Finance Secretary Carlos Dominguez III has assured the next administration that the Duterte presidency will continue to push for reforms and assist it in addressing any possible fiscal and economic risks that the country may face in the post-pandemic era.
He said that with adequate financial resources and several measures already in place to help the country strongly recover from the impact of the COVID-19 pandemic, the Duterte administration will continue to work with Congress in passing laws that aim to further liberalize the economy, institute additional reforms in the tax system, and deepen the Philippines’ capital markets.
On the part of the national government, it will continue its ongoing digital reforms in the revenue agencies to ensure that they match the efficiencies of the best comparable institutions worldwide, Dominguez said.
To ensure the economy’s long-term recovery and attract more foreign investments, Dominguez reiterated his call for the Congress to pass the amendments to the Foreign Investments Act (FIA), the Public Service Act (PSA), and the Retail Trade Liberalization Act (RTLA).
“We get nothing from a closed-minded attitude towards foreign investments. With the continued globalization of supply chains, we either liberalize at a quicker pace or risk getting left behind,” said Dominguez during the 7th general membership meeting of the Financial Executives Institute of the Philippines (FINEX) held today via Zoom.
“Our economy should no longer labor under the weight of dead economic orthodoxies. We must open up to the most mutually beneficial arrangements we can get from the rest of the world,” Dominguez added.
He said that to secure the country’s fiscal stability and boost the resilience of the Philippine economy against future economic shocks, the Congress should also pass the remaining comprehensive tax reform packages—the Real Property Valuation and Assessment Reform Act or RPVARA (Package 3) and the Passive Income and Financial Intermediaries Taxation Act or PIFITA (Package 4).
Package 3 is designed to broaden the tax base used for property-related taxes of the national and local governments and adopt internationally accepted valuation standards, while Package 4 aims to make passive income and financial intermediary taxes simpler, fairer, and more efficient.
Dominguez said the Department of Finance (DOF) will also engage with Congress in passing the Military and Uniformed Personnel Pension reform that will keep the system fundable, manageable, and fiscally sustainable for the long term, along with the proposed Capital Market Development Act (CMDA) that aims to further deepen the domestic capital markets by building a sustainable corporate pension system for Filipino workers.
This array of proposed reforms complement the other game-changing measures already in place to keep the economy back on the path of high growth.
Dominguez said these measures include the Financial Institutions Strategic Transfer (FIST) Act that will allow banks to unload non-performing loans and assets to strengthen their lending capacity; and the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), which will not only leave more cash resources for firms to sustain employment or use for investments, but will also position them to be more regionally competitive and attractive to foreign capital infusion.
To ensure the safe reopening of the economy, Dominguez made it clear the government has adequate resources to acquire more than enough vaccines to inoculate 100 percent of the adult population and children, along with providing booster shots if these are needed.
“The only thing holding back our vaccination program is tight global vaccine supply,” Dominguez said.
He thanked FINEX for the support it has consistently extended to the tax and economic policy reforms of the Duterte administration, and said he “will continue to look to the membership of FINEX for advice and support to get the remaining reforms legislated before the end of the Duterte administration’s term.”
The “Build, Build, Build” program, which will lay down the foundation for the economy’s higher growth, and the country’s young and skilled workforce that will sustain demand and create the wealth for the national economy are the other key factors that will aid the country in bouncing back strongly from the pandemic, he said.
“Before we end our term, the Duterte administration will make sure that we help the next President and the next generations address fiscal and economic risks,” Dominguez said.
Dominguez recalled that he had earlier warned that the pandemic would involve a protracted battle, which is why it is important to maintain fiscal responsibility.
Proven right, the pandemic, through the more contagious COVID-19 Delta variant, continues to inflict damage to economies across the globe despite the progress of mass vaccination programs.
The impact of this long battle with the virus is reflected in the government’s decreased revenues, which dropped 9 percent in 2020 compared to 2019. Revenue collections, however, recovered in the first 5 months of 2021, registering 13 percent higher than the same period in 2020 mainly as a result of the government’s stepped-up digitalization efforts, Dominguez said.
“Lower revenue collections and a higher public health bill translate into budget deficits. To cover the budget gap, we had to borrow more. It is a necessity. This is the way the world works. Fortunately, with our high credit ratings, it was not difficult to engage in emergency financing with concessional rates,” Dominguez said.
He noted that Fitch Ratings recently affirmed the Philippines investment grade rating of BBB but adjusted its outlook from stable to negative, which is not a downgrade but merely a revision of the outlook.
With a consumption-driven economy, the negative impact of the pandemic on the economy has been significant but this will only be temporary, Dominguez said.
He pointed out that the financial and banking system has been resilient and did not buckle under the pressure of the pandemic; the local currency remained relatively strong; foreign exchange reserves are more than adequate to support imports; and deficit and debt figures continue to be manageable.
“Unlike in a war where productive assets such as infrastructure and human capital are destroyed, the pandemic and the economic crisis caused leave our economic resources intact. Our macroeconomic fundamentals remained solid,” Dominguez said.
With the fiscal discipline of the Duterte administration and the economic reforms that work, the government was able to get its act together when the pandemic struck, Dominguez said.
He also credited the Congress for passing fiscally responsible measures that helped the government save lives and rescue the economy amid the pandemic.
The Development Budget Coordination Committee (DBCC) earlier said that a total of P665.72 billion has so far been released to fund the government’s COVID-19 response and to mitigate economic losses of low-income households, small businesses, and other vulnerable sectors.