First of all, I want to thank Patrick for hosting this.
Leaders of the US business communities, ladies and gentlemen, good morning.
Thank you for this opportunity to share with you the unfolding Philippine economic story.
We do find ourselves today amidst much uncertainty.
Forecasts for global growth have been cut successively over the recent months. The slowdown presents headwinds on our own efforts to grow our economy.
But the Philippines continues to demonstrate strength, stability and resilience in adverse conditions. We hope to sustain our growth, relying on strong domestic demand to offset the general international uncertainty.
We will do our utmost to continue on this positive path via a three-fold strategy. First, we will continue to bolster our macroeconomic strength through prudent fiscal management and stable monetary policy. Second, we will focus our accelerated spending program on infrastructure and our people, two investment areas that will provide the highest returns in the short- term as well as into the future.
Third, our approach is further powered by game-changing reforms that will benefit all law-abiding Filipinos and businesses.
Let me cite a few indicators of our strong macroeconomic performance.
Standard and Poor’s recently upgraded the Philippines to a BBB plus from a BBB credit rating. The upgrade summarizes all our efforts to maintain fiscal discipline, contain inflation, build a business-friendly market, and achieve the highest international reserves ever. These reserves had risen to a record of 86.16 billion US dollars by the end of September, the equivalent of seven-and-a half months’ worth of imports. This is significantly above the benchmark and should keep our currency stable.
Even as we have scaled up our economic investments, we continue to manage our obligations with great prudence.
We have brought down our debt-to-GDP ratio to 41.9 percent in 2018 from 52.4 percent in 2010.
And the projection is that we will bring it further down to around 38% by 2022.
The strong remittance inflows from our expatriate workforce sustain domestic consumer demand. Driven by sustained consumption, our economy is less reliant than others on trade. While this might not be ideal, it has served to partially insulate us from the external factors that explain the global economic slowdown.
Next year, the Philippine economy is expected to achieve upper middle-income status. This is indicative of the capacity of our domestic market to support more enterprises.
Over the past two years, the Philippine economy has attracted foreign direct investments of 20.1 billion US dollars. For two consecutive years, our FDI averaged 10 billion US dollars a year, about double the inflows that we received in 2015. We expect these inflows to continue although we are seeing already a slowdown, from the worldwide slowdown, in our country.
More importantly, we have been able to bring down our unemployment to the lowest in 40 years. We’ve seen that our poverty incidence is declining from 27.6 percent in the first half of 2015 to 21 percent in the first half of 2018. With additional investments in our people through education, training, and our new Universal Health Care program, we aim to bring it down to 14 percent by 2022.
Compared to the mature economies in the region, the Philippines has a very young workforce.
We are approaching what economists like to call a “demographic sweet spot” while the populations of the mature economies begin to age. Our average age is 24. The average age in Japan is probably 48. China is reaching that level and incidentally so is Thailand.
The Duterte administration’s Build, Build, Build infrastructure program involves a number of highly strategic infrastructure projects as well as thousands of infrastructure and logistics improvements all over the country that will raise our productivity dramatically.
For the first time in our history, we exceeded 5 percent of GDP in infrastructure spending last year.
This is double the average spending over the last 50 years. We expect to bring this up further to 7 percent of GDP by 2022.
The Build, Build, Build program is supported by the multilateral financial institutions as well as by our development partners in the region. It has become a showcase for coordinated international cooperation. For instance, both China and Japan have each committed 9 billion US dollars in official development assistance over the next few years to help fund our infrastructure program. Korea has committed an additional 1 billion US dollars.
Moreover, the vibrant participation from international and local companies in our Build, Build, Build program is proof that they trust the Duterte administration and in the transparent, fair and corruption-free bidding process implemented by the government.
For instance, the auction for contract packages for the Philippine National Railways Phase 2 of the North-South Commuter Railways, which will run from Malolos, Bulacan to Clark, Pampanga has attracted 5 foreign firms from Indonesia, South Korea and Spain, and the bids were submitted on October 14. Unfortunately, no bidders from the US.
The US business community expressed interest in participating in this program on several occasions.
But no serious offer has come, and this is to bid in an international bidding program. I think I mentioned this last April.
The centerpiece of our Build, Build, Build program thus far is the New Clark City in Central Luzon—about a hundred kilometers north of Metro Manila. This area has attracted new industries and promises to be a center of modern enterprise in the region. I believe FedEx has just signed a contract to locate in Clark. The rapid transformation of the growth corridor between Subic Bay and Clark should be of particular interest to US businesses. This growth corridor is anchored on what used to be American bases.
With the improved public revenues and strong support of our development partners, we are confident the infrastructure program will help the economy weather the headwinds created by the projected global slowdown.
Game-changing reforms will ensure that the continuous growth we achieve is funded equitably by the Filipino people through taxation. Our comprehensive tax reform program will modernize policies toward a simpler, fairer tax system while ensuring robust and recurrent revenues for the government.
We have several packages. We have already passed the most difficult package, which was the first one where we raised taxes on fuel which had not been adjusted for 20 years.
But at the same time, we lowered the tax rates and taxes of 99 percent of our taxpayers. We gave them a tax break equivalent to one month salary. Certainly, this helped boost consumer demand. And on the other hand, because we taxed sweetened beverages, alcohol, and tobacco, it has discouraged the consumption of unhealthy products.
The improved revenues are helping the government fund our ambitious infrastructure modernization and human capital development programs in a very conservative way. We figure we raised about 20 percent of our infrastructure program and we will borrow the rest.
Apart from the increases in our revenues, we have also been relentless in improving our tax administration. In 2017, a year after we took office, we cleaned up the cigarette business. We collected the highest amount of a tax settlement from a single company totaling 600 million dollars due to its non-payment of correct taxes, and forced the shareholders to sell their business. We had the business sold to a foreign company, and that company now pays on the same volume of cigarettes about 50 million dollars a month more in excise taxes.
The succeeding packages in our comprehensive tax reform program are in the legislative pipeline. We expect most of them to become law later this year or early next year.
One of the controversial packages we have is what we call Package 2 where we seek to lower corporate income tax rates gradually from 30 percent to 20 percent in order to bring the Philippines closer to the ASEAN average. However, we also seek to modernize our incentive system to make our incentives performance-based, time-bound, targeted, and transparent. We want to adhere to standards very similar to other countries.
Other tax reform packages involve adjustment in excise taxes of alcohol products as well as heated tobacco, and the very famous nicotine vapor products which I read almost every day in the US newspapers; reforms in our real property valuation; and simplification of the tax system on passive income, financial services, and transactions. The remaining program will also include adjustments in the Motor Vehicle User Charge and a general amnesty on taxation that should include to lifting of the bank secrecy laws, and the automatic exchange of information.
We and another country in the world are the most restrictive when it comes to bank secrecy. The other country is Lebanon. So I told our legislators, I don’t think we want to be at the same…. –we are better than that.
In addition to tax reform, we have new laws that cut red tape, simplify government procedures, improve the efficiency of our financial system, and we are taking further steps to expand sectors and industries open to foreign investments.
We are also the only administration that has actually succeeded in passing a Rice Tariffication Law. The importation of rice is no longer limited by volume, but is now subject to a tariff that is earmarked for farmer productivity programs. The rice tariffication is beneficial to all segments of society, including the corporate sector. It has brought down the price of the country’s staple food for more than a hundred million Filipinos, and it has slowed down inflation. Our inflation rate month-on-month last year was 0.9 percent. This month, I think, will even be lower than that. But by lowering the inflation rate, it has eased the pressure on businesses to raise wages. We expect this key measure to be the main driver in modernizing our farming systems and to bringing down rural poverty.
In the past, we used to spend money to import rice. Now, we are collecting a tariff for the rice imports. And so far this year, we have collected — before, we would spend an average of maybe 300 million US dollars a year on rice imports–this year, our tariff collection is going to be around 250 million US dollars, It’s the entire opposite.
In summary, at the halfway mark of the Duterte administration, the expectations have been met and promises have been kept. We just analyzed the results of the survey which put the President’s approval rating at 78 percent, which by the way is down from 85 percent. It’s terrible, it’s down to 78 percent. Everybody’s crying about it, but the most important thing there that people have acknowledged, or they believe, is that the President has kept his promises. So compared to all the other administrations since Marcos, we have the highest rating at this point in the administration.
So we have proven as an administration that we can do two things at the same time: We can do serious policy reforms and implement them properly, and we can deliver on our infrastructure program on time and on budget. In other words, we can chew gum and walk across the room at the same time.
I hope to host the American business delegations looking for investment opportunities in our rapidly growing economy.
Our alliance of long-standing should be strengthened even more by forward-looking business partnerships.
Thank you.
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