Secretary of Finance
August 13, 2024
Thank you for this opportunity to brief the Senate about the national government’s fiscal position.
A discussion of our fiscal prospects requires an appreciation of the context within which we are operating, especially the global trends that heavily influence our course forward.
So allow me to provide these briefly.
To start with, we are still recovering from the pandemic that dealt us the hardest economic blow since post-World War II.
And against this backdrop, we navigate an ocean of global uncertainties due to geopolitical tensions—two hot wars, a trade war, and a looming cold war.
For instance, before the Russian-Ukraine war broke out in early 2022—a time when the economic team crafted the first Medium-Term Fiscal Framework, the global economy was expected to rebound post-pandemic.
But these geopolitical tensions disrupted this recovery, with inflation skyrocketing in almost all economies due to higher commodity prices.
Central banks raised interest rates in response, leading to moderated growth expectations globally.
Just like every other country, we feel the weight of these global pressures.
That is why when I took on the Finance Secretary hat, my first priority was to recalibrate our growth and fiscal targets to ensure that they are achievable and adaptable to external shocks.
Our refined Medium-Term Fiscal Program reduces our deficit and debt gradually in a realistic manner; while creating more jobs, increasing our people’s incomes, and decreasing poverty in the process.
And under this, we have ensured that every peso to be collected or borrowed will be stretched to deliver the biggest bang per buck for the Filipino people.
To put it into perspective, our 2024 budget, as per the GAA, stands at 5.77 trillion pesos. Of which, only 4.27 trillion pesos are supportable by revenues.
Thus, on a daily basis, our expenditures amount to 15.80 billion pesos, of which 11.71 billion pesos will be financed by revenue collections, and the rest, 4.10 billion pesos, by loans.
Every 24 hours. Kada bente kwatro oras.
So against the herculean task of funding a gargantuan budget, we needed to scout for more resources without inflicting new taxes on the present—considering the period of high inflation in the last two years—or bequeathing debts to be paid by future generations.
That is why this year, the DOF hiked GOCCs’ dividend rates to 75% from 50%, which is now one of our major sources of non-tax revenues.
The BIR and BOC have also stepped up with higher collection performances through digitalization, strict enforcement, and plugging of leakages in the tax system—especially from e-commerce.
So far, we are on track to meet our fiscal program for the year, having already achieved half of our targets.
As of mid-year, total revenues grew by 15.6% to 2.15 trillion pesos.
Of which, tax collections from the BIR and BOC totaled 1.84 trillion pesos, 10% higher than last year.
Non-tax revenues recorded a 63.3% growth, totaling 314.2 billion pesos.
This robust revenue performance placed us among Asia’s top revenue-to-GDP ratios at 17.1% for the first half of the year. And this is above our full-year target of 16.1%.
Our expenditures also grew by 14.6% mid-year to 2.76 trillion pesos. This is equivalent to 21.9% of GDP.
Meanwhile, our fiscal deficit for the first half stood at 613.90 billion pesos.
As a percentage of GDP, our deficit remains very manageable at 4.9% in the first semester, below the 5.6% full-year target.
Over the medium term, we anticipate a 10.3% average annual growth in total revenues to support our people’s growing needs.
Revenues as a percentage of GDP will also increase from 16.1% in 2024 to 17.0% in 2028.
Specifically, tax collections are expected to rise by 11.8% annually, driven by projected double-digit collection growths of the BIR and BOC. This will outpace the roughly 8.7% average increase of our nominal GDP every year from 2024 to 2028.
This means that we are asking the BIR and BOC to work harder and boost efficiency at a faster pace.
By 2028, the tax effort will rise to 16.3% from 14.4% in 2024.
These projections took into account the additional revenues from the refined revenue reforms of the DOF, which we recalibrated to ensure that they do not place undue burdens on the taxpayers.
Disbursements, on the other hand, are expected to grow by an average of 7.4% and remain at about 21.1% of the GDP.
With higher government revenue collections and improved expenditure management, our fiscal deficit is projected to drop from 5.6% in 2024 to 3.7% by 2028.
Spending, of course, will continue to prioritize education, infrastructure, food security, social protection, and national security to support our growth momentum.
Sisiguraduhin po natin na masinop ang ating pag-gastos at babalik sa taumbayan ang bawat sentimong nalikom.
And we continue to manage our debt according to the highest standards of fiscal discipline. As we are very vigilant not to max out the Philippine national credit card.
As of June, our gross financing stands at 61% of the full-year goal of 2.57 trillion pesos. This includes our landmark 2 billion US dollar global bond issuance last May, which secured one of our most affordable and cost-effective borrowing costs.
Our heavy bias on domestic financing has facilitated the continued redenomination of our debt into local currency, now representing 68.3% of our total borrowings.
Kaya hindi po kayo dapat mabahala, dahil ang utang na ito, galing po sa sarili natin.
Ibig sabihin, karamihan ng interes na ating binabayad ay napupunta rin lang bilang dagdag na kita ng ating mga kababayan. At napakahusay ng ating Kagawaran ng Ingat Yaman o ang Bureau of the Treasury. They know what they are doing.
We also strategically favor long-term obligations to reduce our reliance on short-term debt and minimize rollover risks. Currently, long-term debts constitute 79.8% of our total portfolio.
Sa unang tingin, tila napakalaki ng ating utang na umaabot ng trilyon. Pero, uulitin ko, hindi po tayo dapat mabahala dito. Dahil hindi nasusukat ang utang ng isang bansa base sa pagtingin lang sa aktwal na laki nito.
Mas tamang sukatin ang utang ng isang bansa kung ihahambing ito sa laki ng kanyang ekonomiya—dahil dito nalalaman ang kanyang kakayahan na bayaran ito.
At isa sa mga ginagamit na tamang panukat ay ang debt-to-GDP ratio. Ito ay ang porsyento ng utang ng isang bansa kumpara sa laki ng kaniyang ekonomiya o ang halaga ng lahat ng produkto at serbisyong nagawa nito.
Base sa chart, mukha mang patuloy na lumalaki ang ating utang ngayon, pero patuloy naman na mas lumalago ang ating ekonomiya. Ibig sabihin, kayang kaya nating bayaran ang ating mga obligasyon.
Kung ating titingnan ang debt-to-GDP ratio ng Pilipinas, unti-unti na natin itong naibaba mula noong pandemic.
Mula sa 60.9% noong 2022, bumaba na ito sa 60.1% noong 2023. And we are determined to continue pushing it below 60% so we have enough buffer in case another crisis hits us.
And to be clear, there is nothing inherently wrong with a country having debts.
As long as the money is used for the right purposes such as growing the economy, which in turn, creates more jobs, increases income, and provides more revenues for the government.
And that as long as the government has the ability to repay these obligations without compromising on other essential projects.
In our case, we are using debts to spur our stronger economic recovery by investing in more infrastructure and human capital development projects, which have the highest multiplier effect on the economy.
It is also important to note that while we are making all of these investments, we are also paying off the pandemic borrowings we inherited from the past administration.
In 2019, when the country achieved its lowest debt-to-GDP ratio, the total nominal debt was only 7.7 trillion pesos. But this figure nearly doubled to around 13.4 trillion pesos right after the pandemic, just as the Marcos, Jr. administration took over.
And because of all these geopolitical tensions, the cost of our borrowings has climbed post-pandemic as central banks have raised their interest rates to combat inflation.
Therefore, we are now refinancing the large borrowings contracted during the low-interest rate period in 2020 to 2022 with new debts that bear higher interest rates. This is the reason why our interest payments for next year are higher by around 11%.
But while interest rates have gone up, the cost of our borrowings remains manageable and much lower than our GDP growth.
In fact, our effective interest rate for next year is only 5.3%, which is very cheap considering that the average term of our debt is 7.5 years.
Moreover, if we remove inflation, our real interest rate is only 2.3%, far lower than our expected real GDP growth of 6.5% —which means we are on track to outgrow our debt.
As central banks begin lowering policy rates—hopefully starting in the third quarter of 2024—we can expect growth of interest payments to moderate, as long as we continue to manage our debt responsibly.
The continuous decline in our debt-to-GDP ratio since the pandemic is one of the reasons why our credit ratings remain high.
And having a high credit rating is a major win for all because this means that we not only have the capacity to pay our debts but can have more access to cheaper financing.
Not just for us in the government, but also for private businesses that require access to credit to increase their capital, grow operations, and create more jobs.
We are determined to stick to our Medium-Term Fiscal Program by exercising the highest level of fiscal prudence. Because doing so will also allow us to achieve a credit rating upgrade under this administration.
As I wrap up my presentation, let me assure the honorable members of the Senate that we are on track with our fiscal consolidation plan across the board.
We are making good, steady progress on our economic goals. And the numbers we have point in that direction.
Despite external headwinds, we have grown at an average of 6.1% since President Marcos, Jr. took office. This is among the fastest in the region.
Our unemployment rate is at a historic low.
We have 50.3 million Filipinos employed to date and 63.8% of them are engaged in formal and stable jobs—ibig sabihin, mas dumadami at lumalakas ang mga Pilipinong nagiging parte ng ating middle class.
Inflation is cooling and expected to settle within our target range of 3% to 4% this year. This is well below the global average of 5.9% and 8.3% for developing economies according to the IMF.
With favorable conditions, we are on course to become an upper-middle-income country by 2025. Ibig sabihin nito, makakaasa tayong mas tataas ang kabuuang kita ng bawat Pilipino.
And last year, we lifted 2.5 million Filipinos out of poverty, dropping the poverty rate to 15.5%.
If we are able to elevate almost 8 million more Filipinos above the poverty line in the next four years, we will achieve our goal of reducing the poverty rate to a single digit or 9% by 2028.
This is the be-all and end-all of all our efforts.
As this is the definitive indicator that our growth has translated into real improvements in the lives of Filipinos through more and better jobs, higher levels of education, and healthier lives.
But we cannot achieve this all on our own. Kailangan po namin ang tulong, gabay, at suporta niyo sa Kongreso.
To the honorable members of the Senate, the 2025 proposed budget of 6.35 trillion pesos that you will enact will help us get there.
So as we begin the deliberations for the NEP, let us all together carefully choose projects in the budget that deliver the biggest growth and economic benefits for our people.
Let us operate within the parameters of the Medium-Term Fiscal Program that reduces our deficit and debt gradually, creates jobs, increases income, and decreases poverty.
And above all, let us never lose sight of our core mission: to deliver on the promise of a better life that every Filipino rightfully deserves under Bagong Pilipinas.
Maraming salamat po.
