Flor G. Tarriela
At the 2019 Pre-SONA Economic and Infrastructure Forum on July 1, Secretary of Finance Carlos Dominguez presented the updates of the Economic Development Cluster “Game Changing Reforms for Sustainable Development.” The ultimate goal is to Bring Down Poverty Rates from 21.6% in 2015 to 14% by 2022 and to Create More Opportunities.
He reported that the economy grew at an average of 6.5% in the first 11 quarters of the Duterte administration, the lowest was at 5.6% in Q1 2019 traceable to the delayed passing of the national budget. If the budget had been passed on time, growth could have been 6.6%-7.2% bringing the average of 6.5% growth even higher. Another good news is that S&P raised the Philippines sovereign risk rating from BBB to BBB+; countries with similar rating are Thailand, Mexico and Peru. The recent tight spreads on bond issuances indicate the confidence in fiscal and debt management. For example, Panda Bonds in 2018 had +35 bps spread vs tighter +32 bps spread in 2019.ROPs US$1.5 billion issued in Jan. 2019 with +110 bps spread and Euro bonds 750 million (8 years) at +70 bps spread. This really speaks well of the Philippines. PNB President Wick Veloso confirms this from the successful PNB $750-million international bond issuance at +1.65bps, oversubscribed with coupon rate of 3.28%. Simply stated with Philippines BBB+ rating, country risk now is much improved that both government and corporates can borrow at lower spreads thus reducing the borrowing cost. Thank you to the economic team!
The Tax Reform Program seeks to make the tax system simpler, fairer and more efficient. TRAIN revenue target in 2018 of P63.3 billion was exceeded by 8% with actual collections of P68.4 billion. Some of the salient features of the Train Law:
Lowered the Personal Income Tax for all taxpayers except the richest.
(Workers earning below P250,000 annually now tax exempt);
Lowered the Estate and Donors Tax to 6%;
Simplified VAT;
Increased Excise Tax on Petroleum Products (last adjustment was in 1997);
Simplified Excise Tax on Automobiles;
Imposed Excise Tax on Sweetened Beverages (now collecting about P100 million daily);
Imposed Higher Excise on Cigarettes.
Government intensified campaign against smuggling and tax evasion. The Department of Finance (DOF) made history in 2017 with the BIR collecting more than P30 billion from a cigarette manufacturer in its largest tax settlement for its non-payment of excise taxes and use of counterfeit tax stamps. Tax effort of 14.70% was highest ever achieved in the past 20 years.
Sec. Dominguez is confident on the passing of TRABAHO Bill whose aims are:
(1) to reduce corporate income tax rates, to bring closer to regional average thus attract investments and benefit small and medium enterprises and (2) rationalize fiscal incentives, to create a level playing field and attract new players. The tax incentives are based on four (4) principles: Performance based, time bound, targeted and transparent.
Infrastructure disbursements of P405.9 billion in 2015 represented 3% of GDP; accelerated disbursements of P886.2 billion in 2018 brought it at 5.1% and the goal is to increase it further to P1.8 trillion or 7% level by 2022. How will government fund all of these? Sec. Dominguez says government undertakes projects using Budget allocations, Official Development Assistance, (ODAs) and funds raised from bond flotation. The completed projects are then passed on private partners for management or even acquisition. PPP… Public Private Partnership, Sec. Dominguez calls it PPPP… Public-Private Partnership for the People.
More good news: Sustained decline in debt to GDP ratio from 54.7% ten (10) years ago to 41.9% in 2018, unemployment is at its lowest in 40 years to 5.17% in April 2019, and self-rated poverty level in March 2019 dropped to 38%, the lowest since 1983, etc.
Deputy Governor Diwa Guinigundo then presented the Monetary, External and Financial Updates. July 1 was the eve of his 65th birthday and his retirement from the BSP. He reported that the Philippines inflation environment is on a downtrend (confirmed with inflation of 2.7% in June). External Debt is on 1:1 ratio with International Reserves. Even better is that the short-term maturities is only at 20.9% with long term at 79.1%. DG Diwa showed that the Philippine economy is on its way to unlocking its growth potential. To present a balanced picture, he also touched on the key risks and challenges ahead such as the global economic slowdown, the trade tension between US and China, disruptive technologies and extreme climate change, etc. As DG Diwa retires from public service after 41 years, we wish him GOD Speed. An important legacy he leaves is his being instrumental in the Bible phrase “Pinagpapala ang Bayan na ang Diyos ay ang Panginoon” (Blessed is the Nation whose God is the Lord, Psalm 33:12) in our local currency. Thank you DG Diwa!
The open forum of the Economic Development Cluster was well facilitated by DOF Asec. Antonio Joselito Lambino II. Questions were obtained from the audience and the most frequently asked were answered by the speakers, complemented by no less than Trade Industry Secretary Ramon Lopez, DOST Secretary Fortunato de la Peña, Energy Secretary Alfonso Cusi, NEDA’s Ernesto Pernia and DBM OIC Janet Abuel.
The Infrastructure Cluster update report of Sec. Mark Villar was equally impressive and a pleasant surprise. He reported that 71,803 classrooms were constructed from July 2016 to March 2019; 4,536 Flood Mitigation Structures completed, 961 km Tourism Roads completed, 1,096 km Farm to Market roads, 175 km roads leading to industries and Trade Corridors. There’s 9,845 km of roads constructed, maintained, widened, upgraded and rehabilitated and many more. He also talked about the Philippine High Standard Highway network program. All these supported by pictures. So many completed and ongoing projects that travel time will really be dramatically reduced. He also talked about the current initiatives on Internet access and connectivity such as Pipol Konek! which is free Wi-Fi Internet in public places etc.
Panelists at the Open Forum of the Infrastructure Development cluster were presenters DPWH Secretary Mark Villar and BCDA President Vicencio Dizon together with Transportation Secretary Arthur Tugade and DICT Secretary Eliseo Rio.
No wonder DOF Chief of Staff Annie Aquino during the DOF anniversary celebration held in May, asked us to save the July 1 date and be sure not to miss it. She seemed almost sure we will be pleased. There was optimism with the good economic development and infrastructure projects and especially with the “Build, Build, Build” on the way. PNB Vice Chair Rico Alfi-ler, former FINEX President Dick Du-Baladad, former Usecs Chil Soriano and Kune Gison to name a few, came out impressed with the report of the Economic and Infrastructure Sectors. We all look forward to the Philippines in middle class category of $4,000 per capita. And, we expect it will be a breeze to cross seamlessly between North and South Expressways, travel around Luzon, the Philippines and especially within Metro Manila and with strong Internet, too!
Ms. Flor Gozon Tarriela is the chairman of Philippine National Bank. She is former Undersecretary of Finance and the First Filipina Vice President of Citibank N.A. She is a Bankers Association of the Philippines Director and BAP representative to the Capital Markets Development Council. She is a FINEX Foundation Trustee and an Institute of Corporate Directors Fellow. Contact her at [email protected]