Thank you, Acting Secretary Karl for that very comprehensive statement.
The first half of the year has been tough. The Philippines, like other countries, took decisive and lifesaving measures to contain COVID-19, at the expense of economic growth.
We knew that lockdowns and strict quarantine measures would hurt our economy, but we acted swiftly and decisively to save lives and protect communities.
The government did not shirk from the equally important responsibility of providing much-needed relief to the most vulnerable, maintaining fundamental services, and carrying out measures to keep the economy afloat. Our investment grade credit ratings enabled us to access financing at deeply concessional rates and, as a result, we expanded government expenditures in the first semester by 27 percent, compared to the same period last year.
Without continued and increased public-sector spending, especially on infrastructure, public health, and social protection, our economy would have performed much worse, and the first semester GDP would have shrunk by 2.5 percentage points more than it did, or a total of 11.5 percent versus the actual 9 percent.
The pain is shared across borders. Among our credit-rating peer group, our economic performance for the first half of the year roughly falls within the middle of the pack, at negative 9 percent. Among our credit rating peers, first semester numbers showed contractions among the economies of Italy by 11.6%, Mexico by 10.2 percent, and Indonesia by 1.2 percent. We are not alone in our struggles, although the unique fiscal and macroeconomic strategy and strengths with which we entered 2020 will continue to provide us with solid footing as we confront economic challenges.
Although the first semester figures underscore the challenges ahead of us, with the public’s cooperation and if we work together to shore up consumer confidence, we will deliver better economic outcomes in the final half of this year.
Now, we know more about this disease and how it is transmitted. We now know that, with the right behavior, individuals, businesses, and communities have significant control over the risks of infection. The pandemic we are fighting is no longer “novel.”
The government is waging a war on COVID-19 on all fronts. Our strategy has three main components: our fiscal stimulus; a recalibrated budget for 2021; and continued massive investment in infrastructure. The first, the Bayanihan to Rise as One stimulus package, hurdled the second reading in the Lower House just last night. We look forward to finally passing the bill, hopefully by next week. Now I turn over to Secretary Avisado to discuss the National Expenditure Program for 2021, and to Secretary Dizon for the updates on infrastructure.
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As we have repeatedly said, the COVID crisis will be a drawn-out series of battles and the war will only be conclusively won with the development and wide availability of a vaccine. How close to “normal” we can live until then will depend on everyone’s efforts. Relief efforts and the largest economic stimulus programs in our history are being undertaken. Those at the frontlines of our COVID-19 response have been working nonstop, day and night, weekends and weekdays.
These efforts have not been in vain. We are beginning to see the light at the end of the tunnel. Improvements are seen in the manufacturing sector as the economy gradually reopens. For instance, the value of production index for the month of June showed a slower annual decline of 22.5 percent compared to the 31.2 percent decrease in May and 41.2 percent in April.
While the volume of production index in June shrank by 19.3 percent year-on-year, the decline was slower compared to May’s drop of 28.5 percent and 38.8 percent in April.
In addition, the overall manufacturing capacity reached 73 percent in June, up from 72.4 percent in May and 70.5 percent in April.
Meanwhile, the country’s total merchandise trade further eased its negative trajectory in June with a slower decline of 19.9 percent, after a steep 35.3 percent contraction in May and 59.5 percent in April. This slower decline in the country’s trade performance signals resumption of economic activities.
These improvements are reflected in increases in tax collections by our main revenue-generating agencies. The Bureau of Customs was able to surpass its July collection target by 5 percent due to higher import volumes. This follows above-target performance in June, and signals rising economic activity.
The Bureau of Internal Revenue, for its part, exceeded its July collection target by 2 percent. The major tax gains last month were seen in both excise and value-added taxes, signs that consumer spending is starting to pick up.
While we had endured other difficult episodes in the past, what makes this crisis different is how prepared our fiscal position is now for a challenge of this scale. In previous years, emergency spending and urgent borrowing might have been very difficult to carry out.
President Duterte’s prudent approach to fiscal and economic management has made us one of the strongest, most resilient, and credit-worthy economies in this region. This has been affirmed by the world’s biggest credit rating agencies. Even in this protracted struggle, we have the fiscal space for decisive action, and will continue to access favorable terms of credit from our development partners.
When Senator Pacquiao trains for a fight, he prepares for 12 grueling rounds. As there can be no knock-out punch that cuts our fight short before the vaccine is developed, the government’s ability to sustain the fight depends on our fiscal stamina. We have the resources necessary to endure this challenge, but we must also conserve our resources for succeeding rounds of this fight.
The Development Budget Coordination Committee projects a strong rebound in 2021. And as I have reported to the President, we will be able to afford mass vaccination of as many as 20 million of the poorest Filipinos, when the vaccine becomes available, which hopefully will be soon.
The Duterte administration will not rest until we have prevailed over this extraordinary challenge.
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