Carlos G. Dominguez
Secretary of Finance
September 16, 2020
Iloilo Mayor Jerry Treñas; Iloilo City Councilor Love Baronda; Mr. Juan Jose Jamora III, Chairman of Iloilo Business Club; members of the business community; friends in the media: good afternoon.
Thank you for the opportunity to meet with all of you today. I congratulate the Iloilo Business Club on its 30th anniversary. In the last three decades, Iloilo has progressed by leaps and bounds. The members of the Iloilo Business Club deserve credit for their substantial contributions to this progress.
As our nation continues to fight the COVID-19 crisis, it is always good to touch base with the business community. There is much to learn from those who have skin in the game.
You have been fighting in the trenches to save jobs and bring our economy back on track. The country is grateful for your efforts.
The effects of this pandemic would have been much worse had it caught us in a weak fiscal position. Fortunately, President Duterte’s prudent fiscal management has resulted in our ability to withstand this global crisis.
Last year, we brought down our debt-to-GDP ratio to a historic low of 39.6 percent. The comprehensive tax reform program and improved tax administration ensured the public sector a reliable flow of revenues. In 2019, our revenue effort rose to 16.1 percent of GDP—the highest in more than two decades.
Inflation has also remained stable and under control, averaging 3 percent from 2016 to 2019. This means stable prices for Filipino families. In August of this year, the inflation rate further eased to 2.4 percent. This is well within our target range of 2 to 4 percent.
Our gross international reserves are at an unprecedented level of 98.6 billion US dollars as of July, sufficient for 8.9 months’ worth of imports. Our foreign reserves are larger than our outstanding external debt, which stood at 81.4 billion US dollars as of March of this year.
In the past, crises had pushed the Philippine peso to depreciate together with currencies of other emerging markets. Not this time. Year-to-date, the Philippine peso has appreciated by 4.4 percent against the US dollar, matched only by the Japanese yen.
Our credit ratings also have endured a tidal wave of downgrades and remained at historic highs.
We were able to quickly access emergency loans from our development partners and the commercial markets at very low rates, tight spreads, and longer repayment periods.
Our strong fiscal position has given us sufficient means to fight the battle and ramp up public spending to beef up our health system.
The lockdowns that the government imposed in the second quarter were necessary to save lives and protect our communities. They enabled us to strengthen our prevention, testing, isolation, and treatment capacities. According to university researchers, the lockdown helped us avert an estimated 1.3 to 3.5 million infections.
The Philippines’ mortality ratio is at 4 people per one hundred thousand. Belgium is at 86, Spain is at 64, US is at 60, and Italy at 59 people per one hundred thousand.
Had we had the surge of infections and deaths as high as what Belgium experienced, our mortalities could have been 94,000. If our number of fatalities were the same as Spain, US, and Italy, we could have recorded between 65,000 and 70,000 deaths instead of 4,663 as of yesterday.
Further lockdowns, however, will be even more painful for our economy and our people. We are doing our utmost to keep the virus at bay and prevent the need to reimpose lockdowns so we can all start to move around more freely and confidently.
While we continue to fight COVID-19, we have to rebuild our economy. It is a condition for ensuring public health. We cannot fight a pandemic with a weak economy; nor can we restore economic vigor without solving the public health crisis. The health of our people and the strength of our economy are mutually reinforcing.
The progress we have seen in our labor market after the slight easing of mobility restrictions is very encouraging. Our unemployment rate in July dropped to 10 percent from a high of 17.7 percent in April, when strict lockdowns were still in place.
The continuous slower contraction in manufacturing production also signals rising economic activity. The value of production index showed a slower annual decline of 14.8 percent in July from a high of 41.2 percent in April. The volume of production index also shrank at a slower annual rate by 11.9 percent compared to a high of 38.8 percent in April.
Our total merchandise trade further eased its negative trajectory in July. We had a slower annual decline of 18.6 percent after a steep 59.5 percent contraction in April.
There is also significant improvement in the tax collection of our main revenue-generating agencies. The Bureau of Customs and the Bureau of Internal Revenue exceeded their targets for August by 33 percent and 46 percent, respectively. These are strong indicators that the economy is starting to recover.
Improvements in our employment numbers and other economic indicators will depend on how we will continue to ease mobility restrictions. We need to open up the additional modes of public transportation that strictly adhere to health standards so that our people can get back to work.
No one really knows how long this public health crisis will persist. The best case scenario is a widespread availability of a safe and effective vaccine by the middle of next year. Even then, we are not sure how quickly this will contain infections.
The public health effort will be a marathon. There is no magic wand to wave away the virus. We must be prepared for a long battle. We must therefore exercise fiscal prudence to ensure that we do not run short of resources in this long game.
What we are facing is a test of fiscal stamina. How a country’s economy performs during COVID-19, and how quickly it can bounce back after the crisis will depend on its economic resilience. We have been consistent in our approach: we will do what is necessary, but we will not be wasteful.
We are grateful that Congress recently passed a fiscally responsible Bayanihan 2.
This was already signed into law by President Duterte last week.
Bayanihan 2 provides funds to hire thousands of contact tracers and to support our medical workers. We will purchase safe and effective vaccines when they become available.
Bayanihan 2 will help struggling businesses get back to their feet. The law extends the carry-over period for net losses in 2020 and 2021 from three to five years. This will allow businesses to deduct incurred losses from tax payments for a longer period, giving them more time to set their finances in order.
The infusion of capital into our government financial institutions will allow them to provide more assistance to micro, small and medium enterprises. This will have a large multiplier effect in economic activity. Every peso infused into our government financial institutions will generate around 10 times its value in credit. The additional capital will be used to protect the productive parts of our economy.
The Duterte administration will continue to work with Congress on the remaining economic priority bills. These measures will make more support available for businesses, workers, and families as soon as Congress passes them.
We are pushing for the swift passage of the CREATE bill or the Corporate Recovery and Tax Incentives for Enterprises Act. This will provide an outright 5 percentage point reduction in the corporate income tax rate for everyone as soon as it is made effective. This will help businesses continue operations and retain jobs.
CREATE will enhance the flexibility of our incentives system so we can aggressively go after investments that will greatly benefit the Filipino people.
We also support measures to ensure the availability of financing for businesses and the continued strength of our banks.
We are seeking Congressional approval for banks to dispose of non-performing loans and assets through asset management companies. FIST, or the Financial Institutions Strategic Transfer Act, proposes improved versions of the special purpose vehicles created in the early 2000s in response to the Asian Financial Crisis. This bill will enable banks to offload souring loans and assets, clean up their balance sheets, and extend more credit to sectors in need.
We support the GUIDE Bill or the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery. This will enable government banks to form a special holding company that will infuse equity into strategically important firms facing insolvency.
We also seek to provide greater support to the agriculture sector by increasing credit access to the whole agricultural value chain.
The timely passage of the 2021 national budget is crucial for our economic recovery. This will provide us with the tools necessary to rebuild our economy.
We are also committed to pursue the remaining tax reform packages that will allow a simpler, fairer and more efficient tax system.
As we ensure financing support for our enterprises, our bounce back strategy centers on sustaining the Build, Build, Build program. Investing in sound infrastructure has the largest multiplier effect in the economy. It creates jobs, fires up consumption, and spurs productive activity.
Even before the public health crisis, Visayas has already become a major growth center and contributor to our overall economy. We have witnessed rapid growth in various sectors in the region due to massive investments in infrastructure.
Recent infrastructure developments in Iloilo underscore the commitment of the Duterte administration to forge ahead with our Build, Build, Build program despite the pandemic. In June of this year, the Department of Transportation inaugurated expansion projects in the Port of Estancia and the Iloilo Commercial Port Complex. The strategic projects will address the local and foreign shipping demands in the country and boost regional inter-connectivity.
We do not know exactly how long it will take to beat this pandemic, but we remain confident that we will win back our growth momentum by next year. A lot will depend on whether the government and the business sector can work together to revive consumer confidence and domestic demand.
I ask enterprises to return to the economic frontline by innovating operations and taking advantage of digital technologies for the new economy. We have a future to win.
We are not taking the threat posed by the COVID-19 pandemic lightly. The government is handling this crisis in a prudent and decisive manner. The legislature passed fiscally responsible measures that we can implement within our means.
We have our act together.
The Duterte Administration will not rest until we have prevailed over this extraordinary challenge.
Thank you.
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