October 5, 2020
Carlos G. Dominguez
Secretary of Finance
Governor Dakila Carlo Cua, National President of the Union of Local Authorities of the Philippines; heads of the local government units; fellow workers in government; friends in the media: good afternoon.
Thank you to the local governments from all over the Philippines for the invaluable work you are doing in fighting the pandemic. This is a good time to brief you on the support we are extending to LGUs as part of our strategy for overall economic recovery.
The national economy, after all, is the sum of all our local economies. LGUs are at the frontline of serving vulnerable communities. You are also catalysts for building a new economy while we do all we can to address this global health emergency.
The pandemic caught all of us by surprise. LGUs, national agencies, and the private groups had to assume new and unfamiliar roles. Many localities saw their contingency and calamity funds depleted by the health crisis.
Even as we see signs of improvement in the public health situation, we will still rely on local governments for continued monitoring and contact tracing to help keep infections in check. We will also count on LGUs to help revive economic activity in the coming months. The national government will work with you to keep your constituents healthy and your local economies functioning.
One thing that I would like to emphasize is that when this crisis hit, the country was financially ready. In any battle, preparation is always the best protection.
The game-changing reforms we passed over the last four years, with the participation of Dax Cua, have strengthened our fiscal and economic stamina. President Duterte’s prudent fiscal management has resulted in our ability to withstand even a protracted global health emergency.
We have to thank Congress particularly then Congressman Dax Cua, for helping us prepare for this battle. Without them passing our tax reform program and other far-reaching measures on time, the pandemic would have inflicted much more pain on our people and the economy. We also thank ULAP, its constituent leagues, and member-LGUs for supporting several of these proposals.
By 2019, our bold reforms in tax policy and 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 fiscal 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, again the result of the work of then Congressman Dax Cua, 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 cover our revenue shortfall from the slowdown in economic activity.
We do not know when this pandemic will end. The best case scenario is 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.
The public health effort will be a marathon, not a sprint. There is no magic wand to wave away the virus. We have to be prepared for a long battle.
We must therefore exercise fiscal prudence, both at the national and local levels, to ensure that we do not run short of resources. We should do what is necessary, but we should not be wasteful.
Our lawmakers should be commended for passing a fiscally responsible Bayanihan Two Act that we can implement within our means. It allows us to meet the challenge of economic recovery without imposing a heavy burden on future generations.
Bayanihan Two makes possible several streams of support for local governments to help restart their economies and support enterprises.
The law extends the carry-over period for net losses in 2020 and 2021 from three to five years for businesses. This will allow MSMEs or micro, small and medium enterprises to deduct incurred losses from tax payments for a longer period. This measure will give them more time to set their finances in order and, hopefully, to return to profitability.
The same law infuses more capital into government financial institutions to dramatically expand their lendings to MSMEs and LGUs. This will have a large multiplier effect in economic activity. Every peso infused in 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 banks to provide wholesale financing to rural banks and microfinance institutions as well as LGUs.
24.47 billion pesos is made available for the Land Bank of the Philippines and the Development Bank of the Philippines as equity infusion for their loans to individuals and businesses affected by the pandemic. On top of this, both government banks are allocated one billion pesos each for interest subsidies for new and existing loans secured by LGUs.
Funds from the Municipal Development Fund Office under Land Bank will also be transformed into a more effective and efficient LGU lending intermediary. The Bureau of Local Government Finance, for its part, has streamlined its process for issuing certificates on net debt service ceiling and borrowing capacity to LGUs. The overall process of application, evaluation, and issuance of certificates is now being done electronically, no need for personal follow-up.
In addition, the Bayanihan Two infuses 5 billion pesos to the Philippine Guarantee Corporation for the credit guarantee program. Another 10 billion pesos was made available for the lending programs and interest rate subsidies of the Small Business Corporation.
Earlier this year, 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.
Both the Land Bank and the DBP have designed several lending programs to promote the recovery of our enterprises and rebuild local economies. I am joined here by Land Bank President Cecile Borromeo and DBP President Emmanuel Herbosa. They will explain these programs in detail.
The Department of Finance is also investing in training programs that aim to raise the competencies of local government treasurers. The BLGF is conducting the SEAL program or Standardized Examination and Assessment for Local Treasury Service. Through this initiative, we hope to professionalize and modernize the local government treasury service.
In addition, training on local revenue generation and resource mobilization are also in place. The BLGF and the Philippine Tax Academy are preparing online learning modules for local government treasurers and assessors.
As we anticipate a new economy in the post-pandemic era, we strongly encourage our LGUs to adopt digital technologies to efficiently deliver frontline services. This should include the processing of business registration and the collection of local taxes. Investments in information technology will not only make for more responsive governance, it will improve revenue generation of our LGUs.
The national government demonstrated its commitment to helping LGUs respond to the pandemic. We granted them about 37 billion pesos in financial assistance under the Bayanihan One. This aid was intended to help LGUs boost the capacity of their health care systems and to provide relief assistance to affected households.
The Supreme Court ruling on the Mandanas case is scheduled for implementation in 2022. The LGUs, therefore, must prepare themselves to effectively assume new responsibilities. The LGUs and the national government must plan and prepare for the seamless transfer of devolved functions, services, and facilities. The significant increases in their share of internal revenue allotment should help LGUs pump-prime their local economies.
As I mentioned earlier, we really do not know when we will fully emerge from this health emergency. We need to make our fiscal resources last as long as we can. At both national and local levels, we need to optimize our revenue generation powers and improve tax administration. Even as we stretch resources to stimulate the economy, we must continuously build up our fiscal resilience.
The national government is working closely with our legislators for the urgent passage of our legislative imperatives. These reforms will allow us to recover in a sustainable and resilient manner. We seek to lower the corporate income tax rate by 5 percentage points immediately and incentivize countryside investments. We aim to mitigate the threat of non-performing assets to 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.
Many of you expressed support for these reforms. There is still time for LGUs to manifest to Congress the urgency of enacting these measures within this year.
As we ensure financing support for our enterprises, our bounce back strategy centers on sustaining the Build, Build, Build program. We have continued to prioritize the infrastructure program especially projects outside Metro Manila. This will immediately create jobs, encourage investments, and increase economic activity.
We remain confident that we will win back our growth momentum by next year. A lot will depend on whether we can revive consumer confidence and domestic demand.
Let us work hand in hand to beat this pandemic. We have a future to win.
Thank you.
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