Carlos G. Dominguez
Secretary of Finance
Mr. Dante Francis Ang II, President and CEO of The Manila Times; senior officials of The Manila Times; members of the business community; friends in media: good morning.
Thank you for the opportunity to speak with you today.
Undeniably, the pandemic and the measures to save lives and protect our communities from COVID-19 have been very costly to the economy.
For the entire year, we project our economy to contract by about 6 percent. We have seen unemployment spike when the domestic economy was hindered by the lockdown. Our enterprises have borne the brunt of the economic downturn.
Behind the headline numbers, however, there is some consolation.
The most recent independent public opinion polls indicate that the Duterte administration’s response to the pandemic is well appreciated by our people. The Pulse Asia survey showed that President Duterte received a job approval rating of 91 percent.
It is fortunate that when the COVID-19 crisis hit, the Philippines was financially ready.
Since 2016, we had started building up our finances to support our aggressive infrastructure program designed to lift Filipinos out of poverty. Little did we know that this financial build-up would also serve to buttress our defenses against economic shocks.
The game-changing reforms we passed over the last four years have strengthened our fiscal stamina. Without our series of tax reforms, the rice tariffication law, and other far-reaching measures, the COVID-19 crisis would have inflicted much more pain on our people and on the economy. We thank our legislators for passing these measures on time. They have provided us the necessary tools needed to fight the pandemic.
By 2019, we were able to bring up our revenue effort to 16.1 percent of GDP. This is the highest in more than two decades. In the same year, we worked down our debt-to-GDP ratio to a historic low of 39.6 percent.
The Philippines has the lowest external debt position among the ASEAN-5 countries. In 2019, we posted a 20.2 percent external debt-to-Gross National Income ratio.
Our gross international reserves hit an all-time high of 100.5 billion US dollars by the end of September of this year. The buffer is sufficient for 10 months’ worth of imports.
Our foreign reserves are more than our outstanding external debt, which stood at 87.5 billion US dollars as of June of this year.
The crises in the past had pushed the Philippine peso to depreciate together with the currencies of other emerging markets. Not this time. Year-to-date, the Philippine peso has appreciated by 4.3 percent against the US dollar.
Our credit ratings have endured a global tide of downgrades and remain at historic highs.
The strong fiscal position we had was an advantage. It gave us enough room to reallocate budget items to fight the pandemic. We were able to quickly access emergency loans from our development partners and the commercial markets at very low rates, tight spreads, and longer repayment periods.
This year, we expect to collect less taxes as we increase spending in healthcare and relief measures to prop up the country for recovery. The borrowings we have secured will help cover our revenue shortfall.
Although there were enough excuses to grow the deficit and borrow more money, we have chosen to take the path of fiscal prudence.
Our goal is to land our deficit-to-GDP ratio in the middle of our ASEAN neighbors and credit rating peers. This conservative approach will allow us to continue accessing the financing we need at favorable terms for the Filipino people.
The Congress adhered to our prudent approach by passing two fiscally responsible measures. Both Bayanihan One and Two recognize that the fight against the pandemic has an indeterminable timeline. This is going to be a marathon, not a sprint. We have to be prudent in the use of our finite fiscal resources. After all, it is the virus that ultimately dictates the timeline in this battle.
Bayanihan Two opened the way for the government to begin rebuilding our domestic economy.
We have ensured that help is available to key industries, without intervening excessively in the workings of the private sector financing. The credit programs under Bayanihan Two will support, rather than diminish, the financial sector’s continued strength and stability.
For instance, it infuses additional capital into our government financial institutions, enabling them to expand lending support for enterprises in distress. This will have a large multiplier effect in economic activity. Every peso infused into our government financial institutions will generate around 10 times its value in credit. The additional capital will be used to protect the productive parts of our economy.
The increased lending capacity will also enable our government banks to serve as wholesale banks and rediscounting agents for smaller and medium sized banks and microfinance institutions.
The Duterte administration is maintaining its commitment to ramp up infrastructure spending. With its high multiplier effect, the Build, Build, Build program will play a pivotal role in our economic recovery.
Even as infections continue, it is important to begin the difficult task of rebuilding our economy. We are working closely with our legislators for the urgent passage of key legislative measures. We have ensured that these reforms will allow us to recover in a sustainable and resilient manner.
We seek to lower the corporate income tax rate by 5 percentage points immediately and incentivize countryside investments. We aim to mitigate the threat of non-performing assets to our banking system. We want to support strategically important companies facing solvency issues. We also seek to provide greater support to the agriculture sector by increasing credit access to the entire agricultural value chain.
The swift passage of our 2021 national budget is also crucial. It will provide us with the tools necessary to rebuild our economy.
The Duterte administration’s aim is to pursue a safe new normal while we strive for a better normal. We cannot completely lock ourselves up to avoid COVID-19 at the expense of other vital dimensions of our lives. We should take less costly but effective measures.
We are doing our utmost to balance our efforts to revive consumer confidence and reopen the economy with health interventions.
The progress we have seen in our labor market after the slight easing of mobility restrictions is very encouraging. Our unemployment rate in July of this year significantly dropped to 10 percent from a high of 17.7 percent in April, when strict lockdowns were still in place.
The continuous slower contraction in manufacturing production also signals rising economic activities. The value of production index for the month of August continued to drop at a slower annual decline of 13.8 percent from a high of 40.1 percent in April. The volume of production index also continues to shrink at a slower annual rate of 9.9 percent in August, compared to a high of 37.6 percent in April.
The combined collections of the Bureau of Customs and the Bureau of Internal Revenue exceeded our revised target for the first nine months of the year by 8 percent. These are strong indicators that the economy is starting to recover.
While strengthening our health system, we also intend to continue finding more ways to help revive the domestic economy. We are turning this crisis into an opportunity to boost the competitiveness of our manufacturing and agriculture sectors. We support the rehabilitation of our tourism infrastructure and facilities.
We are accelerating digital transformation of our government processes to drastically cut red tape, hasten the delivery of services to the people, and curb corruption.
The Department of Finance is also studying how to tax the digital economy better. The regulatory mechanisms should make certain that the shift to the digital economy will expand opportunities for legitimate enterprises. Our regulations should also protect the welfare of consumers. We will continue to maintain a pro-business environment for our enterprises to prosper.
As the entire global economy is expected to contract by about 4.4 percent this year, all our recovery efforts will face strong headwinds. By exercising prudence in managing our fiscal affairs, we are confident that we will outlast this emergency.
Next year, we expect the Philippine economy to post a strong rebound. The challenges are large, but we are determined to build back a better economy that the Filipino people deserve.
Thank you.
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