The Duterte administration has proven in the first half of its term that it can initiate serious policy reforms and implement them properly while delivering on its commitment to roll out a massive infrastructure program “on time and on budget,” Finance Secretary Carlos Dominguez III has said.
As a result, the Philippine economy is expected to continue expanding at rates among the fastest in the region, with a business environment that is now more investor friendly and more resilient in the face of an “adverse” global economic environment resulting from such challenges as the trade war between the United States and China, Dominguez said.
Among the game-changing reforms that the Duterte administration has implemented thus far is the first package of its Comprehensive Tax Reform Program (CTRP), which has helped fund its ambitious “Build, Build, Build” infrastructure program and also returned about $2 billion a year to the pockets of most taxpayers in the form of personal income tax (PIT) cuts, Dominguez said.
These “Build, Build, Build” investments, in turn, have already breached 5 percent of the Gross Domestic Product (GDP) in 2018, which is double the Philippines’ annual infrastructure spending-to-GDP ratio of 2.5 percent for the past 50 years.
Such unprecedented investments in infrastructure is expected to rise even further to 7 percent of GDP by 2022, with support from the Philippines’ international development partners such as Japan, China and South Korea, he said.
“I was just reflecting on what we’ve done in the first half of the President’s term, and I think this administration can do two things at once: we can chew gum and walk across the room at the same time. We can do serious policy reforms as well as implement them properly, and that we can deliver on our infrastructure program on time and on budget,” Dominguez said during a recent meeting with members of the US-ASEAN Business Council held at the Department of Finance Office (DOF) in Manila.
Led by US-ASEAN Business Council (USABC) president-CEO Alexander Feldman and senior vice president Ambassador Michael Michalak, among the organization’s members at the meeting were, among others, representatives from Amazon, Bechtel, Cargill, Cisco, Citibank, Coca-Cola, ExxonMobil, SAS Institute, Sanofi, Jhpiego, Oracle, IBM Visa and Texas Instruments.
Public Works and Highways Secretary Mark Villar, Transportation Secretary Arthur Tugade, and Bases Conversion and Development Authority (BCDA) president-CEO Vince Dizon, Finance Undersecretaries Gil Beltran and Karl Kendrick Chua, National Treasurer Rosalia De Leon, and Budget Undersecretary Janet Abuelwere present at the meeting.
Dominguez noted that the US business community has also expressed interest in the “Build, Build, Build” program.”
“Now is a good time to check if there has been any real participation from you in our Build, Build, Build projects,” Dominguez told members of the US-ASEAN Business Council, which include some of America’s top infrastructure and engineering firms.
Dominguez also pointed out during the meeting that the US government has also been reluctant in providing compact assistance to the Philippines under the Millennium Challenge Corp. (MCC).
He recalled that the compact assistance from MCC of about $200 million would have helped improve infrastructure in the eastern coast of Luzon, but the Philippines “for one reason or another, didn’t make the cut.”
“Fortunately, South Korea stepped up with five times the amount,” referring to South Korea’s commitment of US$1 billion official development assistance (ODA) to the Philippines.
Japan and China, for their part, have pledged US$9 billion each in ODA loans and grants to the Philippines to help finance its infrastructure program, Dominguez said.
Dominguez said that if American investors are interested, those exploring opportunities outside the congested Metro Manila area can train their sights on the New Clark City (NCC) in Central Luzon that the government is transforming into the country’s first green and smart metropolis.
The main venue of this year’s Southeast Asian (SEA) Games, the NCC will have a world-class Clark International Airport that will be linked to the Subic Bay Seaport by a railway and expressway, making import and export transactions convenient for locators, Dominguez said.
On top of an infrastructure modernization program that will lower logistics costs for businesses, Dominguez cited some of the other factors that make the Philippines a prime investment destination for American investors:
· A strong fiscal position as proven by the recent upgrade by Standard & Poor (S&P)’s of the Philippines’ credit rating from “BBB” to “BBB Plus,” the highest ever achieved by the country and which is only a notch away from the single “A” grade;
· Stable currency and low inflation rate. With low inflation, the Philippines was able to bring down its interest rates and add more funds to the economy by reducing bank reserve requirements;
· Record-high gross international reserves (GIR) at $US85.61 billion. This is equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income. Overseas Filipino workers (OFWs) and the business process outsourcing (BPO) industry in the country contribute significantly to the government’s GIR;
· Opening up of the economy as shown by the enactment of the Rice Tariffication Law (RTL), which opened the rice market to private traders and slowed down inflation;
· Implementation of a national ID system and digitalization of the government’s frontline services, including tax collection and payment systems.
He said the continued strength of the Philippines’ macroeconomic fundamentals and game-changing reforms enacted over the first three years of the Duterte administration have combined to boost the country’s competitiveness and elevate its status to an upper middle-income economy early next year.
Dominguez also expressed confidence that the passage of the remaining CTRP packages and other economic reforms will help the government secure an “A” credit rating within the next couple of years.
“I’d also just like to point out that at this particular point in our history, our fiscal and monetary policies are totally in sync. We have a central bank governor there who used to be the budget secretary. He’s very aware of the fiscal policy requirements. And he is executing monetary policy independently but with engagement with our fiscal policy,” Dominguez said.
“We are very pro-business. We’re very pro-business in the macro sense. We are making the cost of capital lower, we are trying to reduce the pressure on increasing wages by controlling inflation,” he added.
He said the reforms implemented by the Duterte administration so far have helped pull down the unemployment rate to its lowest in 40 years and poverty incidence from 27.6 percent in the first half of 2015 to 21 percent in the first half of 2018.
President Duterte’s ultimate goal of bringing down poverty incidence to 14 percent by 2022 remains on track as the economy remains resilient, strong and stable even amid a looming global economic slowdown, Dominguez said.
“Even as the global economic outlook deteriorates, we are confident that the economic stimulus provided by our infrastructure program will continue to create new jobs and be very beneficial for businesses in the sense that it will lower the logistics costs in the Philippines,” he said.