Senate President Vicente Sotto, Honorable Senators of the Committee of the Whole of the Senate, members of the Cabinet, fellow workers in government, friends in media, good afternoon.
Thank you for inviting me to share this report on the Duterte administration’s socioeconomic response to the COVID-19 crisis. The outline of my presentation today are the following:
First, where we were at the end of 2019 or an overview of our economy’s performance prior to the pandemic.
Second, where we are now and our recent projections for the macroeconomic indicators and fiscal program for 2020.
And third, what we have done so far to address the socioeconomic impact of the contagion.
2020 will be a challenging year for the economy, but we are confident of weathering these challenges and recovering with resilience due to President Duterte’s prudent approach to fiscal management.
I thank our Senators for passing historic tax and economic reforms that have kept prices stable and predictable for Filipino consumers, and our financial position strong and steady.
In 2019, our revenues were at 16.1 percent of GDP, the highest rate in 22 years. We have strengthened our revenue flows due to the Tax Reform for Acceleration and Inclusion Law, followed by successive sin tax adjustments.
Until last year, we enjoyed continuously shrinking debt relative to the size of our growing economy at 39.6 percent, the lowest debt-to-GDP ratio since 1986.
We received a credit rating upgrade to BBB plus, our highest the country has ever received and only one notch below the A rating territory.
Meanwhile, the Rice tariffication Law has continued to help keep inflation low and stable. The year-to-date inflation rate is now at 2.6 percent, well within our target of 2 percent to 4 percent.
As of March of this year, our gross international reserves grew even larger to 89 billion US Dollars, equivalent to close to 8 months of imports.
On top of these, we achieved just last year the lowest recorded rates of unemployment, which was 5.3%, underemployment of 14.8%, and poverty at 16.6%.
Even amidst the negative impact of COVID-19, the Economist magazine, in their April 30 issue, ranked the Philippines sixth out of 66 selected emerging economies in terms of fiscal strength.
This “saving for a rainy day” approach to economic management has gained for us the trust and confidence of the world’s most respected credit rating agencies and development partners, such as the Asian Development Bank, the World Bank, the Asian Infrastructure Investment Bank, among others, allowing us to borrow money at lower interest rates and longer repayment periods.
The strong demand for our latest global bond issue also demonstrates the resiliency of global investor interest in the Philippine economy despite an environment gripped with pandemic fear.
We are already seeing the contagion’s effect on our economy. In the first quarter of 2020, our GDP shrank by two tenths of one percent for the first time in two decades. This was because we were the first country in ASEAN to impose strong lockdown measures to save lives and protect our communities.
While it is likely that the second quarter’s economic results will be even worse, experts from the World Bank and Yale University have advised us not to focus too much on these quarter to quarter numbers. After all, the pandemic is hurting the entire global economy. We need to focus on a smart combination of fundamental reforms and recovery measures to help ensure that we get the country back on its positive growth trajectory.
On May 12, the Development Budget Coordination Committee met to revisit the country’s macroeconomic indicators and fiscal program for this year.
The revised conservative projections will allow the government to operate with a more realistic and prudent fiscal stance.
This year, the DBCC projects the economy to contract by 2.0 to 3.4 percent.
Due to the slowdown in economic activities and taxpayer relief efforts, we project our revenue collections in 2020 to reach 2.61 trillion pesos or 13.6 percent of GDP. This is 17 percent lower than both the actual collections in 2019 and the program we have approved on March 27.
Disbursements for this year are estimated to be 4.18 trillion pesos, which is equivalent to 21.7 percent of GDP. This is 10 percent higher than the actual disbursements in 2019 and slightly exceeds the program we approved in March by 12 billion pesos. The emerging disbursement program takes into account the releases for COVID-19 initiatives charged to savings coming from austerity measures, among others.
With the revised revenue and disbursement program, the deficit for 2020 is projected to reach 1.56 trillion pesos or 8.1 percent of GDP.
For as long as our deficit-to-GDP ratio will not exceed 9.0 percent, our ratio will remain in the median of comparable countries in ASEAN and in East Asia; among peers with similar credit ratings; and among other emerging market economies. Below this threshold, the debt-to-GDP ratio will be around 50 percent, which is far lower compared to our historical performance.
While the Philippines is better positioned to overcome the pandemic than at any other time in recent history, we still have to realize that our funds are not endless so we need to spend our resources responsibly and cost-effectively.
We thank the Congress for responding swiftly to the call of the times by passing the Bayanihan to Heal as One Act, which grants expanded budgetary powers to the President to effectively carry out the government’s COVID-19 response measures.
This has enabled the government to pursue a four-pillar strategy to shield the Filipino people against the adverse impact of the pandemic and craft a recovery program to gradually jumpstart the economic activities. The strategy has a combined value of 1.74 trillion pesos or 9.1 percent of GDP.
Under the first pillar, we are providing emergency support or lifeline assistance to vulnerable groups of our population, with a total allocation of 595.6 billion pesos.
These include the largest social protection program in the history of the Philippines amounting to 205 billion pesos for 18 million low-income families in a span of two months. To date, around 17 million payouts have been released. Additional beneficiaries might be added subject to availability of funds.
This is complemented by a 51-billion-peso wage subsidy program for 3.4 million workers of small businesses also for two months. This is our way of helping small businessmen retain their employees. To date, we have already credited the first tranche of subsidies to more than 2.7 million employees.
Other relief programs for small businesses have also been put in place. The Philippine Guarantee board has approved the credit guarantee program amounting to 120 billion-pesos-worth of loans to enable small business owners to borrow from banks during the crisis. We have also included in package 2 of the tax reform program an expanded net operating loss carryover for five years amounting to 139.6 billion pesos so that businesses can use losses incurred in 2020 to lower their tax burden until 2025.
In addition, the recalibrated package 2 will have an immediate across-the-board cut of the corporate income tax rate from 30 to 25 percent starting in July 2020. This will be one of the largest economic stimulus measures in the country’s history. The rate reduction will free up almost 42 billion pesos in the second half of 2020 alone, and more than 625 billion pesos over the succeeding 5 years to fuel economic dynamism, especially among our country’s growth engines — the micro, small, and medium enterprises. Clearly, this is not an effort to raise taxes, as the package will be decisively revenue-negative.
The large and immediate rate cut in the second half of 2020 also sends a strong signal to the world that the Philippines is positioning itself as a premier investment destination for companies that are looking to diversify their supply chains.
To sustain the efforts of the private sector to recover from the present crisis, we also propose that the corporate income tax be reduced further by one percentage point per year starting 2023, until it reaches 20 percent in 2027. We are also extending by two years the sunset provision for those under the gross income earned regime, from 2 to 7 years in the current draft to 4 to 9 years.
For pillar 2, we have marshalled resources to fight COVID-19. At this point, we have allotted 58.6 billion pesos under this pillar to support our frontline healthcare workers and increase the testing, tracing, and treatment capacity of our health system.
The third pillar consists of a bold fiscal and monetary actions to finance emergency initiatives and keep the economy afloat. This has an estimated value of 856.3 billion pesos, which includes standby financing for our economic recovery plan and a 233-billion-peso liquidity infusion into the economy from the timely, anticipatory responses of the Bangko Sentral ng Pilipinas.
Finally, the fourth pillar, the economic team is working on a recovery program that will help us jumpstart economic activity and provide industries the assistance they need to get back on their feet. This will be funded in large part by Pillar 3.
The responses we have gathered from a nationwide survey and active engagements with stakeholders aided us in developing differentiated and targeted interventions for each sector.
The economic plan is dubbed as PH-PROGRESO or Philippine Program for Recovery with Equity and Solidarity.
But before that, I have personally recommended to the President five priority actions to revive the economy while, at the same time, protecting the health and well-being of our citizens.
These include restarting and accelerating the Build, Build, Build program, subject to compliance with minimum safety standards. The infrastructure program remains to be the best driver of economic growth because it has the best multiplier effects in terms of employment and shared prosperity. It will primarily fuel our bounce back plan and will help our economy recover quickly.
Second, we are aware that a lot of Filipinos, including those working overseas, may have temporarily lost their jobs due to the pandemic. A massive hiring of contact tracers can be done to boost our efforts to stop the transmission and defeat COVID-19, while providing hundreds of thousands of jobs.
Third is attracting foreign investors who want to relocate from other countries and are in search of resilient, high-growth-potential economies like the Philippines. This will involve the urgent passage of package 2 of our tax reform program, which we now propose to include flexible tax and non-tax incentives so that we can target specific companies that we want to invest here.
Fourth is stimulating demand. To do this, we must promote the manufacturing of products that have strong, inelastic demand, such as food production and logistics. Fifth, we must support the whole value chain of these products, from inputs to packaging and logistics. We need to help businesses, especially micro, small, and medium enterprises, and consumers to weather the economic storm together.
We are optimistic that the timely implementation of our economic recovery program, together with the efforts of the private sector, will enable our country to get back on its positive growth trajectory. We project that our country will bounce back in 2021 with a GDP growth ranging from 7.1 to 8.1 percent.
Countries around the world are moving toward jump-starting their economic engines. Whether the Philippines underperforms or outperforms its peers and neighbors will depend largely on our comparative resilience, and of whether we build on or demolish our solid fundamentals.
In partnership with the Congress, the Duterte administration will protect our economic gains, support our recovery, strengthen our resilience, and solidify our return to the path of inclusive and shared prosperity.
Thank you.
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