President Asakawa of the Asian Development Bank; distinguished guests; ladies and gentlemen: Good morning.
Thank you for the opportunity to address this symposium. Today, more than ever, we need to intensify collaboration as the world reemerges from a truly debilitating pandemic.
In this reemergence, we need to redefine the challenges that confront our societies. The world is never going to return to pre-pandemic conditions. We have become more aware that the harrowing public health crisis we have gone through will not be the last. We must be better prepared to deal with future outbreaks.
Despite supply challenges, most of the countries–including the Philippines–have begun rolling out their vaccination programs. The availability of these life saving doses inspired market optimism. There is a sense that the worst is over and our economies can be fully functional in a matter of months.
The availability of vaccines, however, should not lead us to neglect equally urgent concerns. We still need to do the tough things we must undertake to cope with the severe weather conditions induced by global warming or with the possible emergence of new viruses.
Let me share with you some aspects of the Philippine experience as a contribution to this discussion.
No one was prepared for this pandemic. But the Duterte administration did not shirk from its responsibility to protect its citizens. We quickly took stock of the situation and responded with everything we had.
Our financial readiness gave us the confidence to do what was necessary to save our people and keep the economy afloat.
In the years preceding, the Philippines has been disciplined and is reinforcing its fiscal position. When President Duterte took office in 2016, we had started building up our finances to support our aggressive Build, Build, Build infrastructure program. This has been our main strategy to help lift Filipinos out of poverty.
To sustainably fund our massive infrastructure modernization and other priority projects, we introduced a comprehensive tax reform program that aims to make our tax system fairer, simpler, and more efficient. We started by reducing the personal income tax rates for 99 percent of our taxpayers followed by a series of sin tax measures.
The Duterte government is the only administration in the Philippine history to impose taxes on sugary drinks and electronic cigarettes. It is also the only administration that increased excise taxes on sin products three times within one presidential term. The revenues raised from these measures helped us sustainably fund our Universal Health Care program.
We also improved our tax administration by introducing a nationwide fuel marking program and various information and communications technology projects to make tax compliance more convenient and accessible to our taxpayers.
President Duterte’s policy of fiscal prudence and his push for tax reforms enabled us to boost our revenue collections to levels we have not seen in more than two decades. We also reduced our debt load to a historic low. It is through these game-changing reforms that we faced the pandemic with strength on the fiscal front.
When COVID-19 struck, our strong fiscal position gave us the headroom needed to reallocate budget items and quickly access emergency financing to fight the pandemic. Our good macroeconomic fundamentals have inspired the trust of our global investors and development partners who continue to lend to us at concessional rates and favorable terms.
We were able to rapidly deliver emergency cash grants to low-income families and wage subsidies to workers in small businesses. We quickly extended various forms of assistance to our enterprises.
We expanded medical resources to fight COVID-19 and ensured the safety of our frontline health workers. We purchased test kits, protective equipment, and vaccines.
Our economic stimulus measures were among the largest this country has had. However, we took into account what we can spend quickly and effectively.
Meanwhile, both the Department of Finance and the Bangko Sentral ng Pilipinas were in sync in ensuring that fiscal and monetary actions were undertaken to keep the economy afloat and support recovery initiatives.
From a fiscal standpoint, the health crisis and the economic contraction it precipitated posed a most difficult challenge. The crisis meant additional unplanned spending. The economic downturn meant a reduction in revenue flows to the government. Despite all these, we did not abandon the judicious financial management set by President Duterte when he assumed office.
Our strong financial position allowed us to afford a responsible level of deficit spending to cover our COVID-19 response. Although we undertook emergency borrowing to support our budget deficit, our debt load remained within a sustainable threshold.
Our sustained effort at fiscal consolidation was recognized through a series of credit rating affirmations amid the wave of negative rating outlooks and downgrades worldwide.
Through the darkest times of the pandemic last year, we were never under the illusion that this challenge would be short. We were prepared to fight a long battle, exercising prudence over the use of our fiscal resources. The worst we could have done was to run out of water before the fire went out.
We could, for instance, be administering vaccines for years until the virus becomes extinct. This is precisely the reason why we are committed to maintain fiscal prudence even as we try to stimulate the economy.
The COVID-19 crisis, however, also unveiled our weaknesses. Without a national ID system in place, the distribution of direct cash grants for low-income families was messy and delayed. The experience emphasized the need for us to accelerate the rollout of our unified national ID database.
Nevertheless, we were able to quickly adapt to the challenging circumstances by embracing a digital-first mindset. The Department of Finance, together with the Social Security System and the Bureau of Internal Revenue, immediately developed an automated and digitally-enabled Small Business Wage Subsidy Program.
Taking advantage of available technologies and electronic databases, we were able to accurately target intended beneficiaries. We quickly distributed the wage subsidies to millions of workers with zero face-to-face contact with government employees.
The workers started receiving their subsidies a day before the announced schedule of payouts through their banks or electronic wallet accounts, or sent to remittance centers for cash pick up.
We have seen that this method of distributing aid is faster and less prone to corruption and leakage than programs that rely on manual processing. It has become the model for future subsidy programs to follow.
Our experience during this pandemic also underscores the importance of rapidly upgrading our digital financial transaction systems. Cashless payments zoomed over the past few months. Fortunately, our revenue collections system was also well into the process of digitization.
Along with continued improvements in tax administration, the ongoing digital reforms of our revenue agencies proved to be an advantage. Last year, we collected most of our revenues through electronic means. Despite the challenging circumstances, the digitization efforts enabled our revenue agencies to overshoot their respective adjusted collection targets in 2020.
Moving forward, we seek to rapidly improve our information and communications technology infrastructure as well as human resources to be at the cutting edge in the application of new technologies to achieve the best revenue performance.
The government also recognized the importance of providing contemporary pandemic-friendly solutions that would make it more convenient and secure for individuals to invest in government securities. Last year, we launched several digital channels to further broaden financial inclusion. These are the Digital PERA or the Personal Equity Retirement Account and the Bonds dot PH mobile application for our domestic bond offerings.
In the post-pandemic era, we need to continue pursuing sustainable policies targeted towards bolstering our healthcare system and financial position to withstand future adversities. At the same time, we should craft more reforms that will shape our societies towards greater financial inclusion for our people.
In our case, we will continue to accelerate the implementation of the Build, Build, Build program. Investments in infrastructure will generate the highest multiplier effect in the economy. They immediately create jobs, encourage investments, and spur economic activity. This program will be the cornerstone of our recovery.
Amid the pandemic, we did not lose our focus on our tax reform program. We recognize that the present economic downturn cannot be fully confronted by throwing subsidies at everything in sight. This would only fuel inflation without driving expansion. The more sustainable path to recovery is to foster the revival of our enterprises and the restoration of consumer activity.
This is among the reasons why we have recalibrated the second package of our tax reform program into a pandemic stimulus measure called the CREATE bill or the Corporate Recovery and Tax Incentives for Enterprises.
Both houses of Congress have ratified the CREATE bill, which is our biggest stimulus program ever for businesses. Soon, our enterprises will be able to avail of hefty reductions in their corporate income taxes and other benefits to aid their recovery. With the passage of CREATE, we already delivered five packages of the tax reform program, or close to 90 percent of the job needed to be done.
With CREATE, we are leaving the money in the private sector’s hands to revitalize their enterprises. We trust that enterprises will re-invest their tax savings from CREATE back into the economy to spur domestic activity and create more jobs for our people.
In addition, this measure proposes more flexibility in granting fiscal and non-fiscal incentives. This will be critical as the Philippines competes internationally for high-value investments.
Meanwhile, the President just signed into law the FIST Act or the Financial Institutions Strategic Transfer. FIST allows banks to efficiently offload their bad loans and non-performing assets. It will assist the banking system in performing its critical role of efficiently mobilizing savings and investments by extending more loans to micro, small and medium enterprises in need of assistance.
FIST is an improved version of the SPV or the Special Purpose Vehicles law of 2002. The big difference is that FIST was enacted within the first year of the pandemic, making it an effective measure in ensuring the stability of our financial system. This is in contrast to the SPV, which was signed into law five years after the Asian financial crisis struck in 1997.
We are also pushing for the passage of the GUIDE bill or the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery. This measure will help us save strategically important companies by aiding them to address their solvency issues.
A crisis is both a threat and an opportunity. The pandemic seriously threatened our people’s health and our economy’s vigor. We have gone through a difficult test. From here, we are focused on the opportunities in the horizon.
We look forward to working with Congress in completing the final packages of our tax reform program. While the remaining bills are broadly revenue neutral, they will help us expand the capital market and make the real property sector more efficient.
We also urge Congress to pass other pending measures that are immediately doable to attract more foreign direct investments and help ensure the long-term recovery of our economy. These are the amendments to the Foreign Investment Act, the Public Service Act, and the Retail Trade Liberalization Act.
These measures will open up the Philippine economy and allow foreigners to invest in industries that are otherwise reserved only for Filipino citizens, such as public utilities, educational institutions, mass media, and advertising.
We also aim to take full advantage of the demographic sweet spot the Philippines enjoys. A much younger population profile means we will have the workforce ready for rapid growth. We have invested heavily in our human capital and hope to reap the rewards further down the road.
We also want to ensure the sustainable growth of our country over the long term by adopting climate-resilient and adaptation strategies. Unlike COVID-19, for which vaccines have been produced in a matter of months, there is no quick solution for climate change. We need to act now with the same sense of urgency that we have for the ongoing pandemic.
The Philippine government will jumpstart its fight against climate change by pushing for the passage of a bill that would ban single-use plastics. The Philippines is ranked as the world’s third-biggest plastics polluter in the oceans. The move to curb single-use plastics will not only be a crucial component to effective solid waste management and climate change action, but it will also encourage all Filipinos to do their part to help save our environment on a daily basis. Once passed, every single Filipino, by not consuming plastic, is contributing to the fight against climate change.
We are very optimistic about the near future. That optimism is based on our willingness to undertake the reforms necessary to rebuild a strong and inclusive economy that thrives in the 21st century. We are also doing our utmost to provide a sustainable, greener, and healthier future for our Filipino people.
I look forward to the rich discussions this symposium promises. With such a collection of brilliant minds, I am sure that we will learn much from each other to make all our societies much better than they are now.