07 October 2020
Carlos G. Dominguez
Secretary of Finance
Vice President Leonor Robredo; Ambassador Benedicto Yujuico, President of the Philippine Chamber of Commerce and Industry; Ms. Maria Alegria Limjoco, Chairperson of the PCCI; Mr. George Barcelon, President Emeritus of the PCCI; members of the diplomatic corps; friends in the business community and foreign chambers: good morning.
Thank you for this opportunity to join this important conference.
As our economy moves towards recovery, it is important for us in government to hear from the brave entrepreneurs who man the frontlines.
I know many of you lead small and medium-scale companies that have borne the brunt of the economic downturn. Your inventiveness and willingness to adapt quickly to this rapidly changing environment have helped us to protect jobs. Your compliance with minimum health standards and regulations is helping us fight COVID-19 without paralyzing the economy.
With all the uncertainty on the outcome of this pandemic, we chose to take the path of fiscal prudence.
The battle against the contagion will continue to be a test of fiscal stamina. While we hope for the best, we must be prepared for the worst.
It is fortunate that when the crisis hit, we were financially ready.
Since 2016, we have started building up our finances to support our aggressive infrastructure program in order to reduce poverty in this country. Little did we know that this financial build-up also served to improve our defenses against economic shocks. The game-changing reforms we passed over the last four years have strengthened our fiscal and economic stamina.
Without tax reforms, rice tariffication law, and the other far-reaching measures, the COVID-19 crisis would have inflicted much more pain on our people, businesses, and the economy. We have to thank Congress for passing these measures in a timely manner. Our legislators provided us the necessary tools needed to fight the pandemic.
The PCCI has also been instrumental in the passage of these critical measures. Since day one, you have been one of our leading partners in making meaningful reforms happen.
By 2019, our bold measures in tax policy and tax administration enabled us 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 brought down our debt-to-GDP ratio to a historic low of 39.6 percent. The Philippines also 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.
This strong financial position gave us the headroom needed to reallocate budget items and quickly access emergency financing to fight the pandemic.
With our sovereign credit ratings at historic highs, our development partners and the commercial markets continue to provide us with financing at very low rates, tight spreads, and longer repayment periods. These borrowings will help us cover our revenue shortfall resulting from the slowdown in economic activity.
We have to assume that this health emergency will continue for many more months and possibly years. The best-case scenario is the widespread availability of a safe and effective vaccine by the middle of next year. Even then, we are not sure how quickly this will contain infections. We must therefore ensure that we have sufficient ammunition to outlast the enemy.
We have reset our budget deficit targets to allow us to cover the additional spending needed for our COVID-19 response. 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 access financing at favorable terms for the Filipino people.
We are thankful that Congress adhered to our prudent approach by passing fiscally responsible economic stimulus measures. Both Bayanihan One and Two allow us to meet the challenges of economic recovery without imposing a heavy burden on future generations.
Bayanihan Two makes possible several streams of support for enterprises to restart their operations and retain jobs.
Our direction has always been to pursue bold public-sector reforms that also empower the private sector. Bayanihan Two’s credit programs follow this principle. We have ensured that help is available for key industries, without intervening excessively in the workings of private sector financing. The credit programs will support, rather than diminish, the financial sector’s continued strength and stability.
Bayanihan Two infuses more capital to government financial institutions to dramatically expand lending to MSMEs or micro, small and medium enterprises. 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 small and medium sized banks and microfinance institutions.
The Bangko Sentral ng Pilipinas agreed to count loans extended to MSMEs as part of the banks’ compliance with reserve requirements. This continues to free up more funds to support the revival of our small businesses.
The law also extends the carry-over period of net losses in 2020 and 2021 from three to five years for businesses. This will allow MSMEs to deduct incurred losses from tax payments for a longer period. These measures will give them more time to set their finances in order and, hopefully, to return to profitability.
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 central role in our economic recovery. In the immediate term, infrastructure projects will provide much-needed jobs and spur domestic demand. In the long term, these projects are sustainable investments that promote better interconnectivity and bolster countryside development.
For the economy to fully recover in a sustainable and resilient manner, we are closely working with our legislators for the urgent passage of key legislative measures.
We are pushing for the passage of the CREATE bill that will lower thecorporate income tax rate by 5 percentage points immediately and incentivize countryside investments. This means tax breaks for all enterprises.
CREATE is really about trusting the private sector. Instead of passing funds through what tend to be less efficient government programs, this will leave the money in the private sector’s hands to revitalize their businesses.
We also aim to mitigate the threat of non-performing assets in 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 whole agricultural value chain. All of these reforms will help create a strong business-driven economy long into the future.
Innovation in the government and the private sector is also needed to recover and build resilience against future adversities.
The tourism sector should turn this crisis into an opportunity to rehabilitate and upgrade their hotels and infrastructure facilities. Weak infrastructure is the primary reason why our tourism industry has lagged behind our neighbors long before the pandemic struck. Investing in infrastructure will ensure the strong rebound of the sector once the contagion is over.
Manufacturing is another key sector that we need to revitalize in the post-pandemic era. Our country leapfrogged from an agriculture-based to a service-oriented economy, but we failed to build a strong manufacturing base. Now is the best time to accelerate the competitiveness of this sector to create more jobs and regain our economic momentum.
The government is also catching up with the pace and scale of digitalization in the business world. We are accelerating the digital transformation of our government processes to drastically cut red tape, hasten the delivery of services to the people, and curb corruption.
You have seen how digital technologies aided the efficient and successful implementation of the Small Business Wage Subsidy program of the Department of Finance, the Social Security System, and the Bureau of Internal Revenue. We encourage other government agencies to duplicate this success by adopting electronic fund transfers for their cash aid initiatives.
We are also fast-tracking the implementation of the National ID system to improve the efficiency and speed of delivering public services.
We launched several digital channels to further broaden financial inclusion. These are the Digital PERA for the Personal Equity Retirement Account and the Bonds dot PH mobile application for our domestic bond offerings.
Under the Duterte administration, the Bureau of Internal Revenue introduced additional electronic channels for filing and paying taxes. We are also expediting the implementation of the e-invoicing system to enhance revenue collections.
The Bureau of Customs, for its part, continues to modernize its infrastructure and simplify its processes while ensuring border protection. The Bureau is expediting the issuance of a Customs Modernization Order that will enable the admission and quick processing of importations that are conditionally free from duty and taxes. This measure will promote trade and open up bigger market opportunities for our MSMEs once we fully reopen the economy.
We are 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.
The Bangko Sentral ng Pilipinas, for its part, has made great progress in making cashless transactions more affordable and accessible to the Filipino people. Nearly all major banks now offer electronic cash transfers through systems set up by the BSP.
These digital developments are historic steps not only into the New Normal, but also into the New Economy.
While we are all preparing for this rapid digital transition, we are also doing our utmost to balance our efforts to revive consumer confidence and reopen the economy with health interventions.
The lockdowns that the government imposed in the second quarter of the year were necessary to save lives and protect communities. They enabled us to strengthen our prevention, testing, isolation, and treatment capacities. However, further lockdowns at this time will bring more damage to the economy.
Prolonged strict quarantine measures will threaten the gains we have made in employment and poverty reduction over the past four years. We need to start reopening the economy by allowing people to return to work and providing them additional modes of public transportation.
While we continue the fight against COVID-19, we must not lose sight of the fact that protecting the health of the Filipino people involves more than just keeping them safe from the virus. Without a productive economy that sustains their basic needs and the costs of healthcare, we will have limited ability to protect them from other health issues and diseases.
It is imperative to view COVID-19 and its relationship with the entire public health system and the economy in proper perspective. In the first six months of 2019, over 358,000 Filipinos died from heart disease, tumors, cerebrovascular disease, and diabetes, among other causes. For the same period this year, our death toll from these diseases and other notable causes significantly declined by 39 percent to just over 218,000. Of the total, 5,154 deaths were due to COVID-19.
Medically tried and tested courses of treatment are available for heart ailments, diabetes, and other serious illnesses. However, they still accounted for a far larger number of deaths from diseases. While we continue to find ways to defeat the pandemic, we need to balance our healthcare response. We have to ensure that those afflicted with life-threatening ailments other than COVID-19 also receive quality medical care and treatment.
This is why our aim has been to pursue a safe new normal while we strive for a better normal. We cannot completely lock up ourselves to avoid COVID-19 at the expense of other vital dimensions of our lives. We should take less costly but effective measures.
We remain confident that we will win back our growth momentum by next year. A lot will depend on whether government and business can work together to revive consumer confidence and domestic demand.
On the part of the government, I can assure you that we will continue to maintain a pro-business environment for our enterprises to prosper. Together, we will overcome the challenges of this year and provide our people the inclusive economy they deserve.
Thank you.
-@@@-
Copyright © 2021 Department of Finance