Incoming finance chief, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno will hit the ground running when he assumes his new role on June 30 to restock the state’s eroded revenue coffers and reduce the higher debt-and deficit-to-GDP ratios incurred by the Duterte government because of the pandemic.
“We need a lot of money to continue our growth momentum and to service our higher level of public debt,” Diokno told reporters in a virtual press briefing on Thursday, May 26.
Diokno, who was also a former budget chief in two past administrations, said he expects challenges and obstacles as Secretary of the Department of Finance (DOF) but he remained confident that the tax system left by the Duterte administration is better than the previous, and that he will seriously consider the proposed fiscal consolidation plan left by outgoing DOF chief, Carlos Dominguez III, which includes a resource mobilization plan.
The country’s debt-to-GDP level is higher at 63.5 percent, exceeding the internationally prescribed best practice of 60 percent of GDP. The DOF said an additional P3.2 trillion debt will have to be dealt with by the end of 2022.
Diokno said the first item on the agenda will be the sustainability of the country’s public debt. “My position at the moment is our debt to GDP ratio is slightly above 60 percent limit. I don’t think that is really cause for concern because as long as we continue to grow at around six to seven percent, on a sustainable basis, we can easily outgrow our debt. That said, it is also important that I should look at the sustainability of the debt,” he said. “This is to assure everybody -- the domestic audience and international credit watchers – that we are serious about consolidating fiscal resources so that we are able to reduce our debt and deficit to GDP ratio over time,” he added.
Diokno reiterated that that the Philippine tax system now is “much, much better” than the tax system the Duterte government inherited from the Aquino administration. “This government has done a lot of reforms. I’m not saying it’s perfect, there are some areas that we can improve upon but to me, the focus should really be on tax administration,” said Diokno.
As for raising or lowering taxes, Diokno said it is too early for him to know or to make comments on.
“Too early for me at this point to make any position on whether or not to increase taxes (but) the tax system that we are leaving to the next government which I’m going to receive for the incoming government, are much, much better than the tax system that we inherited from the previous administration,” said Diokno.
Diokno has always said that the government’s GDP targets of seven to nine percent, which was recently lowered to seven to eight percent for 2022, is doable, given the momentum of economic growth.
“I think it’s important to raise the growth momentum of the economy because a strong economy means strong tax (and) government resources. The tax system is -- in the economic language -- elastic. So, the higher the growth of the economy, the more revenues we will collect,” he said.
Meantime, Diokno said he will retain most of the current undersecretaries in the DOF, and in particular, the National Treasurer, Rosalia V. De Leon. He does not plan to make any major changes, at this point.
“The post of finance secretary is equally challenging as being governor of the central bank. We’re shooting for the same objective for the country to make the Philippines an upper middle income economy soon. I think we are almost there but because of the pandemic, that goal was disrupted,” said Diokno.
Besides tax generation and controlling the high level of public debt, the incoming DOF secretary said he will also focus on making sure that the level of poverty in the Philippines will be “much, much lower than when we came in.”
“That will continue to be the objective of both fiscal and monetary side. And of course on the monetary side, they will be controlling inflation. They keep saying that it’s their role because it’s mostly the responsibility of the fiscal side. So, now I’ll be responsible for that part of some actions that are needed to control inflation,” he said. The BSP has been battling an above-target inflation of almost five percent for this year.
“The fact is that monetary policy is not the only game in town. It should be coordinated actions between the monetary authorities and the fiscal authorities. It’s just now that I’ll be moving to the fiscal side, that I am leaving very competent monetary authority,” said Diokno.
Monetary Board member Felipe M. Medalla will be appointed the BSP’s sixth governor, after Diokno. Medalla is also a former socio-economic planning secretary during the time of President Joseph Estrada, same with Diokno who was Estrada’s budget secretary. Both Diokno and Medalla are from the University of the Philippines School of Economics. Diokno was appointed BSP governor in 2019.