Carlos G. Dominguez
Secretary of Finance
SMX Convention Center, Lanang Davao City
November 28, 2018
PCOO Undersecretary Lorraine Badoy, DPWH Undersecretary Dimas Soguilon, DSWD Undersecretary Luz Ilagan, BSP Assistant Governor Francisco Dakila, DTI Assistant Secretary Ernesto Perez, NEDA Assistant Secretary Carlos Abad Santos, DBM Assistant Secretary Mercy Sombilla, PCCI Regional Governor for Northern Mindanao Maria Teresa Alegrio, friends:
Welcome to this year’s Sulong Pilipinas! Thank you for making the time to participate in this forum for consultations and consensus building. The views of our business leaders matter greatly to refining our economic strategy.
Recall the first time Sulong Pilipinas convened in this city. That was June of 2016. All of us were very busy preparing for the presidential transition. This forum was an important component of that transition. Many of the recommendations emanating from the 2016 Sulong Pilipinas were included in the economic strategy espoused by the Duterte administration.
This year, to improve the representation of all parts of the country and increase access for stakeholders, we decided to hold regional forums, with the purpose of primarily gathering the inputs and recommendations of representatives from our small and medium enterprises or SMEs. We held the first regional Sulong forum of this year in Cebu City, followed by another one in San Fernando City, La Union. Just two days ago, we were in Clark, Pampanga for the third Sulong workshop.
The results of the workshops were quite encouraging. There is much enthusiasm from the business sector, especially our SMEs, for the great task of modernizing our economy. We are eager to receive your actionable recommendations and we’ll thoroughly study and act on them with as much seriousness as we have done in the past.
We have delivered solidly on some of the key recommendations from Sulong workshops in 2016 and 2017. A law creating the national ID system responds to a Sulong recommendation. The demand for more responsive government produced the Ease of Doing Business Act that intends to make public frontline processes more efficient and timely.
We responded to the call of the business sector to reform the tax system. Last year, Congress passed the first package of the comprehensive tax reform program. Our legislators are currently working on the succeeding packages of this program and we are hopeful they will consider the long-term benefits to the country of completing this reform at the soonest possible time.
As a response to the concerns of our enterprises expressed during the first Sulong meeting, the administration has responded to the need for greater connectivity in the economy with the Build, Build, Build program. This is an ambitious program that seeks to modernize our infrastructure base to be at par with the most dynamic economies of the region.
The Build, Build, Build program is composed of 75 strategic infrastructure projects that will greatly improve the country’s logistics systems and make our enterprises more competitive with the rest of the region.
In the first nine months of this year, infrastructure spending amounted to P571 billion. This is 7.2 percent above the target. It demonstrates that the Department of Public Works and Highways and the Department of Transportation, the two lead agencies in the Build, Build, Build program are moving faster than expected. The old problem of absorptive capacity has been solved. The mantra of fast and sure is being observed.
I’m very happy to note that Congress is going to call a hearing on what is perceived as underspending, because we would like to inform Congress and the public that the bad old days of underspending, which the critics faulted the government for moving too slowly in getting the projects done, is now over. Now that we are moving ahead of our spending schedule, we are now being faulted for enlarging the budget deficit when in fact, we said that our budget deficit is going to be 3 percent of GDP. And we have hit it on target this year, the first time ever in recent history.
Let me add that the P571 billion spent on infrastructure in the first nine months of this year is 46 percent higher than the same period last year. This is also much higher, in fact, by P225.5 billion or 65.3 percent compared to the last full year of the Aquino administration in 2015.
In 2015, infrastructure spending only amounted to P345.3 billion—20 percent below their own target. Set against the infrastructure investments we are seeing now, the previous administration delivered an anemic performance.
Now, to really give credit for this amazing performance, I have mentioned earlier the DPWH and the DOTr. But let me tell you that without the excellent performance of the DBM, this would never have happened. Of course, the NEDA has made sure that all these projects are approved on time. The cooperation and the coordination of the different agencies mentioned here have really helped get our program going.
Mindanao is at the front and center of this program. The package of infrastructure projects in this area includes irrigation systems, extensive road networks, construction and rehabilitation of key regional airports, long-span bridges and the Mindanao Railway project that will help dramatically enhance regional connectivity, reduce the cost of moving goods and people across long distances and spur economic activity for this part of the country.
In fact, as we speak here, they are laying the ground, the cornerstone for the construction of what will be the longest bridge in the Philippines. And that will be the bridge that crosses the Panguil Bay area, which will reduce travel time across that span from over two hours to just 20 minutes.
The increased investments in infrastructure are also matched by improved revenues. In the first ten months of this year, total tax collections of the Bureau of Customs and the Bureau of Internal Revenue amounted to P2.1 trillion, 16 percent higher than the same period last year. This is just slightly 3 percent short of target. Compare that with the full year tax collection performance in 2015, our tax collection for the first ten months of the year is significantly higher by P298.66 billion or 16.58 percent. Tax collections of the main revenue-generating agencies for the last full year of the Aquino administration in 2015 only amounted to P1.8 trillion—15 percent below their own target.
Our economy responded well to the infrastructure program and the tax reform program that enables us to finance it. This program also benefitted from generous financing support extended by our two closest development partners in the region: Japan and China.
Some uninformed critics claim that we are falling into a “debt trap” by tapping Chinese and Japanese financing for our strategic infrastructure projects. This is totally unfounded. The financing we availed of are soft loans at the lowest possible interest rates and the longest possible term arrangements. If we include project financing coming this year, our estimated project debt to China will constitute 0.65 percent of our total debt from the current 0.11 percent. Our project debt to Japan will increase from the current 3.17 percent to 8.90 percent of the total debt of the Philippines at the end of this year.
By 2022, when most of the financing for the Build, Build, Build program should have been accessed, our project debt to China will constitute around 4.5 percent of our total debt. So for every P100 the Philippines owes, we will owe China P4.5. While the project debt to Japan will be around twice as large or 9.5 percent of total debt.
We borrow with great prudence, aware that it is the taxpayer and their children who will ultimately pay for this debt. We always keep in mind that the money we borrow come from the taxes dutifully paid by the people of the countries that have continued to generously support us. You know, it is wrong to say that the Government of China is supporting us. It is the people of China, who pay their taxes there, who are supporting us. It is the people of Japan who pay their taxes there who are supporting the Filipino people. Thus, we take great care that the funds we borrow are wisely used and produce sufficient economic benefits to make the debt service easier down the road.
Let me reiterate, in the face of uninformed criticism, this administration is not about to allow the country to be drowned in debts to China. In all the financing agreements, we have made sure that the country got the best deals possible and that the cardinal tenets of fiscal discipline are carefully observed.
We learned much from a previous administration’s scandalous mismanagement of Chinese projects and financing. During that time, the previous leadership allowed Chinese state-owned enterprises to dictate what projects will be undertaken here.
In our own dealings, we have made it very clear to the Chinese sidethat the Duterte administration will protect the country from unnecessary projects driven by agencies outside the Philippines. This does not please some people who intend to profit from wasteful projects that they are pushing. These are now the same people who are attacking the prudent decisions of this government.
In one instance, a funding agency made an offer we thought was too expensive. We told them flatly that we would seek financing from the ADB instead. Immediately, they dropped their offer (and instead,) they met and exceeded the great terms that we had in line. We allowed them to compete for the projects.
I’d like also to point out that before any project can begin, the government has made it a point to subject each one to a serious feasibility study. This is an important aspect of project preparation because a feasibility study will determine whether a particular project is viable and sustainable. It also helps us determine the best source and way of financing the project.
Aside from a feasibility study, we also follow a series of stringent procedures, including, but not limited to, the Investment Coordination Committee (ICC) and the NEDA Board processes before submitting the projects for foreign financing and the conduct of internal vetting processes of our foreign funders.
We have said that, okay, if we have a project, we present it to the Japanese, to the Chinese, or ADB or whoever, and we say these are the projects that we want funded. Are you willing to fund them? If, for instance the Chinese say yes, we say okay, in that case, you provide us with three bidders so they can bid for the projects. In that way, the Chinese government itself is on the hook for these projects because they are the ones who recommended the bidders. If the one who wins does not perform, we can go back to the Chinese government and say, you did not give us a good contractor. So we are protecting the interests of the Filipino people very seriously.
In each case of projects using Chinese financing, as I said, they haveto name the bidders from which we will make the final choice. Again, if the bidder does not deliver, the Chinese government will certainly lose face.
I would also like to note that in conformity with the Constitution and laws of the Philippines, none in any of the pipeline projects allow for the appropriation or takeover of domestic assets in the event of failure to pay which will hollow out our sovereignty.
Taken as a whole, the Build, Build, Build program will lay down the modern infrastructure that will enable our economy to sustain its growth momentum and liberate even more of our people from poverty in the medium term.
Despite the elevated inflation rates we experienced in the first three quarters of the year, the Philippines remains one of the fastest growing economies in the world’s fastest-growing region. The government has responded decisively to the challenge posed by elevated inflation rates. We expect inflation to taper off in the closing months of the year.
We intend to sustain this growth momentum. In the first eight months of this year, we saw a 31 percent rise in foreign direct investments. The PEZA claims investments are down. That is only true for PEZA projects where the investors are asking for what I consider unreasonable incentive packages from our government. The more meaningful investments are being made by competitive companies that do not ask for tax holidays and other incentives. These competitive investments are rising sharply, underscoring the investments are not prerequisites for getting the best projects.
Improved international investor confidence in our economic outlook is also indicated by the tighter spreads on the bonds we have floated in the global market.
Our fundamentals also remain strong. The present administration has added to those fundamentals the element of decisiveness. We intend to move quickly but surely in pushing forward with the economic programs we committed to complete by the end of the administration.
I certainly look forward to the discussions today. I am confident they will be as informative as they have been in the last two years.
We wish our small and medium enterprises here would look more closely at the elements of the second package of tax reforms now being considered by our legislators. The reduction in corporate income tax rates will bring much relief to our small enterprises. We look at this reduction principally as a means of spurring business activities and creating more employment opportunities.
I wish you all a productive meeting and anticipate the inputs you will have to the refinement of our growth plan. We will take them seriously, and we will act on them as we have done in the past.
Thank you and good day.