Carlos G. Dominguez
Secretary of Finance
Thank you for this opportunity to speak before our economic journalists.
In the face of the many challenges that we confront today, compounded by the proliferation of fake news, our economic journalists have to deal with an even bigger responsibility.
We rely on you to provide perspective on the daily grind of reporting events. By underscoring facts and giving accurate pictures, you will help reassure our people. You will arm your audience with the means to deal with the test and trials that we face.
It is clear that the pandemic dealt our country a heavy blow. Because we had to impose restrictions on mobility, our economy contracted severely through five consecutive quarters. You all know this story.
That is not the full context, however. For us, communicating what did not happen is about as important as what did.
After over a year of battling the pandemic, the Philippines continues to maintain its financial balance. Due to the successive tax and structural reforms done since 2016, our fiscal fundamentals remained solid. We did not suffer the kind of fiscal downturn that typically accompanies an economic crisis.
The Duterte administration aggressively pushed for the full digitalization of our revenue agencies even before the pandemic.
We did not fail to collect revenues when people could not go out to file their income tax returns and pay their tax dues. In fact, 90 percent of the total number of annual income tax returns were filed electronically in 2020. This year, the total number of annual income tax returns filed online grew to almost 100 percent from just 10 percent in 2015.
Our solid financial footing allowed us to enter 2020 with a full set of ammunition to fight the pandemic. We had a two-decade high revenue effort at 16.1 percent of GDP compared to only 15.1 percent in 2015. This helped us bring down our debt-to-GDP ratio to a historic low of 39.6 percent from 42.7 percent in 2015.
We also won the highest credit rating ever when S&P upgraded us to BBB plus in 2019. We did not lose this rating up to this day.
Despite weakened revenue collection due to the lockdowns, we never ran out of cash resources. We are still able to meet the large spending of our COVID-19-related emergency measures.
Due to the pandemic, our total loss in terms of revenues amounted to 1.4 trillion pesos in 2020. We had to source about 709 billion pesos in financing to support our additional expenditures.
When we needed to borrow to support our budget in the midst of a public health crisis, we were able to do so expeditiously and on very good terms.
We utilized cash buffers built from borrowings through domestic bond offerings, official development assistance, and the international capital markets.
We did not suffer constrained fiscal space despite the recent increase in borrowings. The affordability of our debt remains manageable with interest payments as a share of revenues increasing slightly from 11.5 percent in 2019 to 13.3 percent in 2020. This is still better compared with 14.7 percent in 2015.
Meanwhile, our interest payments as a share of expenditures even improved to 9 percent last year from 13.9 percent in 2015. This indicates that our additional debt is being beneficial to our recovery and development agenda rather than being a burden to growth.
The average interest rate of our debt portfolio was reduced from 5.2 percent in 2015 to 4.2 percent in 2020. This indicates that our interest payment burden did not rise in proportion to the increase in our debt stock.
The interest rates did not go up because of the Bangko Sentral ng Pilipinas’ well-calibrated monetary policy responses. The BSP quickly reduced policy rates and reserve requirements to ensure adequate domestic liquidity and to sustain credit flow.
To further strengthen the banking system, the economic team quickly pushed for the passage of the FIST or Financial Institutions Strategic Transfer Act. The measure allows banks to efficiently offload their bad loans and non-performing assets. This is similar to the SPV or the Special Purpose Vehicles law of 2003.
But unlike the SPV law that was enacted five years after the 1997 Asian Financial Crisis, FIST was implemented within the first year of the pandemic.
Meanwhile, our currency did not plunge in value as it did in 1997. Because of the BSP’s sound and prudent reserve management, we sustained a healthy level of foreign reserves that actually could cover our total external debt.
When the crisis hit us, much of the spadework was done. We really did not have to go back to the drawing board in order to plan for the country’s economic recovery.
We stuck to our tax reform program and passed CREATE or the Corporate Recovery and Tax Incentives for Enterprises Act.
CREATE is the largest ever fiscal stimulus program for businesses in our recent history through the hefty reduction in corporate income tax rates.
In addition, CREATE opens the way for us to rationalize our tax incentives system to ensure that fiscal and non-fiscal incentives are tightly targeted, performance-based, transparent, and time-bound.
We will drive up domestic economic activity by proceeding full speed with our infrastructure program.
The infrastructure investments in the country would not have been accelerated without President Duterte’s Build, Build, Build program. This has been our main strategy to help Filipinos lift themselves out of poverty.
Under President Duterte, infrastructure spending dramatically rose to an average of 5 percent of GDP from just around 2 percent during the previous four administrations.
Clearly, we avoided a lot of trouble. All the strengths that became evident when the challenges were greatest are not due to a stroke of good fortune. This was not luck. This was readiness.
They are the results of many years of fiscal discipline, forward-looking policy reforms, and continuing improvement in our administrative systems— especially through the adoption of new digital technologies.
We might appear to be behind our neighbors for now, but our recovery will be stronger because of our sound fundamentals.
Presently, our vaccination program has been rolling out quite well. This gives us hope that we can now fully reopen our economy.
Living and dealing with COVID-19 is a multi-mile marathon, not a 100-yard sprint. Thus, we will not waver in our commitment to ensure that our macroeconomic fundamentals remain strong.
We are determined to maintain financial prudence and fiscal strength so we can face the future with a deep war chest.
The Duterte administration will not let up on its zero-to-ten point socioeconomic agenda. The completion of the reforms under this program will ensure that our economic recovery will be sustainable, inclusive, and resilient.
There are more than enough reasons to be hopeful about the next few years. I wish that you could communicate the complete picture of our economic recovery story and the reasons behind our optimism.
Thank you.
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