Remarks before
Inter-Pacific Bar Association
March 14, 2018
(Pleasantries)
Thank you for this opportunity to speak before you today about our economic outlook … Thank you, too, for choosing to meet in Manila, the capital, and center of gravity of what has been described as Asia’s next economic powerhouse.
Last year, we ranked among Asia’s fastest-growing economies alongside China, India, and Vietnam. This year, we expect to grow our economy by 7 percent or better on the back of profound policy reforms and an aggressive infrastructure program that will promote economic inclusion and competitiveness.
All the economic energy you see around you did not happen overnight. It took many years of hard work and public discipline to gain the beneficial position we now find ourselves in.
Since the debt crisis of the eighties, we have undertaken structural reform — defying the political pain they sometimes require. We worked down our foreign debt to aneminently manageable level that it is right now. We have made fiscal discipline a central ethic of governance. We consistently resisted the political temptation of incurring large deficits and ceaselessly worked on improving revenue flows to fund our social services.
In the course of doing all that, we underinvested in our infrastructure backbone. That created the problems of congestion and inefficiency we see now.
We were amply rewarded for this fiscal discipline we exercised. Over the last 19 years, we have posted sustained quarter-on-quarter growth. That has to be a record for any emerging economy. Over the past three years, we have sustained annual GDP growth rates of 6 percent or better. Well into the foreseeable future, we expect to sustain that growth of 7 percent or better. We are now one of the fastest growing economies in the world.
We know we need to grow. Over half of our population is 24 years old or younger. We need to build an economy that is not only growing at a fast rate but also increasingly inclusive. The consequences of economic failure are dire. We will have a generation the economy cannot accommodate.
As much as we are investing in hard infrastructure, we are also investing in our human capital by improving on our educational and health systems. For the economy to be truly competitive, our workforce must be among the best and the healthiest. In the context of rapidly ageing populations around us, we are looking at our very young labor force as an asset rather than a liability. This is the single most important factor enabling our economy to grow faster into the future.
In order to sustain a high growth rate, we need to attract investments. Investments will create meaningful jobs for the millions of young Filipinos entering the workforce. Investments will enable more Filipinos to participate in the process of wealth creation. I am happy to note that in a recent survey among members of the global investment community, the Philippines ranked first among the best countries to invest in. We are proud of this recognition. In fact, foreign businessmen brought in a record amount of investments into the country in the first full year of the Duterte administration. According to the Bangko Sentral ng Pilipinas (BSP) data, foreign direct investment (FDI) inflows reached a record high of 10 billion USD in 2017, up by 21.4 percent from a year ago, that was 2016, and almost double the investment rate of 2015.
I am certain that our young, skilled workforce is among the reasons we have earned this distinction.
Towards this end, we have worked tirelessly at creating a business-friendly political and economic environment. We have put reforms in place to improve on the ease of doing business in the country. These reforms include cutting red tape, eradicating corruption and deploying new information technologies to reduce friction in trade and financial transactions. We know we have to modernize our institutions of governance to match the rapid pace of our economy.
We have looked at the possibilities opened up for expanded e-governance and we are enthusiastic about them. Recently, a Philippine delegation headed by the Department of Finance went to Hangzhou, China and took part in a lecture series prepared by the Alibaba Group designed to gain a wider understanding of the digital technologies that can be employed to improve the Philippines’ nascent online payment system. The lecture series also included new digital technologies for everything from payments systems to traffic management. We hope to incorporate as much of these new technologies for the administrative reforms we are undertaking to improve governance.
Currently, we are working to lift certain restrictions on business ownership or what we call the Investments Negative List. We are also working to further level the playing field for businesses by eradicating tax incentives that distort competition and by making our revenue policies simpler and more transparent. We will make it easier for business start-ups to get going as soon as possible.
Late last year, our Congress passed the first tranche of our comprehensive tax reform program. This is the first effort to reform our tax system absent a pressing fiscal crisis. All previous tax reform efforts were done under some form of duress in the system. To the contrary, we have embarked upon this reform program at a moment when the economy is on the upswing, when our credit ratings are at their best ever and when our debt service is at its most manageable in over two generations.
With the passage of the first tax reform package, collectively known as Tax Reform for Acceleration and Inclusion or TRAIN, income tax rates of 99 percent of Filipinos were reduced … To offset that, we raised excise taxes mainly on products that harm the environment and public health.
As a result, we made revenues easier to collect. In the first two months of this year since the TRAIN was passed, we are actually collecting more revenues than expected. In January to February of this year, the Bureau of Customs (BOC) collections grew by 26.5 percent versus the same period of last year. Meanwhile, the Bureau of Internal Revenue (BIR) also grew its collections by 10.8 percent in the same period. Consequently, we are confident the aggressive infrastructure build-up we initiated will be adequately funded.
This year, we expect to pass the rest of the tax reform measures. This includes a progressive reduction in the corporate income tax rate to match regional benchmarks. We expect the same outcome as the first tranche of policy reforms. A simpler and fairer taxation system yields better revenues. In the end, only incentives that are performance-based, targeted, time-bound, and transparent will remain. It makes it easier for government to make wise economic investments without compromising fiscal discipline.
The present administration has also launched the ambitious Build, Build, Build infrastructure program. This program will build better roads and bridges, ports and airports. It will link isolated island economies and inaccessible rural communities to the mainstream of the national economy. It will irrigate more land so that our agriculture can expand. It will make vulnerable communities more resilient to the severe weather brought about by climate change. We hope that with greater inclusiveness, we will finally see the end of the rebellious movements persisting in some parts of our country.
We also have instituted a number of reformist policies to help deepen our capital markets. This will enable more Filipinos to participate in investments and help grow our businesses to expand.
Our strong banking system is the source of much pride. It is guided by prudential policies enforced by an independent monetary authority. Our banks exceed globally accepted capital requirements and maintain very low non-performing loan ratios. Through greater liberalization, we expect more international banks and investment houses to do business in our economy.
The solid steps taken towards creating a single Southeast Asian market have begun to bear fruit. Southeast Asia is one of the fastest-growing regional economies.
With the harmonization of standards and active encouragement of intra-regional trade, the regionalized market creates conditions helpful to the growth of our industries.
As much as we want policies and procedures to be as transparent as possible, we seek to assure investors the government will honor contracts to the hilt. We understand the importance of the rule of law in building business confidence in our economy. The sanctity of contracts is a keystone of improved business confidence.
We have instituted a competition commission to ensure that monopolies and cartels will no longer persist. The competition commission oversees mergers and acquisitions to ensure our businesses remain competitive and the consumers protected.
Our people are fully supportive of the reforms as evidenced by the record approval rating of the President’s performance. I hope today to infect you with that pervasive confidence of our people in our economic future. I hope you will help us spread the word: the Philippines is the best place to invest in.
This is a country with a large headroom for growth and a talented and eager population ready to meet the challenges of the new global economy. Asia is now the center of gravity of the global economy and the Philippines is now a leading engine of that regional growth.
Thank you and good day.
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