Her Excellency Joharia Wahab, Brunei Ambassador; His Excellency Jorge Moragas, Ambassador of Spain; FOCAP President Sara Gomez Armas; officers and members of FOCAP, friends from the media.
Thank you for inviting me to this forum. This is an excellent opportunity to share with you, and your readers, the many reasons why the mood is so optimistic at the start of the year—notwithstanding the humanitarian imperatives arising from the eruption of Taal Volcano and the global spread of the novel coronavirus.
The official growth number for the economy’s performance last year is not a surprise. The GDP growth rate of 5.9 percent is a shade below the lower end of our target. Nevertheless, we grew at 6 and 6.4 percent in the third and fourth quarters of 2019, respectively, which means the country remains one of the growth leaders in the ASEAN region.
The main reason for the weak performance during the first semester of 2019 was the delay of 5 months in the passage of the national budget by Congress. Compounded with the ban on new infrastructure projects during the election period, the delay stymied our growth through the entire first half of the year.
In order to recover from the slower growth, we devised an accelerated investment plan to deliver infrastructure modernization and social services faster. Our growth numbers in the second semester indicate that our aggressive spending program made a significant impact.
NEDA estimates suggest that the delay of the passage of last year’s budget took out nearly a full percentage point from our growth rate. Had the budget been passed on schedule, our full-year GDP growth rate last year should have been around 6.8 percent. Clearly, a budget delayed is development delayed. The challenge at hand is to maintain the momentum of a rapid growth that we were able to recover.
This year begins with good news. The 2020 national budget has been enacted on time, and for that we wish to thank the leadership of Congress, particularly Senate President Vicente Sotto and House Speaker Alan Cayetano. Furthermore, the validity of certain portions of the 2019 budget were extended until yearend. This provides us a double-barreled boost – enough to sustain our high growth trajectory.
Surely, the public spending side of the growth equation will spur economic activity over the next few months. We see the economy firing on all cylinders this year with substantially higher government spending on infrastructure and social services, stronger domestic consumption responding to a benign inflation, and a revitalized agricultural sector.
The full-year inflation rate for 2019 settled at two-and-a-half percent, close to the lower end of our target range of 2-4 percent. The low inflation environment will provide enough headroom for stimulus measures by our monetary authorities.
The effective taming of high inflation in 2018 has been attributed mainly to the passage of the Rice Tariffication Law after around three decades of failed attempts by previous administrations. This law has brought down the price of our country’s staple food for more than a hundred million Filipinos. Across the board, consumers enjoy an average of 9 pesos less in the price per kilo of rice. This is particularly helpful for the lower income households who spend a fifth of their budgets on rice alone. It is likewise beneficial to the corporate sector as the much lower inflation rate eased the pressure on businesses to raise wages.
Meanwhile, on the revenue side, the government continues to post remarkable gains. Comparing our revenue collections in 2019 versus that of 2015, the collections improved by 54 percent. Robust revenue flows translate into greater economic investments. With enough fiscal space, spending on infrastructure also dramatically grew by 42 percent last year compared to 2015.
Preliminary data shows our tax effort likewise improved to 15.1 percent of GDP in 2019 from 13.6 percent in 2015. This is the best we have achieved in 22 years.
We expect the tax effort to be further reinforced this year from the better tax administration and intensified anti-smuggling drive of the government; the passage of the remaining tax reform packages; the increasing amounts of dividend remittances for our government-owned and controlled corporations; and sustained campaign to crack down on errant Philippine Offshore Gaming Operators or POGOs and their service providers. This rapidly growing sector yielded a total of 6.42 billion pesos in tax collections last year—a 169 percent increase from 2018. We expect to collect significantly more this year as we properly document and audit operations of these service providers.
In 2019, we made history by raising excise taxes on tobacco products twice under the same administration. This month, a new set of sin taxes on e-cigarettes and alcohol was enacted. While discouraging smoking, vaping, and binge drinking, the new excise taxes will help us fund the Universal Health Care program that will primarily benefit low-income families. Preliminary figures show our tax collection from sin products is almost double in 2019 compared to 2015.
We have even more impressive numbers relating to President Duterte’s overarching goal of bringing down poverty incidence.
During the first three years of the Duterte administration, we have brought down the poverty incidence from 23.3 percent in 2015 to 16.6 percent in 2018. A total of 5.9 million Filipinos lifted themselves from poverty. This was enabled by the strategy of rapid economic expansion adopted by this administration. We are on track to achieving our ultimate goal of reducing the poverty rate to only 14 percent or lower by the end of the President’s term.
There are even more impressive numbers related to this overarching objective.
Official statistics show that lower-income households experienced the highest increase in mean per capita income from 2015 to 2018. For the lowest 30 percent of the population, per capita income grew by an average of 32 percent, outpacing the 20.9 percent growth in per capita income for all deciles. The richest 20 percent of the population grew their per capita income by only 18 percent during the same period.
The significant increase in income of the lower deciles is largely attributable to the positive effects of the policy reforms undertaken by the Duterte administration. The expansion of our social protection programs and the reduction in the personal income tax rates due to the TRAIN law, are major factors alongside more employment opportunities for priority population segments. The 4Ps program, Unconditional Cash Transfers, social pension, and the Pantawid Pasada augmented the incomes of poor households.
Clearly, the growth we are experiencing is not only rapid. It is also inclusive.
The passage into law of the remaining packages of the comprehensive tax reform program should further improve the inclusiveness of the growth we see. These remaining components will help produce a more business-friendly environment for investors.
By March of this year, we hope to see the Corporate Income Tax and Incentives Rationalization Act passed into law. A reduced corporate income tax rate and a simpler, fairer, and more accountable tax incentives system will bring huge benefits to about one million micro, small and medium enterprises that comprise the bulk of businesses in our economy and employ a majority of our workers.
The sooner Congress passes this bill, the quicker potential investors will discard their wait-and-see attitude and bring more investments to the country. This will result in incalculable benefits to our economy.
We have likewise improved the ease of doing business and adopted best practices in the use of digital technologies in facilitating transactions.
Moreover, after 11 long years, we finally released the set of regulations that will allow the country’s Real Estate Investment Trust or REIT market to finally take off. This is a powerful financial instrument that will boost investments in property development in the country as well as democratize wealth by opening access to thousands of small investors wanting to be shareholders in secure and profitable real estate projects. This is a big step forward for greater inclusiveness in the financial system.
The large investment funds to be raised using this mechanism will be reinvested exclusively within the country’s real estate and infrastructure sectors, thereby ensuring that the money invested by Filipinos will stay in our domestic economy.
Confidence in the quality of our fiscal management is indicated not only by the Philippines’ unprecedented credit rating upgrade to BBB plus last year, which is already over the credit rating of Italy and Portugal, and just one step below Spain. The wider public patronized the first-time ever sale of Premyo Bonds, enabling us to raise 4.96 billion pesos or over 65 percent more than the initial issue size of 3 billion pesos. These bonds open yet another channel for ordinary Filipinos to be included in the financial mainstream.
More recently, the Philippines issued its first-ever zero-coupon Euro Global Bond in the international capital markets. The overwhelming response from the market for our 3- and 9-year global bond issuance worth 1.2 billion Euros underscores the international investor community’s deepening confidence in the Philippine economy.
Meanwhile, the continuing review of government contracts is an effort to protect taxpayers and ordinary citizens from onerous provisions.
The reviews, we hope, will deliver a clear message that while the government is interested in inviting businesses to our economy, we are telling the investment community that the interests of the whole nation should be the primary consideration.
Having outlined all of the above, it should not be surprising that President Duterte enjoys unprecedented performance approval ratings during the second half of his term. The virtuous cycle of decisive leadership, broad public support, and bold policy reforms continues on its upward spiral.
These explain why so much optimism is in the air. We hope you will share this optimism held by most Filipinos in the capacity of our economy to grow more rapidly and more inclusively.