Carlos G. Dominguez
Secretary of Finance
Governor Benjamin Diokno of the Bangko Sentral of the Philippines; former Secretary of Finance Lito Camacho, Managing Director and Vice Chair of Asia Pacific of the Credit Suisse; Mr. Eduardo Francisco, President of BDO Capital and Investment Corporation; Mr. Dante Ang II, President and CEO of the Manila Times; members of the business community, academe and other private sector groups; friends in the media: Good morning.
Thank you for the opportunity to address this economic forum once again.
At this time last year, the Philippine economy was in the pink of health. We were expecting an economic growth of 6 percent or better. Our credit ratings broke all records.
President Duterte’s policy of fiscal prudence and his push for tax reforms enabled us to boost revenue collections to levels we have not seen in more than two decades. We also reduced our debt load to a historic low.
We cut the poverty rate to a record low of 16.7 percent four years ahead of schedule. The unemployment and hunger rates were at their historic low levels. Our Build, Build, Build program had taken off, pouring billions into the domestic economy.
That was last year, before an unprecedented pandemic hit the entire world. The global economy slowed down as health and mitigation measures interrupted most commercial activities.
Following the dictates of science, the Duterte administration put our people’s health and safety first. Our mitigation measures, despite their costs, kept infections at bay. At no time was our health system in peril of being overwhelmed.
The pandemic dealt a heavy blow to our people and to the economy.
In 2020, the Philippine economy contracted by 9.5 percent. The community quarantines forced many businesses to shut down. Our unemployment numbers spiked. The domestic economy slowed down.
Nonetheless, the government was ready to rapidly deliver direct subsidies to millions of our vulnerable families. We extended various forms of assistance to our workers and enterprises. Fiscal and monetary actions were undertaken to keep the economy afloat and support recovery initiatives.
We expanded medical resources to fight COVID-19 and ensured the safety of our frontline health workers. We purchased test kits, protective equipment, and soon the vaccines will arrive.
From a fiscal standpoint, the health crisis and the economic contraction it precipitated posed a most difficult challenge. The crisis meant additional unplanned spending. The economic downturn meant a reduction in revenue flows to the government.
Despite all these, we did not abandon the judicious fiscal management set by President Duterte when he assumed office. Our strong fiscal position allowed us to afford a responsible level of deficit spending to cover our COVID-19 response, while continuing to implement the priority programs under the 2020 national budget.
Last year, our deficit-to-GDP ratio climbed to 7.6 percent, more than double the 2019 level. Nevertheless, we expect this ratio to remain within the median of our neighbors and credit-rating peers around the world.
We bridged the budget gap with additional borrowings. We prioritized domestic financing followed by official development assistance and the international capital markets. We determined this plan as the most prudent approach, ensuring sustainability in our debt service.
Our sustained effort at fiscal consolidation was recognized through a series of credit rating affirmations amid the pandemic. We were able to quickly access emergency loans to fund our fiscal deficit. The financing we secured from our development partners and the commercial markets were at very low rates, tight spreads, and longer repayment periods.
The credit rating affirmations helped us bring down our average interest rate per annum from 5.5 percent in 2019 to 4.7 percent in 2020 for domestic debt; and from 4.0 percent to 3.1 percent for external debt.
As we borrowed substantially the past few months, our debt-to-GDP ratio climbed from the historic low of 39.6 percent in 2019 to 54.5 percent in 2020. Even at this higher level, we were able to keep our debt-to-GDP ratio within a sustainable threshold. Some advanced economies had much higher debt ratios even in the best of times.
The Duterte administration places paramount importance on the preservation of our long-term financial viability. It is through this prioritization that the market allows us to continue borrowing at favorable terms for the Filipino people.
Through the darkest times of the pandemic last year, we were never under the illusion that this challenge will be short. We are prepared to fight a long battle, exercising prudence over the use of our fiscal resources.
The worst we could do is to run out of water before the fire is out. We could, for instance, be administering vaccines for years until the virus is extinct. This is precisely the reason why I always emphasize the need to maintain fiscal prudence even as we try to stimulate the economy.
A sustainable fiscal position and a strong financial system are the platforms on which we launch our economic recovery.
This year, we expect our economy to post a strong rebound and grow at the range of 6.5 to 7.5 percent. But to be honest, we cannot recover all that we lost in 2020 in one blow. It will take us more years to nurse our economy to where it was before the pandemic struck.
However, the prospects for 2021 are encouraging. We have gone through the worst episodes of this pandemic. Medical science knows more about the virus. Vaccines are available. Public health protocols have been carefully studied. And we are ready to reopen the economy.
On the financing side, we are very optimistic that we can easily fulfill our funding requirement for this year on the back of our healthy domestic liquidity situation. We also have available policy tools to sustain a low-interest rate environment.
As our credit ratings remain better than our peers, we continue to have good access to official development assistance and external commercial loans.
Meanwhile, our record-high international reserves and strong Philippine peso will strengthen our ability to import the goods that we need to support our economic recovery.
This year, our country needs to collect as much revenue as possible to fund the comprehensive effort to defeat the pandemic and support public investments to help our economy recover. That great task falls on the shoulders of our revenue agencies.
Nonetheless, we expect to achieve our adjusted revenue collection target for 2021 as the full digitalization of the Bureau of Internal Revenue and the Bureau of Customs is well underway. This digital transformation is expected to dramatically improve the agencies’ organizational capacity and collection efficiency.
Meanwhile, a large part of the government’s 2021 national budget was earmarked for our Build, Build, Build program, which has the highest multiplier effect on the economy. This will be the cornerstone of our economic recovery.
Our enhanced revenue collection this year will help us sustainably fund the wider rollout of the infrastructure modernization program.
The present economic downturn cannot be fully confronted by throwing subsidies at everything in sight. This would only fuel inflation without driving expansion. It will bring us to a debt crisis farther down the road.
The more sustainable path to recovery is to foster the revival of our enterprises and the restoration of consumer activity. A strong private sector is the key to our recovery strategy.
We are thankful that both houses of Congress have ratified the CREATE bill or the Corporate Recovery and Tax Incentives for Enterprises, which is our biggest stimulus ever for businesses. Soon, our enterprises can avail of lower corporate income taxes and other benefits to aid in their recovery.
With CREATE, we are leaving the money in the private sector’s hands to revitalize their businesses. We trust that enterprises will re-invest their tax savings from CREATE back into the economy to spur domestic activity and create more jobs for our people.
In addition, this measure proposes more flexibility in granting fiscal and non-fiscal incentives. This will be critical as the Philippines competes internationally for high-value investments.
Meanwhile, the President has just signed into law the FIST Act or the Financial Institutions Strategic Transfer. FIST is part of the stimulus package of the Duterte administration to energize the domestic economy and guide it to a quick and sustainable recovery from the pandemic.
FIST allows banks to efficiently offload their bad loans and non-performing assets. It will assist the banking system in performing its crucial role of efficiently mobilizing savings and investments by extending more loans to micro, small and medium enterprises in need of assistance.
FIST is an improved version of the SPV or the Special Purpose Vehicles Act of 2002. The big difference is that FIST was enacted within the first year of the pandemic, making it an effective measure in ensuring the stability of our financial system. This is in contrast to the SPV, which was signed into law five years after the Asian financial crisis struck in 1997.
By its timely enactment, FIST will effectively help more banks facing delayed loan collections to drastically reduce their growing non-performing loan ratio. Credit must be given to the hard-working members of our Congress today, particularly Representative Junie Cua, for acting fast in passing this measure.
Apart from FIST, we are also pushing for the passage of the GUIDE bill or the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery. This measure will help us save strategically important companies by aiding them to address their solvency issues.
Alongside our economic recovery measures, we are fast-tracking the roll-out of our national vaccination program.
As we speak, negotiations for the purchase of vaccines and their delivery are well underway. The doses we are acquiring are more than enough to inoculate one hundred percent of the country’s adult population, which is approximately 70 million people out of our total population of 110 million people.
Around 40 million of the population who are 18 years of age and below cannot be vaccinated yet according to medical experts.
Aside from our health care workers, we will prioritize vaccinating our economic frontline workforce. Doing so will help us reopen the economy safely.
We will not recover alone. Should the global economy continue to be sluggish, that will pose headwinds on our own growth. Because of this, we have supported all efforts at building international solidarity both to defeat the virus and to revive the global economy. We are looking forward to all diplomatic initiatives to support a strong global economic recovery.
For instance, the manufacturing industry is seen to get a strong boost from the Philippines’ participation in the RCEP or the Regional Comprehensive Economic Partnership. This agreement is the latest and largest formed trading bloc in the world.
Our participation in the RCEP will be beneficial to our micro, small and medium enterprises by integrating them into the global value chain through market access provided in goods and services.
Further, the RCEP will complement our ongoing trade and investment reforms for the resurgence of our manufacturing sector; enhancement of our investment regime; and strengthening of the agriculture sector.
With an open, fair, and rules-based trading system, the RCEP will help restore business confidence and encourage more economic activity worldwide.
To complement our participation in the RCEP, we urge Congress to pass other pending measures that are immediately doable to attract more foreign direct investments and help ensure the long-term recovery of our economy. These are the amendments to the Foreign Investment Act, the Public Service Act, and the Retail Trade Liberalization Act.
We also look forward to working with Congress in completing the final packages of our tax reform program. While the remaining bills are broadly revenue neutral, they will help us expand the capital market and make the real property market more efficient.
Finally, there is a strong case for our country to focus on sustainable development. The Philippines is one of the countries that is most vulnerable to natural calamities. We aim to mobilize investments in renewable energy, sustainable urban planning, and climate-smart agriculture. We also commit to deploy financial tools to build disaster resilience and climate adaptation from the household to the national levels.
As Chairperson-designate of the Climate Change Commission, I fully support the enactment of legislative measures banning single-use plastics.
The Philippines is ranked as the world’s third-biggest plastics polluter in the oceans. The move to curb single-use plastics will be a crucial component in effective solid waste management and climate crisis action. Once passed, every Filipino, by not consuming plastics, is contributing to help save our environment.
The Duterte administration is committed to ensure that our economic fundamentals remain strong and our fiscal resources sufficient and sustainable. We are determined to rise to the twin challenge of recovering strongly from the pandemic and mitigating the impact of climate change.
We will continue our dialogue with our stakeholders as we fine-tune policies to encourage the best conditions for our people and our environment to prosper.
The Duterte administration is doing its utmost to rebuild an inclusive, sustainable, greener, and healthier economy for the Filipino people.