The clean sweep by administration-backed candidates in last month’s midterm elections illustrates the desire of the Filipino people for President Duterte to continue his pragmatic program of reforms that he has managed to implement during the first half of his term with his “incomparable political will” and the broad public support he enjoys, Finance Secretary Carlos Dominguez III has said.
Dominguez alao said the latest credit rating grades received by the Philippines—the higher investment grade of “BBB+” from Standard & Poor’s and the “BBB” rating affirmed by Fitch—are also votes of confidence, this time by the international community, in the Duterte administration’s reform agenda.
“We have reached the midpoint of the Duterte administration. There is much to celebrate but also much bigger goals that we have yet to accomplish. President Rodrigo Duterte enjoys broad and profound support from our people. That strong support was most recently expressed in the just concluded midterm elections,” Dominguez said before members of the Management Association of the Philippines (MAP) during their joint meeting on Friday at the Shangri-la The Fort in Bonifacio Global City, Taguig.
“The landslide vote our people delivered in favor of the candidates endorsed by the President translates into approval for the program of reforms the President has launched at the start. Our people desire the continuation of the pragmatic programs this administration has started, driven by the incomparable political will the President has displayed in these last three years,” he said.
As for the new credit rating grades, Dominguez said these are “strong votes of confidence in the Duterte administration’s reform agenda. “With these, government is actually borrowing at a lower rate to fund our priority infrastructure and pro-poor programs. Likewise, the private sector should be able to borrow at lower rates to finance expansion. And I hope the banks would pass on their lower rates to the ordinary Filipinos who take out loans and allow them to pay lower interest rates as well,” he said.
Dominguez said the much-improved inflation outlook, as shown by inflation’s slowdown from 4.4 percent in January to 3.2 percent in May, has allowed monetary authorities to cut policy rates by 25 basis points and slash the reserve requirement ratio (RRR) by 200 basis points, which are meant to further enhance the economy’s growth prospects for the remainder of the year.
The government, though, encountered some obstacles in the first quarter when it had to operate on a reenacted 2018 budget, which forced it to cut its spending on infrastructure and social services by about P1 billion a day, Dominguez noted.
“That reflected immediately in our first quarter growth number. From the expected 6 to 7 percent GDP growth, we slumped to 5.6 percent—a full percentage point below expectation and very likely more than a percentage point of growth lost. That may be chalked up to the cost of politicking,” Dominguez said.
Dominguez said that with the national budget accounting for 19.5 percent of GDP, along with expenditures by the local government units and government-owned and controlled corporations, state spending represents a total of around 23 percent of the economy. “So when we are not able to spend as we planned, it is certainly going to affect the growth prospects of the country,” the Finance chief said.
He assured the businessmen gathered at event that the President’s economic team has reviewed the spending plan for the rest of the year and identified areas where Government can speed up public investments to enable the economy to hit a growth rate above 6 percent for the whole of 2019.
“We are confident we can bring our pace of growth back on track in the second half of the year. The majority of our people see a better life for themselves this year. We will not disappoint them,” Dominguez said.
This catch-up plan involves the government spending a total of around P2.996 trillion from the second to fourth quarters of the year, with infrastructure disbursements accounting for almost a third of the amount at P792.97 billion, Dominguez said.
He said the Department of Agriculture (DA) has also crafted its catch-up plan to energize Philippine agriculture and commit it to contribute significantly to GDP growth this year.
“In addition to the public sector, we are hoping private construction will perform as we expect. Private sector construction will help supplement public spending to provide the stimulus for overall growth to pick up,” Dominguez said.
He also underscored the need for the Executive and Legislative branches to work together under the incoming 18th Congress to create a more business-friendly environment in the country through the passage of the Foreign Investments Act, the Retail Trade Liberalization Act and amendments to the Public Service Act.
In the 17th Congress, Dominguez cited several legislative achievements that have helped the economy sustained its high growth trajectory and deliver tangible benefits to the people.
These include the Tax Reform for Acceleration and Inclusion Act (TRAIN), which helped provide a steady revenue stream for the Duterte administration’s “Build, Build, Build” infrastructure modernization projects and programs for human capital development, as well as return a total of P111.7 billion to the pockets of 99 percent of salaried employees.
In the first year of TRAIN’s implementation, revenue agencies delivered 108 percent of the targeted revenues under this law, he said.
Dominguez also cited other game-changing reforms such as the rice tariffication law, which helped make quality rice more affordable and accessible to Filipino consumers, and in turn, brought down inflation; the process of consolidating a Bangsamoro Autonomous Region for Muslim Mindanao that will create the best prospects for peace and development in the region; a national ID system that will make government services more accessible and contribute to automating the financial system for greater efficiency; and the Ease of Doing Business (EODB) Law, which will create a unified business application form to make it easier to put up or renew business licenses in the Philippines.
He also underscored the signing into law of the Universal Health Care (UHC) program, which is now assured of the additional funding it needs from the bill providing substantial excise tax increases on tobacco products.
Dominguez thanked the Senate for swiftly approving the bill and the House for immediately concurring with the measure earlier this week.
“We also recognize the Senate’s progressive proposal to introduce taxes on e-cigarettes, such as vapor and heated tobacco products. But increasing taxes on cigarettes should be accompanied by increases in alcohol taxes,” Dominguez said.
Dominguez said that while the government embarks on an ambitious infrastructure program, it has continued to exercise fiscal discipline to ensure a low debt-to-GDP ratio, adopted a fast-and-sure approach complemented by rigorous studies in rolling out projects; and implemented a hybrid Public-Private Partnership model using the generous Official Development Assistance the Philippines has received from China, Japan and South Korea to get these projects shovel-ready.
“Disciplined management brought us to where we are now. It will secure for us a progressive and stable future,” Dominguez told the MAP members gathered at the event. “I seek your help as professional managers to help explain the importance of fiscal discipline and market reforms to our people. Our economic success must not be derailed by populist demagoguery that sometimes erupts in politics.”
Dominguez said one example of the Duterte administration’s successful “hybrid” PPP model that has enabled the government to use cheaper money and move more quickly to get the projects done is the Clark International Airport’s new passenger terminal, which is now 66.5 percent complete and is expected to be operational by 2020.
On top of this, in January of this year, the government successfully signed its operations and maintenance contract with North Luzon Airport Consortium, which includes the Changi Airport Group, the operator of the world’s best airport—the Singapore Changi Airport,” Dominguez noted.
“The speed by which we have processed and implemented the long-overdue Clark International Airport expansion project exemplifies this administration’s commitment to ensure that our people reap the benefits of the Build, Build Build program at the soonest possible time. We must remember that when projects are delayed, the ones who suffer are the people. Therefore, it should not just be PPP, it should be PPPP–Public-Private Partnership for the People,” Dominguez said.
Dominguez also noted that the Philippines’ successful bond offerings in the international capital markets, all with tight spreads, enabled the government to further diversify our funding program to support productive spending on infrastructure and social services.