By Alithea De Jesus
Finance Secretary Carlos Dominguez III said Tuesday he expects the Philippines’ strong fundamentals, fiscal stamina, and effective governance to continue to make the country a “promising” investment destination and growing market for Japanese investors.
The government’s initiatives to sharpen the competitiveness of the country’s manufacturing and agriculture sectors, accelerate its switch to a digital economy, and improve its disaster preparedness and response programs, are among the areas of cooperation where the Philippines and Japan can continue to strengthen their already robust partnership, Dominguez said.
Despite the immense challenges the country is facing because of the prolonged coronavirus pandemic, Dominguez said the domestic economy is expected to post a strong rebound next year, owing to the reforms that are being implemented and soon to be carried out by the Duterte administration to prop up the Philippines’ status as a premier investment destination.
He said gradually reopening the economy with health interventions has resulted to “green shoots of recovery” as shown by encouraging economic data that have surfaced lately.
“These green shoots indicate that the Philippine economy is on the mend. The path is clearer to a strong bounce back in 2021,” Dominguez told Japanese and Filipino investors during the Philippines-Japan Business Investment Virtual Forum organized by Nikkei Group Asia.
Among these “green shoots” is the smaller contraction of the Philippine economy in the third quarter of 11.5 percent from a decline of 16.9 percent in the second quarter of this year, which represents an 8-percent expansion on a quarter-to-quarter basis.
Dominguez also cited the following positive economic indicators:
- As of the end of October of this year, the country’s gross international reserves (GIR) hit an all-time high of US$104 billion. This current buffer is sufficient for 10.3 months’ worth of imports;
- Year-to-date, the Philippine peso has appreciated by 5.14 percent against the US dollar, matched only by the Chinese yuan;
- Trade and manufacturing performance continued to improve for the 5th straight month since May, which signals rising economic activity.
- Total external trade registered a smaller annual decline of 9.2 percent in September from a high of negative 59.5 percent in April, when the pandemic-related lockdown was most severe;
- Total export sales reversed its six-month long decline, posting a 2.2 percent annual growth in September from a deep contraction of 50 percent in April;
- The value of production index continued to drop at a smaller annual rate of 11.9 percent in September from negative 40 percent in April. The volume declined by 8.4 percent in September compared to a contraction of 37.5 percent in April;
- Net inflows of foreign direct investments (FDIs) rose for the 4th consecutive month in August by 46.9 percent year-on-year;
- For the first nine months of the year, remittances from Filipino overseas workers dropped by only 1.4 percent, or below the Bangko Sentral ng Pilipinas (BSP)’s revised forecast of negative 2 percent;
- Total revenue collections exceeded the official revised target for the first 10 months of the year by 10 percent; and
- The unemployment rate dropped to just 10 percent in July from 17.7 percent in April.
“We expect to see additional improvements in the last quarter of this year as we progressively reopen businesses and mass transportation,” Dominguez said.
To prepare the economy for a strong rebound, Dominguez said the government will make the financial sector more inclusive and will maintain its policy of fiscal prudence, “despite the many populist excuses to blow up the deficit and bury future generations in debt.”
He said the government’s goal of landing the country’s deficit-to-GDP (gross domestic product) ratio in the mid-range of its Association of Southeast Asian Nations (ASEAN) neighbors and credit-rating peers will enable it to continue accessing financing at favorable terms for the Filipino people.
Dominguez said preparing for a strong economic bounce back will also involve the following:
- The implementation of a fiscally responsible Bayanihan 2 law to enable the government to purchase safe and effective vaccines and provide various streams of support to pandemic-hit enterprises and individuals..
- These include infusing more capital into government financial institutions (GFIs) to dramatically expand their lending to micro, small and medium enterprises (MSMEs) and create a large multiplier effect on the economy;
- The swift congressional approval of the P4.506-trillion national budget for 2021, which is the government’s most important and largest stimulus measure, and–according to Dominguez–“a demonstration of its sustained commitment to public spending towards economic recovery;”|
- Enactment of the Senate-approved Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill to provide businesses with its biggest stimulus package and allow government to enhance the flexibility of the fiscal incentives system while proactively attracting investments that will bring exceptional benefits to the Filipino people.
The bill aims to provide an outright 10-percentage-points cut, from 30 percent to 20 percent, in the corporate income tax (CIT) rate of domestic corporations with taxable income equivalent to P5 million and below. Those earning above it will be provided with a 5-percentage-point reduction;
- Congressional approval of the Financial Institutions Strategic Transfer (FIST) bill to let banks clean up their balance sheets and extend more credit to sectors in need by allowing them to offload souring loans and assets through asset management companies;
- Congressional passage of a measure that will enable government banks to form a special holding company that will infuse equity, with strict conditions, into strategically important companies facing solvency issues.
“The government intends to invite multilateral agencies as well as foreign and domestic investment companies to participate in this joint venture,” Dominguez said;
- Providing greater support to the agriculture sector by increasing credit access to the entire agricultural value chain; and
- Ramping up spending for the President’s centerpiece program “Build, Build, Build,” which is a sound strategy supported strongly by the Philippines’ development partners, especially Japan.
During the virtual forum, Dominguez cited Japan’s valuable assistance to “Build, Build, Build” and its generous support when the government needed to access emergency financing for its COVID-19 response.
Aside from these array of recovery measures, Dominguez said the government will also turn the pandemic-induced “crisis into an opportunity” to boost the competitiveness of the Philippines’ manufacturing and agriculture sectors, and accelerate the move to a digital economy.
“We see many areas for cooperation between Japan and the Philippines on these initiatives,” Dominguez said.
“We hope that the Philippines’ strong fundamentals, fiscal stamina, and effective governance will continue to make us a promising investment destination and a growing market for Japanese investors,” he added.
Dominguez said the government will also invest heavily in disaster preparedness and response to effectively adapt to the worsening impact of the climate crisis; consider measures to fairly tax the digital economy; push the approval of the remaining tax reform packages that include improvements in the country’s property valuation system and taxation on passive income and financial intermediaries, and support the passage of complementary bills that will further open the economy to foreign investors.
He said President Duterte’s prudent fiscal policy and political will to carry out his zero-to-10 point socioeconomic reform agenda made the country financially ready to fight COVID-19, pursue lasting peace in Mindanao with the establishment of the Bangsamoro Autonomous Region for Muslim Mindanao (BARMM), and establish a national ID system.
President Duterte’s strong leadership also led to the implementation of an Ease of Doing Business (EODB) Law, Universal Health Care (UHC) Program and tax reform that increased revenue flows and cut income tax rates for 99 percent of taxpayers; and a doubling in infrastructure spending compared to the past 50 years, he added.
In 2019, he said, the government was also able to face COVID-19 with strength on the food security front, and kept the inflation rate low because of the passage of the rice tariffication law (RTL); maintained a historic low debt-to-GDP ratio of 39.6 percent and debt-to-Gross National Income (GNI) ratio of 22.7 percent; and significantly pulled down unemployment and poverty rates.
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