Finance Secretary Carlos Dominguez III has said the Duterte administration is ready to assist the new presidency during the transition period next year in addressing four primary concerns that will affect the Philippines’ economic stability beyond 2022.
These four issues involve: 1) prudent debt management in relation to growing the economy above 6 percent per year; 2) inflation caused by global shortages; 3) pandemic-induced inequalities; and 4) climate change, Dominguez said.
Dominguez said that after going through a difficult episode amid the pandemic, the Philippines is poised for a strong recovery towards a more inclusive economy owing to the strength of its institutions and the firm foundations laid by the Duterte administration over the last five years.
He said that on top of ensuring fiscal prudence, the Duterte administration also introduced numerous policy reforms to build a business-friendly environment, among them, the reduction of red tape; the digital transformation of public agencies; implementation of a National ID system; infrastructure modernization; and a rationalized corporate income tax (CIT) and fiscal incentives policy through the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law.
The remaining period of President Duterte’s term will be focused on rapidly modernizing governance; accelerating the rollout of the “Build, Build, Build” infrastructure program; and continuing with the market-friendly reforms attractive to investments, Dominguez said.
“The Duterte administration will also ensure that the next presidency will be ably assisted during the transition period in addressing four key issues that will impact the Philippines’ economic stability. These include ways on how to prudently manage the debt we have accumulated and grow our gross domestic product (GDP) at a rate higher than 6 percent per annum as we have done. We need to deal with the issue of inflation brought about by shortages around the world,” Dominguez said during the BusinessWorld Virtual Economic Forum this morning.
“We need to manage the inequalities exacerbated by the COVID-19 pandemic—both within the country and among countries. And finally, we need to address climate change without stretching the fiscal space of the country,” he added.
During Maybank’s 25th anniversary held Wednesday night, meanwhile, Dominguez pointed out that climate finance involving both adaptation and mitigation projects will become a principal concern as all countries will be engaged in transitioning their economies by way of actual projects on the ground.
Dominguez said that at the recently concluded 26th United Nations (UN) Climate Change Conference of the Parties (COP26) held in Glasgow, Scotland, the Philippines put a spotlight on the true concept of climate finance, which the annual global gathering had failed to take into account for over the two decades now.
As head of the Philippine delegation to COP26, Dominguez said during the series of Glasgow meetings that climate finance should be anchored on the “blended approach” of mixing grants for capacity building; investments for green projects; and subsidies that should address the financial costs and risks of communities transitioning to a climate-resilient economy.
He also stressed that accountability and transparency are paramount to ensure the prudent use of these funds that come from taxpayers.
Dominguez proposed that the World Bank (WB), Asian Infrastructure Investment Bank (AIIB) and the Asian Development Bank (ADB) come up with a harmonized set of guidelines for vetting green projects and to provide the seal of good housekeeping to help spur private investments in these initiatives.
“In recovering strongly from the pandemic and fighting climate change, we will count on Maybank Philippines to deploy the engine of sustainable finance to help us surmount these challenges,” Dominguez said.
In both the BusinessWorld and Maybank events, Dominguez said the worst of the pandemic has passed and that the country is on its way to a strong rebound as it scales up its COVID-19 vaccination program to cover 100 percent of the adult population and persons aged 12 to 17 years old.
“We have strengthened our public health system and we will continue to do so in the coming years. Our people have woven health protocols into their daily lives,” Dominguez said.
“As we relax restrictions on movement, our domestic economy appears to be responding with strength. After so many challenging months, the numbers are now all in our favor,” he added.
He cited the Philippines’ increasing foreign direct investments (FDI), growing remittance inflows from overseas Filipino workers (OFWs), more-than-enough international reserves despite the sharp spike in oil prices, stable exchange rate and rising revenue collections as indicators of an economy on the way to a strong recovery.
Dominguez also cited the country’s solid fiscal position under the Duterte administration—as reflected in its sustainable debt-to-GDP ratio, high credit ratings, successful bond issuances amid the pandemic, to name a few—as the other factor that will ensure the country’s strong economic rebound.
Because of the unexpected costs of the pandemic and lower revenue collection because of the lockdowns, the country’s debt-to-GDP ratio climbed up to about 63.1 percent in the third quarter of this year, but this remains eminently sustainable, especially as more than two-thirds of our borrowings are being sourced from our very liquid domestic market, Dominguez said.
“The stability of the peso indicates this. We expect to begin working down our debt by next year,” he said.
Dominguez said he also expects the government’s programmed budget deficit to start declining, with next year’s target reaching 7.7 percent of GDP.
“This is well-supported by the rebound of revenue collections, which puts less pressure on our borrowing requirement and debt sustainability threshold,” he said.
The government’s measures to transition to a digital economy, such as the use of electronic channels by the main revenue-generating agencies to enable them to overshoot their collection targets, and the migration of transactions online to develop broad-based and inclusive capital markets, such as those initiated by the Securities and Exchange Commission (SEC) and the Bureau of the Treasury (BTr), are among the reforms that have been put in place and expanded by the Duterte administration, Dominguez said.
Dominguez also underscored the timely passage of the CREATE Law that offered businesses the biggest stimulus package ever to help them recover from the pandemic, and modernized the fiscal incentives system to encourage more high-value investments and innovation.
He said CREATE complements the other reform efforts initiated by the Duterte administration to make the Philippines more business friendly.
These include the Anti-Red-Tape Act (ARTA), Ease of Doing Business (EODB) Act, infrastructure modernization program, and establishment of a National ID system, among other measures.
The Philippines will take full advantage of its demographic sweet spot, where its young and talented population means a workforce prepared to swiftly adjust to the transformations taking place in the economy, Dominguez said.
He urged entrepreneurs to maximize the impact of these business-friendly measures by shifting to the circular economy and other sustainable practices.