when a confluence of positive factors compel it to act decisively to ensure that Filipinos benefit the most from them.
Such positive elements include a low and manageable debt-to-GDP ratio made possible by the successive austerity programs and hard work of the previous administrations, a series of credit rating upgrades brought about by years of excellent fiscal management, the 15 years of continuous economic growth, low interest rates, and reasonable oil prices, Dominguez said.
“These factors will not be with us forever. We have to take advantage of them today,” he said.
“This is the conjuncture of opportunities and challenges that met the new administration when it took office. That conjuncture shapes the economic strategy of the Duterte administration,” he said.
Dominguez said the administration’s ultimate goal is to sustain GDP growth at about 7 percent well into the medium term in order to bring down poverty incidence to 14 percent by 2022 and elevate the country into a higher middle-income strata among the emerging economies.
“The only way we can suitably grow our economy is to make it investment-led. Our infra should be modernized to make production costs competitive with the rest of the region. Our policies could be made less hostile to investments by cutting down our negative lists and improving on the ease of doing business,” he said.
He said that, “Corruption and poor governance are a heavy lag on our growth. They create costs where there should be none. They penalize our consumers. They result in substandard public works. They create inefficiencies everywhere. If we want our economy to be competitive, we should reduce corruption by reinventing administrative processes. We need to build a world-class bureaucracy.”
For Dominguez, “The years of austerity had a disabling consequence. We underinvested in our infrastructure, spending only about half the portion of GDP compared to what our neighbors invested. As a result, the costs of moving people and goods through our archipelagic economy remained high. Power costs and reliability of supply was a disincentive. Our roads, ports and airports were congested. A choked economy cannot sustain growth.”
“Rapidly modernizing our infrastructure to take advantage of the beneficial trends requires huge investments. Our fiscal space must be enlarged. Public revenues must be both robust and reliable,” he said.