April 26, 2021
Fellow Cabinet Secretaries; members of the diplomatic corps; development partners; members of the business community, academe, civic society and the media: Good morning.
The pandemic has put the nation to a great test. But we have the fiscal stamina to endure this long battle and prevail over the crisis.
The Philippines maintained its solid financial footing throughout this global health emergency. This confirmed the correctness of the policies pursued by President Rodrigo Duterte since the beginning of his term.
When President Duterte assumed office in 2016, he adopted a program of reforms proposed by various stakeholders who participated in the first ever Sulong Pilipinas. This program, summarized as the zero-to-ten point socioeconomic agenda, has guided the Duterte administration ever since. From the very start, we have been a government that consults and acts on the recommendations of its citizens.
The agenda emphasized the continuation of pro-market macroeconomic policies. It highlighted the need for a progressive tax reform program and a more transparent government. It underscored the importance of improving the ease of doing business, enhancing peace and order, and promoting rural development. It also pushed for increased investments in infrastructure and human capital development.
Over the last five years, the Duterte administration has shown great political resolve in pursuing and delivering on this agenda of governance.
To make a proper assessment of these reforms, we need to divide the term of this administration into two periods. The first is the Period of Growth and the second is the Period of Pandemic Response.
We accomplished much in consolidating our economic growth during the first period of this administration. We grew at an average rate of 6.6 percent—making the Philippines among the fastest-growing economies in Asia.
The expectations have been met and the promises kept.
We took an important step towards lasting peace with the establishment of the Bangsamoro Autonomous Region for Muslim Mindanao. The administration likewise maintained an unrelenting campaign against criminality, breaking the back of organized crime, particularly those involved in the illicit drug trade.
We saw the passage of the Ease of Doing Business Act and the National ID System that brings us closer to the goal of achieving e-governance.
The Rice Tariffication Law was finally achieved after more than thirty years of failed attempts under previous administrations.
The law opened up the Philippine rice market and, in turn, lowered the price of our country’s staple for more than 100 million Filipinos, who spend about a fifth of their total budget on rice alone.
Today’s Filipino consumer enjoys an average reduction of 8 pesos per kilo compared to the peak of rice prices in 2018. Consumers also have a wider variety of rice choices now. As a result, rice is no longer the main contributor to our overall inflation rate.
In March 2021, rice contributed only one-tenth of one percentage point to the inflation versus its one-percentage-point share at the height of the 2018 inflation spike. Without this law, we would have experienced even higher inflation rates and seasonal rice shortages.
The law ensures that farmers benefit directly from import tariffs by providing at least 10 billion pesos each year for mechanization, high quality seeds, access to credit, and training. Since the law’s effectivity, the Bureau of Customs has collected a total of 31.9 billion pesos in rice import tariffs, which is funding the modernization of our agricultural sector.
We also successfully enacted bold tax reform measures. We are the first administration in Philippine history to have embarked on a tax reform without being forced to do so by an external party or a looming economic crisis.
I would like to point out, however, that the success of the tax reform measures cannot be attributed exclusively to current efforts. In fact, this is a logical continuation of the decades of reforms arduously passed by previous administrations.
The TRAIN Law or the Tax Reform for Acceleration and Inclusion is a significant achievement of this administration. It provided a robust and recurrent revenue flow that expanded social services and supported our massive economic investments in modern infrastructure.
TRAIN reduced the personal income taxes for 99 percent of our taxpayers, giving them much-needed relief after 20 years of non-adjustment. Through TRAIN, we have basically given out a 14th-month pay every year to our wage earners.
Under the law, we imposed excise taxes on sweetened drinks from which we collect almost 100 million pesos a day. TRAIN likewise mandated the implementation of our first-ever nationwide fuel marking program to curb oil smuggling.
All in all, TRAIN enabled the government to raise 305 billion pesos in incremental revenues during the first three years of implementation.
The Duterte government is the only administration in Philippine history that increased excise taxes on sin products three times within one presidential term. The excise taxes on tobacco and alcohol products improved funding for the Universal Health Care Program–which is another landmark reform of this administration.
Since 2016, we have been collecting an average of 200 billion pesos annually in excise taxes from cigarettes and alcoholic products. This is more than double the average annual collection of the past administration.
On top of this, the Duterte administration also cleaned up the domestic cigarette business. We penalized a domestic cigarette manufacturer for tax evasion in 2017. This resulted in the biggest tax settlement in Philippine history, amounting to 30 billion pesos. The shareholders of those companies are out of the cigarette business. Since then, our collection on cigarette excise taxes increased by an average of 2.5 billion pesos per month.
In addition to modernizing our tax policies, the Duterte administration aggressively pushed for the full digitalization of the Bureau of Internal Revenue and the Bureau of Customs. This effort enhanced the collection efficiency of these agencies. For instance, in 2015, only 25 percent of taxpayers used the Bureau’s Electronic Filing and Payments System. In 2019, taxpayers who availed of the electronic channel more than doubled.
Our policy of instilling fiscal discipline among our GOCCs or government-owned or controlled corporations allowed us to collect an average of 57 billion pesos annually from these firms since we took office. This is more than double the average annual collection of the past administration.
Through bold tax reforms and better tax administration, we were able to raise our revenue effort to 16.1 percent of GDP in 2019 from 15.1 percent in 2015. This was our best performance in more than two decades.
In 2019, our debt-to-GDP ratio was at a historic low of 39.6 percent from 42.7 percent in 2015. We had won the highest credit ratings ever. As a result, we were able to bring down our borrowing costs and raise bond issuances with very tight spreads in the international markets.
The ratio of our debt interest payments to revenue significantly declined to only 11.5 percent in 2019 from 14.7 percent in 2015. Likewise, the ratio of interest payments to expenditure dropped to 9.5 percent in 2019 from 13.9 percent before we assumed office.
This means that more of our fiscal resources are being funneled towards meaningful and productive spending rather than debt servicing. This also indicates that our additional debt is being beneficial to our development agenda rather than being a burden to growth.
A perfect example of our productive spending is the Build, Build, Build program. This is the President’s main strategy to help lift Filipinos out of poverty.
The Philippines underinvested in infrastructure for far too long. The previous four administrations only spent about 2 percent of GDP on infrastructure investments. This anemic performance led to problems of congestion and inefficiency in our ports, airports, bridges, and roads. With priorities rebalanced under President Duterte’s watch, infrastructure spending dramatically rose to an average of 5 percent of GDP.
Our fiscal discipline likewise encouraged our development partners to support our infrastructure program through concessional loans and grants. Since we took office, we sealed 22 highly concessional loan agreements for our flagship infrastructure projects. This includes the country’s most ambitious infrastructure undertaking–the Metro Manila Subway project.
Apart from infrastructure, the Duterte administration also invested heavily in social services to boost human capital development. We provided health care coverage, housing, unconditional cash transfers, and free education at state colleges and universities.
With all these game-changing reforms, we entered 2020 with the prospects of becoming an upper middle-income country.
We achieved the remarkable feat of bringing down the poverty rate to just 16.7 percent in 2018 from 23.5 percent in 2015. In just four years, six million Filipinos were lifted out of poverty.
The unemployment rate also dropped to a low of 4.5 percent by the end of 2019 from 6.3 percent in 2015.
Clearly, we had realized better economic and social outcomes for the Filipino people.
And then COVID-19 came, and this once-in-a-century pandemic disrupted everything.
Although the global health crisis was both unexpected and unfamiliar, the Duterte administration moved quickly to protect Filipino lives.
For nearly the whole of 2020, the government had to impose restrictions on movement to keep our people safe from the virus, while building up our health system capacity.
We were fully aware, however, that this would impose heavy costs on the government, on the economy, and on our people.
Nonetheless, the game-changing reforms we had institutionalized over the last five years cemented our overall macroeconomic stability and allowed us to respond decisively to this health crisis. We owe this in large part to our legislators who passed our reform measures on time.
The Philippines’ direct response to the crisis so far amounted to 2.76 trillion pesos, equivalent to 15.4 percent of our GDP.
Our first priority was to mitigate widespread hunger among our population when we had to lock down the economy. The administration worked closely with Congress to pass stimulus measures that allowed us to respond to the pandemic quickly and effectively, but within our means.
Bayanihan One enabled us to responsibly support our most vulnerable sectors. The Social Amelioration Program assisted 18 million families and the Small Business Wage Subsidy Program kept more than 3 million Filipino workers afloat. These emergency subsidies amounted to about 250 billion pesos–the largest social protection program in Philippine history.
We also expanded medical resources to fight COVID-19 and ensured the safety of our frontliners. Fiscal and monetary actions were undertaken to keep the economy afloat and support recovery initiatives.
After ensuring primary safety nets in the emergency stage, Bayanihan Two was introduced. Through this measure, we were able to strengthen the health sector, provide cash-for-work programs, and assist affected sectors.
Instead of throwing money at the crisis, the government adopted the more prudent strategy of expanding lending to pandemic-hit enterprises. Our main government banks were infused with more capital for them to lend more money to the productive sectors of the economy.
Funding our social protection and economic stimulus measures was a challenge. Fortunately, we have ample borrowing capacity to absorb the large financial shock.
Our historic low debt ratio allowed a temporary but controlled expansion of our deficit-to-GDP ratio to 7.6 percent last year.
We had set out a clear strategy for financing our deficit. We prioritized domestic borrowings followed by official development assistance and the international capital markets at the end. We determined this plan as the most prudent approach, ensuring sustainability in our debt service.
Because of all the unplanned spending for the COVID-19 response and the drop in revenues due to our lockdowns, our debt-to-GDP ratio rose to 54.5 percent today. Nonetheless, this 15-percentage point increase in our debt level keeps us well within the prescribed bounds of fiscal viability and the experience of our rating peers.
The fact that the Philippines was able to maintain all its historic high credit ratings throughout the crisis is another notable achievement of this administration.
Even with the ongoing pandemic, we managed to stick to our socioeconomic agenda. We finally passed CREATE or the Corporate Recovery and Tax Incentives for Enterprises Act, which makes our comprehensive tax reform program nearly complete.
CREATE is the largest fiscal stimulus for businesses in our recent history. It is estimated to provide private enterprises more than 1 trillion pesos worth of tax relief over the next 10 years. MSMEs will be the biggest beneficiaries of CREATE through the grant of the largest ever corporate income tax rate reduction in the country, from 30 percent to 20 percent.
The law introduces an enhanced incentives package that is performance-based, time-bound, targeted, and transparent.
Apart from CREATE, President Duterte also enacted FIST or the Financial Institutions Strategic Transfer Act. This allows banks to efficiently offload their bad loans and non-performing assets.
This bill is an improved version of the SPV or Special Purpose Vehicle law in 2003. The big difference is that FIST was enacted within the first year of the pandemic, while the SPV was signed into law five long years after the Asian financial crisis struck in 1997.
Amid the extraordinary challenge we continue to face, we will not waver in our commitment to ensure that our macroeconomic fundamentals remain strong. We want to make sure that we can face the future with a deep war chest. We will continue to demonstrate our firm resolve of maintaining fiscal prudence while revitalizing the economy.
We believe that our economic recovery should be patterned after the growth policies our administration put forward from the beginning of our term. Hence, we are maintaining the pace of our Build, Build, Build program.
Even with the ongoing crisis, we have kept our budget for infrastructure investments and it is programmed to increase to more than 5 percent of our GDP until the end of this administration’s term. With its high multiplier effect, we are expecting the Build, Build, Build program to be the main driver of rebuilding the domestic economy.
Despite supply challenges worldwide, we are fully rolling out our vaccination program. This will allow us to safely reopen more of our economy, and restore jobs and incomes of our people.
The target is to inoculate at least 70 million Filipinos or 100 percent of our adult population within the year. We have arranged for the delivery of more than 140 million doses of COVID-19 vaccines for this year. About 15 percent will be delivered in the first half of this year and 85 percent in the second half.
Most of the financing needed for the vaccination program was sourced through loans from the World Bank, the Asian Development Bank, and the Asian Infrastructure Investment Bank. We chose this financing strategy because we want to assure the public of two things: First, that the vaccines we are buying are internationally accepted, and have passed the stringent criteria for safety and effectiveness. Second, that the vaccine procurement is totally transparent.
This year, we will push for the passage of the GUIDE bill or the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery.
We also look forward to the approval of the remaining tax reform packages. Package 3 will make our property valuation system at par with international standards. Package 4 aims to simplify the taxation of passive income and financial services and transactions.
To fully liberalize the Philippine economy, we will continue to push for the amendments to the Foreign Investments Act, the Public Service Act, and the Retail Trade Liberalization Act. The President has certified these three bills as urgent. The move will help speed up the approval of these measures within the President’s term.
We will also continue the ongoing digital reforms in our revenue agencies to ensure that they match the efficiencies of the best comparable institutions worldwide.
To raise more funds for our economic recovery, we are proposing to increase the mandated dividend remittances of GOCCs to the National Treasury from the current 50 percent to at least 75 percent of their net earnings.
The Duterte administration is also committed to continuously build a truly broad-based and inclusive financial system fit for the 21st century.
We will push for the passage of a bill that will further deepen the domestic capital markets by building a sustainable Corporate Pension System. We are also supporting reforms to save the MUP or Military and Uniformed Personnel pension by making it fiscally sustainable for the long term.
Even with the ongoing pandemic, the Duterte administration acknowledges the urgency of putting forward stronger climate adaptation and mitigation measures.
In the coming period, the national government will be working intensively with Congress and the local governments to achieve our commitments to the Paris Agreement.
On April 15, the Philippines submitted its first and ambitious NDC or Nationally Determined Contribution to the global effort to fight climate change. We target to reduce greenhouse gas emissions by 75 percent before 2030. This ambitious target was set to challenge both ourselves as well as the rest of the world.
We have a unique opportunity in Mindanao to demonstrate our commitments. We are exploring the financing mechanism to enable the government to improve the generating capacity of the Agus-Pulangi hydropower plant and acquire coal-fired power plants in the region to repurpose them as we increase the capacity of renewable energy. This will shift most of our energy requirements in Mindanao to hydropower. Eventually, it will spur investments from companies seeking to expand their operations in areas powered by clean energy.
We are also pushing for the passage of a bill that would ban single-use plastics. This will allow every Filipino to do his or her part on a daily basis in helping save the world’s environment. We hope for Congress’ timely passage of this important piece of legislation.
We are fully determined to restore the vigor of the Philippine economy at the soonest possible time. Even with the unprecedented crisis, the Duterte administration will continue to work hard until the last minute of its term to undertake the remaining reforms we had set out to do in our zero-to-ten-point socioeconomic agenda.
We will stay true to our promise of real change. We will make sure that the programs we have pursued will be irreversible and form the foundation of an inclusive, sustainable, and investment-driven economy for the Filipino people.
Thank you.
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