Remarks before the
PH-US Society Business Forum
February 19, 2018
(Greetings)
Thank you for inviting me to this important business forum.
The partnership between American and Filipino businesses has been long-standing. It is a strong and vital partnership framed by the deep friendship between our two societies.
Today is a very important time for the Philippine economy. We are on the cusp of rapid expansion and ready to evolve our economy towards investments-led growth. The Philippines is now the third fastest growing economy in the Asia-Pacific region. With the strong support from our old friends, our growth prospects could even be better and more sustainable in the coming years.
For 2017, the Philippine economy grew at a rate of 6.7% — just a shade behind China’s 6.9% and Vietnam’s 6.8%. With increased investment flows, tax reform and massive investments in modernizing our infrastructure, we will definitely do better this year and the next.
The rapid economic expansion is not an aberration. It caps 76 consecutive quarters spanning 19 years of uninterrupted expansion. Over the past 11 quarters, we have maintained a growth rate of 6% or better. We have come a long way from being called “The Sick Man of Asia” to becoming “Asia’s Rising Star” for investments. We intend to perform even better as an engine of growth for this part of the world.
Growth in the last quarter of the past year was fueled by 14.3% increase in public spending. Apart from economic investments, government spending was directed at improving access to education and health as well as rehabilitation assistance for victims of calamities.
The growth in our exports likewise expanded significantly over the previous year. The growth on our supply side meanwhile indicates a broadening base for the economy. The industrial sector led other economic sectors, growing by 7.3%. Improved investment inflows ensure growth in this sector that provides jobs and multiplies opportunities.
Traditionally, the main growth driver–services–expanded by 6.8%. Our agricultural sector grew by 2.4% in the fourth quarter compared to the -1.3% decline for the same period of the preceding year.
All these numbers indicate the economy is gathering steam. We are confident the revenue reforms, sustained fiscal discipline, better spending efficiency and massive investments in infrastructure will enable us to escalate growth to between 7% and 8% in the near term. Growth at that pace will enable our economy to bring down poverty incidence from 21.6% in 2015 to just 14% in 2022.
Our inflation rate did increase slightly. We estimate that it will remain between the 2% to 4% threshold set by our monetary authorities. The recent uptick in inflation is largely due to the spike in international oil prices as well as — this is really very strange — the efficiency of the Bureau of Internal Revenue in tax collections.
With the recent series of upgrades in our credit ratings, investor sentiment on the Philippine outlook significantly improved. New Foreign Direct Investment (FDI) inflows increased 20.1% in the first 11 months of 2017 to 8.7 billion US Dollars. That is much better than the projected 8 billion US Dollars for the whole year. The sustained FDI inflows reflected investor confidence given the Philippine economy’s solid macroeconomic fundamentals and growth prospects.
The country’s external sector remains a pillar of strength for the Philippine economy. It has helped shield the economy and the domestic financial markets amid recent financial market volatilities. Our healthy external payments position, marked by adequate foreign exchange reserves, declining external debt ratio and backed by sustained flows of remittances and revenues from Business Process Outsourcing (BPO) industry give investors comfort about the Philippines’ resilience to future external shocks. The growth of our tourism sector also exceeded expectations. We are looking to exceeding last year’s 6.6 million tourist arrivals by a significant number with larger inflows from China.
The Philippine economy arrived at this promising position through many years of hard work and tough reforms. We worked down our debt to the present manageable level by fully accepting recommendations for structural reforms. Our debt-to-GDP ratio climbed down from 68.5% in 2005 to only 42.1% in 2017. We improved our tax effort over the years. We maintained strict budgetary discipline.
Fiscal discipline brought us to the cusp of the rapid growth. We intend to maintain that discipline long into the future, protecting our economy from financial uncertainties. Our banking system exceeds international prudential standards. Our Non-performing loans (NPL) ratio is less than 2%. Our banks maintain capital adequacy ratio far above regulatory requirements.
With the fiscal space produced by many years of prudent management, we are now ready to spend a bigger portion of our GDP in infrastructure investments. After many years of holding back, we are now ready to spend more than our neighbors for better infra to support our economic growth. Infrastructure investments will likewise act as the stimulus for greater economic activity.
The infrastructure program is helped immensely by the passage of the tax reform measures. This is the first time a Filipino government embarked on tax reforms absent a compelling crisis. This allows for the phased introduction of reforms and careful study of revenue measures. From this year onwards, we expect our tax effort to be significantly better than the regional benchmark.
In the short to medium term, we are allocating 70% of the new revenues to fund the infra program while 30% will go to social services. As a policy, 75% of our borrowing will be sourced from the domestic market. This will help us better use domestic liquidity and reduce foreign currency exchange risks.
Over the next few months, we expect to get the succeeding packages of the tax reform program through legislation. The forthcoming reform measures, which include reductions in the corporate income tax rate, will ensure our tax system is fairer, simpler and more efficient. The reduction in the corporate tax rate will be balanced with the modernization of the incentives that produced a business environment that is not level and certainly wanting in transparency.
The Build, Build, Build infrastructure program, for its part, centers on 75 big-ticket projects. In the first 11 months of 2017, infra spending increased by 11.8% over the same period in the preceding year. This year, 25.4% of the national budget, equivalent to 6.3% of GDP will be invested in the infra program. Compare this with less than 3% in the past. By 2022, at the end of this administration’s term, we expect [infra] spending to be 7.3% of GDP. This will create jobs and opportunities for the young Filipinos entering the workforce. This strategy comes at the precise moment we hit what is called a “demographic sweet spot” that will require a much larger economy in the medium term.
With reforms in other areas, such as drastically reducing red tape and cutting the Foreign Investments Negative List (FINL), we expect the dawn of a truly competitive economy for our country. Our people are fully supportive of the reforms as evidenced by the record approval ratings for the President’s performance.
I hope you will look at the business opportunities with this context in mind. I invite you to be part of Asia’s next economic powerhouse.
Thank you and good day.
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