By Victoria “NIKE” De Dios
The Duterte administration has committed to “redouble” efforts to protect its economic gains over the past three years, gird the economy for a strong recovery and drive the country back on the road to inclusive growth in the face of the global emergency triggered by the COVID-19 pandemic.
Finance Secretary Carlos Dominguez III gave this assurance to the institutional investors and fund managers as he expressed confidence that the nation can eventually beat the pandemic and come out stronger than ever from this unprecedented global health and economic crisis.
“The government continues to balance the reopening of the economy and efforts to restore consumer and business confidence with health and safety interventions so it can continue to protect lives in ways that do not prevent people from earning a living,” he said.
Without continued and increased public-sector spending–especially on infrastructure, public health and social protection–Dominguez pointed out that the Philippine economy would have performed much worse in the first semester because of the pandemic, with the gross domestic product (GDP) shrinking by about 2.5 percentage points more than it did, or a total of 11.5 percent versus the actual 9 percent over the January-June period.
The economy shrank 16.5 percent in the second quarter, worse than the first-quarter contraction of 0.7 percent, resulting to a first-semester GDP contraction of 9 percent.
Dominguez said that, given the uncertainties posed by the COVID-19 crisis, it will be difficult to make definitive pronouncements about the domestic economy’s longer-term prospects.
The Development Budget Coordination Committee (DBCC), of which Dominguez is a member, has projected a strong rebound in 2021 with a GDP growth rate reaching 6.5 percent to 7.5 percent.
“The Duterte administration will not rest until we have prevailed over this extraordinary challenge,” Dominguez said during the virtual session on the Philippine economy of Maybank’s Invest ASEAN Conference 2020 held recently via Zoom.
“We will redouble our efforts to protect our economic gains over the past three years, prepare our economy for a strong recovery, strengthen our resilience, and solidify our return to the path of inclusive growth. I trust that you will continue to support us in these efforts,” Dominguez added.
He noted that among the Philippines’ credit rating peers, the first-semester GDP decline of negative 9 percent reflects what is happening across the globe.”
The first-semester contractions, for instance, of Italy was at 11.6 percent; Mexico, 10.2 percent; and Indonesia, 1.2 percent.
“We are not alone in our struggles, although the unique fiscal and macroeconomic strengths with which we entered 2020 will continue to provide us with solid footing as we confront our economic challenges,” Dominguez said.
But signs of recovery are already emerging, said Dominguez, as he pointed to the higher import volumes reported by the Bureau of Customs (BOC) and the major gains of the Bureau of Internal Revenue (BIR) from excise and value-added taxes (VAT) last month.
Moreover, he said, there were slower annual declines in both volumes and values of the production index in June for key manufacturing enterprises as compared to the months of April and May; and the overall manufacturing capacity reached 73 percent in June, up from 72.4 percent in May and 70.5 percent in April.
Likewise, the country’s total merchandise trade further eased its negative trajectory in June with a slower decline of 19.9 percent, after a steep 35.3 percent contraction in May and 59.5 percent in April, he added.
He said these positive indicators of rising economic activity have resulted to the BOC surpassing its collection target for July by 5 percent and the BIR by 2 percent despite the fallout from the coronavirus-induced global health emergency.
“We have also learned from industry leaders that business activities in various sectors of the economy have started to pick up following the economic standstill during the lockdown. In general, most firms reported that they have begun to see a gradual sales recovery in June, coinciding with the partial reopening of the economy,” he noted.
Dominguez said an effective recovery plan grounded on pragmatism–which means the government can afford and fully execute it–includes four legislative imperatives that will help bring the economy back to its once robust status.
These are: 1) the infusion of additional capital into government financial institutions (GFIs) for them to be able to act as wholesale banks and fund substantial portions of loans that other commercial banks will provide to businesses affected by the pandemic; and 2) allowing banks to dispose of non-performing loans and assets through asset management companies similar to special purpose vehicles.
“Our government banks will also set up a company to deal with problems involving solvency issues as opposed to liquidity issues and we will be inviting other multilateral agencies and foreign investment companies to participate in this venture,” Dominguez said.
These four measures also include: 3) the swift congressional passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act that will reduce corporate income taxes (CIT) for the majority of small- and medium-sized businesses from 30 percent to 25 percent, and tailor-fit fiscal and non-fiscal incentives for the kind of investors that the government wants to participate in the domestic economy; and 4) providing greater support to the agriculture sector by giving the banking system the ability to support the whole value chain of agri-enterprises.
Dominguez recently said the passage of a fiscally responsible Bayanihan To Recover As One Act, which was ratified by the Senate on Thursday (Aug. 20) was another key imperative that will provide another round of fiscal measures to stimulate consumer demand and support pandemic-hit businesses and individuals.
“If we can pass these critical reforms on time, we can help businesses in need sooner, and further improve the post-COVID-19 business climate. These critical reforms recognize the crucial role of a durable banking sector in ensuring that the rebuilding of the rest of the economy can be financed adequately,” Dominguez said.
He said the government will likewise maintain the “Build, Build, Build” program, given that infrastructure investments will be the best way to revive the economy because of their high multiplier effect.
The Duterte administration is committed, too, to push the passage of complementary bills that will open up the country to more foreign direct investments (FDIs), such as amendments to the Foreign Investments Act, the Retail Trade Liberalization Act and the Public Service Act.
“Even as we navigate through very difficult circumstances, we intend to maintain fiscal discipline, make our financial sector more inclusive, and introduce more reforms that will help us consolidate a pro-business environment,” he said.
Dominguez said that even with the best efforts to protect lives and livelihoods, the Philippines, like almost every other pandemic-stricken economy in the world, has “taken a serious hit.”
He traced the 16.5-percent GDP contraction in the second quarter to the adverse effects of the 11-week strict lockdown that the government put in place last summer as the healthcare system and the people were adjusting to the unprecedented pandemic.
Dominguez conceded that President Duterte’s decision to place back Metro Manila and neighboring provinces from the relaxed general community quarantine (GCQ) status to the stricter modified enhanced community quarantine (MECQ) for two weeks this August, in response to the recent surge in COVID-19 cases, will negatively affect livelihoods, consumer demand and production in the short run.
But it will benefit the country in the long haul, he added, if this two-week timeout is used to boost medical resources and prevent the further spread of the virus.