The Philippine economy is “ready to soar” after its strong performance in the third quarter and is likely to grow by 6 percent or above for the rest of the Duterte presidency despite the international trade friction and other global challenges, Finance Secretary Carlos Dominguez III said.
Dominguez said the massive rollout of the “Build, Build, Build” infrastructure program plus the bold policy and administrative reforms being undertaken by President Duterte support this rosy outlook for “one of Asia’s powerhouse economies,” which posted a 6.2 percent growth in the third quarter and expanded by an average of 6.4 percent in the first 13 quarters of the Duterte administration.
“You will find this country an oasis of optimism in a world burdened with trade wars and uncertainties. While most of the mature economies are expected to grow slower this year, the Philippines stands staunchly as a growth leader in this dynamic region of the world,” Dominguez said in his keynote speech before the Chief Executives Organization (CEO) at the Makati Shangri-La hotel in Makati City.
Dominguez said that “against the headwinds of a broad slowdown in the global economy, we expect our economy to grow at around 6 to 7 percent this year. The country is strong and ready to soar.”
“Into the foreseeable future, we are confident of sustaining a 6 percent or better growth rate despite the headwinds buffeting the global economy,” he added.
He said Filipinos are beginning to reap the rewards of a resilient, well-managed economy on the watch of President Duterte, as shown by the drop in the unemployment rate to its lowest level in 40 years, and the decline in poverty incidence from 27.6 percent in the first half of 2015 to 21 percent in the same period in 2018.
“The economic team and the ‘Build, Build, Build’ team stand by our commitment and ultimate goal to bring down poverty incidence to just 14 percent by 2022, helping one million Filipinos lift themselves from poverty every year,” Dominguez said.
Dominguez said the Philippines is expected to graduate to upper-middle income country ranking by next year way ahead of schedule and is preparing for the opportunities that lie ahead with this newfound status by investing heavily in its very young, talented workforce.
On top of the Duterte administration’s ambitious infrastructure program, the private sector is currently enjoying a broad construction boom fueled by a low interest rate environment, a stable currency, and demand for housing and office space, he said.
He said President Duterte’s signature program “Build, Build, Build,” whose to-do list has been expanded to 100 highly strategic infrastructure projects, “creates a multiplier effect on domestic economic activity, ensuring continued rapid expansion.”
This program includes the development of New Clark City in Central Luzon, which is the centerpiece project of “Build, Build, Build;” the 36-kilometer Metro Manila Subway, which is the most ambitious single project under this infrastructure modernization plan; the first phase of the 100-kilometer Mindanao Railway Project (Phase One) that will connect the cities of Tagum, Davao and Digos in Mindanao; and the completion of 1,900 kilometers of rail lines in both Luzon and Mindanao, Dominguez said.
Dominguez invited the global business leaders present at the Makati Shangri-La gathering to take a look at the opportunities that abound in the country.
“There are many areas where joint ventures and business partnerships will be fruitful. Today, it is much easier for joint ventures to quickly commence because of our comprehensive effort to improve the ease of doing business in our economy,” Dominguez said.
The Finance chief said “Build, Build, Build” has boosted public spending to its highest level ever, with infrastructure investments by the government accounting for 5 percent of gross domestic product (GDP) last year—the highest it has ever been and double the average spending as a percentage of GDP for the last 50 years. Amid its sustained accelerated spending, the government expects this ratio to rise to 7 percent of GDP by 2022.
Dominguez said financing this infrastructure buildup involves four strategies: 1) implementing tax reform to improve the flow of revenues, which will help fund 20 percent of the cost of the projects; and 2) tapping the support of the Philippines’ development partners such as Japan and China, which have committed US$9 billion each in official development assistance (ODA), along with Korea’s additional US$1 billion.
It also involves 3) forging Public-Private Partnerships (PPPs) provided that PPP projects promote public interest by avoiding contracts that are disadvantageous to the government and burden people with very high fees; and 4) raising funds through the commercial markets, which has been successful as shown by the recent floats of Philippine bonds with tight spreads of as low as 32 basis points over the benchmark.
“The vibrant participation so far from international and local companies in our ‘Build, Build, Build’ program is proof that they trust the Duterte administration and in the transparent, fair and corruption-free bidding process implemented by the government,” Dominguez said.
He pointed out that the PPP route is now being adopted by the government for some of its big-ticket projects under “Build, Build, Build,” on condition that the people benefit the most from these projects. “In other words, PPP must stand for PPPP—Public-Private Partnerships for the People,” he said.
Dominguez said that since the start of the Duterte administration, the Department of Finance (DOF) has sealed 17 highly concessional loan agreements with the country’s bilateral and multilateral partners for the big-ticket infrastructure projects under “Build, Build, Build.”
The impact of the policy and administrative reforms carried out by the President since he assumed office in 2016 are reflected in the surge in foreign direct investment (FDI) inflows, which reached US$20 billion combined over the past two years—an average of US$10 billion yearly or double the FDIs in 2015, Dominguez said.
Tax reform, on the other hand, has not only improved revenue collection, but has also delivered to 99 percent of Filipino taxpayers the equivalent of a month’s take-home pay, which, in turn, has powered domestic consumer demand.
Improved tax administration has also contributed substantially in raising revenues, Dominguez said.
He cited, for instance, the additional US$50 million a month in tobacco excise tax revenues that the government is collecting after the closure of an errant cigarette tax firm, which also paid a total of US$600 million as tax settlement to the Bureau of Internal Revenue (BIR). The amount represents the biggest tax settlement ever collected from a single company.
Aside from tax reform, the Duterte administration is also vigorously pursuing governance reforms that have cut red tape, modernized bureaucratic procedures and curbed corruption. As a result, the Philippines jumped 29 notches to 95th in the latest Ease of Doing Business (EODB) Report of the World Bank released last month.
Dominguez also took pride in the fact that the Duterte administration was the only one that has succeeded in passing a Rice Tariffication Law (RTL), which has pulled down rice prices and slowed down inflation. This law is also the primary tool in raising farmers’ incomes, bringing down rural poverty and modernizing the agriculture sector, he said.
He pointed out that before rice tariffication, the government used to spend around US$150 million a year to support the National Food Authority, which was then tasked to keep palay farmgate prices and rice prices stable. With the implementation of the rice tariffication law, the government has so far collected, in less than a year, around $300 million in import tariffs, which will be used to directly provide support to farmers.
Amendments to the Public Service Act (PSA), the Foreign Investments Act (FIA), and the Retail Trade Act (RTA) are also being pursued to further liberalize the economy, Dominguez said.
The administration is also pushing the passage of its proposed reforms that aim to lower the corporate income tax and rationalize fiscal incentives, in sync with the practices done in other ASEAN economies where the grant of tax perks to investors are performance-based, time-bound, targeted and transparent, Dominguez said.
He said the succeeding packages of the administration’s comprehensive tax reform program (CTRP) are in the legislative pipeline and expected to become law either later this year or early next year.
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