The economic team of President Ferdinand Marcos Jr. will soon announce fiscal consolidation agenda that will cut deficit-to-GDP ratio to three percent on the first three years of the Marcos administration, incoming finance chief Benjamin E. Diokno said.
On his last day, Thursday, June 30, as Bangko Sentral ng Pilipinas (BSP) Governor, Diokno vowed that the fiscal consolidation framework will contain measures that are “fair and efficient.” These measures, he said, will not only reduce the budget shortfall and bring the poverty incidence to single-digit by 2028, but also to achieve upper-middle-income status for the country within President Marcos’ six-year term.
“We propose a broad-based tax system where all Filipinos contribute their fair share (and our) proposal covers areas where tax laws and administrative policies need to catch up, such as taxes on digital services,” he said during handover ceremonies on Wednesday, June 29, at the Department of Finance (DOF) headquarters along Roxas Boulevard.
Diokno assured the public that the DOF under his watch will share more details once they are ready.
“These goals are all anchored on sustaining the growth momentum. Grow the economy and almost everything else will follow. It will help reduce the deficit, so we don't have to borrow as much,” he said.
Diokno also said that for the local economy to sustain its recovery, it will require more taxes and revenues. “It will also help us with the employment problem since it can generate high-quality jobs, in effect, contributing to declining poverty incidence,” he added.
As for the proposed fiscal consolidation framework, he said the first half of the agenda will cover the first three years of the Marcos administration and will account for Congress’ three-year term. “This is something that I’ve been meaning to do when I was still in the Department of Budget and Management (DBM),” he said. Diokno was former DBM secretary before he was appointed to the BSP in 2019.
During the handover event, Diokno revealed three inclusive growth priorities the next government wants to implement: the adoption of a risk management and vaccination strategy in dealing with the pandemic; to continue to invest heavily in infrastructure, education and healthcare; and to sustain the strong economic fundamentals, maintain fiscal discipline, and build on the current reform momentum.
Pre-pandemic, the Philippines was on its way to reducing the poverty incidence to 14 percent by 2022 from 23.5 percent in 2015, in time for President Duterte’s last year in office. In 2018, the poverty incidence dropped to 16.7 percent.
“But between the first semester of 2018 and the first semester of 2021, we saw poverty incidence rise to 23.7 percent. This was expected given the necessary quarantine and health measures imposed by the government during the pandemic that slowed down economic activity,” said Diokno. “We intend to bring poverty incidence down to single digit by 2028. This will be possible by pursuing a strong broad-based growth for the next six years,” he added.
As of the first quarter this year, public debt-to-GDP was at 63.5 percent, exceeding the global benchmark of 60 percent set by international creditors. The debt-to-GDP rate was significantly higher than 39.6 percent in 2019, pre-pandemic. The country incurred a bigger budget deficit amid the pandemic and had to borrow more to fund its anti-pandemic response and for other government expenditures.
“We will balance the requirement of supporting economic recovery, while keeping our debt-to-GDP ratio within the sustainable threshold. We will continue the country’s pursuit of A-level rating, and this can be done by crafting a medium-term fiscal consolidation framework,” said Diokno. “We are working on said framework that will map out our fiscal profile – everything from revenue assumptions to financing programs,” he added.
Diokno reiterated that with an end-2021 general government gross debt of 53.5 percent, the Philippines still “falls at around the median among ASEAN peers” and will “stay in the middle of the pack among ASEAN neighbors in terms of the debt ratios.”
“But, let me make clear that the increase in debt was put to good use, thanks to Secretary (Carlos) Dominguez. Had we not invested in vaccines and other COVID-response measures, we would still be languishing from COVID-19 and the economy would still be in a deep slump,” said Diokno.
As outgoing DOF chief, Carlos Dominguez III said the past six years saw a DOF that was active in advocating economic reform policies such as modernizing the tax system to ensure the Duterte administration’s infrastructure program has the funding.
“Notwithstanding the unplanned spending required to contain the health crisis, we kept our debt obligations at prudent levels. The challenge in the immediate future is for the economy to outgrow the added debt. With this, the Department of Finance prepared a fiscal consolidation and resource mobilization plan to help manage the debt, continue the reforms, and sustain the recovery. We trust that the succeeding team will find this input somewhat useful,” said Dominguez during the handover event.
Dominguez said Diokno as his successor is “the best possible choice for this demanding job.”
“I have known Ben since we both served the Cory Aquino presidency. I am confident that he has the skills, the insight, and the dedication to add a larger stone to this edifice,” he said.
He also added, “I have no further advice to leave you, Ben, except to prepare to work 24/7. I wish you stamina and success in this new endeavor.”