Dr. Joachim Breuer, Chairman of the International Social Security Association, Leaders and chief investment officers of public and corporate pension funds present here: good afternoon.
Thank you for this opportunity to address you today.
The Philippine economy has become one of the growth engines of the Asia Pacific region. In the first quarter of this year, we grew our economy by 6.8 percent. That caps 77 consecutive quarters of expansion. The last ten of those saw growth rates of 6.5 percent or better.
We are preparing to grow our economy at 7 percent this year. At that rate of expansion, and with strong investment inflows contributing to more inclusive growth, we hope to bring down the poverty rate to only 14 percent by 2022. That is the most important number we hope to make. All development efforts will be meaningless if they do not translate into liberating people from the curse of poverty.
Our economic strategy is anchored on two major programs: the comprehensive tax reform program and the massive infrastructure build-up already in place.
Last year, the Philippine Congress enacted the first package of our tax reform program. We are pursuing this reform to make our tax system simpler, fairer and more efficient. While benefitting 99 percent of Filipinos through a reduction in personal income tax rates, revenues in the first quarter exceeded expectations. Our tax effort rose from 13.4 percent of GDP to 14.3 percent. This is the highest first quarter tax effort we have ever achieved in the past 25 years.
We hope to consolidate this trend with the enactment of the second tax reform package. Among its salient features are the modernization of fiscal incentives extended to certain businesses, reduction in corporate income tax rates to match regional norms and other measures that will simplify the conduct of business in our economy.
At the core of our strategy for rapid and inclusive growth is President Rodrigo Duterte’s ambitious infrastructure program known as the Build, Build, Build.
With the highest multiplier effects, investments in infrastructure enable us to stimulate economic expansion.
Last year, public spending for infrastructure investments rose to 5.4 percent of GDP — slightly above the regional average. This year, we have programmed 25.4 percent of the national budget or 6.3 percent of GDP for infrastructure investment. This will be more than twice the share of GDP invested in our infrastructure through the last three decades. By 2022, the share of GDP going to infrastructure investments will rise to 7.3 percent.
These investments will close the infrastructure gap with our neighboring economies. It will likewise help stimulate domestic economic activity, enabling the Philippine economy to move decisively to a higher growth plane.
We have identified 75 strategic infrastructure projects to be completed over the medium term. Of these, 35 have gone through the approval process and are ready for execution. These projects will make the movement of people and goods across the archipelago more efficient. It will bring all the islands into the mainstream of economic growth. No island and community will be left behind because of poor logistics.
Over 170 billion US dollars will be invested in the infrastructure program over the next five years. The massive infrastructure buildup on this scale is made possible by the tax reform program that ensures robust and reliable revenue flows to the government. A large part of the first package of projects will also be financed through official development assistance (ODA) flows from our friends in the region. The concessional financing offered will lower costs and allow the projects to be undertaken at a shorter time.
Both Japan and China committed 9 billion US dollars each worth of investments and development assistance to the Philippines. These are among the largest amounts of pledges announced by the two economic powerhouses for a single country. Meanwhile, South Korea has pledged up to 1 billion US dollars in ODA to the Philippines under President Rodrigo Duterte’s term. This is a result of President Duterte’s foreign policy rebalancing geared towards accelerated integration with the country’s ASEAN neighbors and East Asian trading partners.
The infrastructure program also benefits from a revived interest in infrastructure investments among multilateral institutions such as the Asian Development Bank (ADB), World Bank (WB) and Asian Infrastructure Investment Bank (AIIB). These institutions have evolved a keen sense of the importance of infrastructure-based intervention to assist in our economic emergence. We have combined loans and grants to arrive at economically astute and technically superior designs for the projects we intend to undertake.
Against the backdrop of over three decades of underinvestment in infrastructure, we embarked on the Build, Build, Build program with a great sense of urgency.
With expanded ODA inflows and with the possibility of floating bonds at investment-grade rates, we also decided to shift to hybrid public-private partnership models that will enable us to execute the projects quickly, reduce completion risks to the private sector and deliver the economic benefits as soon as possible.
The traditional PPP models were simply too tedious, too complex and prone to unnecessary delays. By our experience, the traditional PPP model required all of 30 months to gestate.
In the hybrid public-private partnership model, the government undertakes the projects using budget allocations, ODA, and funds raised from bond flotation. The completed projects are then passed on to private partners for management or even acquisition. To cite an example, last year, the contract to upgrade the passenger terminal of the Clark International Airport was awarded to a Filipino-Indian consortium. This is the first big-ticket hybrid Public-Private Partnership project under the Duterte administration.
Our state pension funds also play a role in funding infrastructure projects. For instance, the Government Service Insurance System invest in private infrastructure assets through a fund vehicle called the Philippine Investment Alliance for Infrastructure. This is the first private equity fund earmarked for the country’s infrastructure projects. Among the investments made under this fund include solar power and wind farm projects, power plants and railways.
We continue to streamline the institutional processes on approvals and execution of the big-ticket infrastructure projects. The government also introduced the Build! Build! Build! Portal to enhance transparency and fast-track the project implementation.
It is our desire to see the strategic projects completed at the shortest possible time in order to immediately realize their economic value and lessen unnecessary financing costs.
The modernization of our infrastructure and our governance will bring enhanced connectivity to the Philippine economy. They will open many opportunities for the global investment community. I hope that you will examine our on-going programs and decide to participate in the strong emergence of the Philippine economy.
The door is open. The business environment will continue improving over the next few years. This is a good time to build partnerships in the Philippines.
Thank you and good day.
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