House of Representative Plenary Hall
Photo file/THEPHILBIZNEWS
By Victoria “NIKE” De Dios
With the Philippine economy slows down due to prolonged and strident lockdowns due to the coronavirus pandemic, many companies and businesses closed down.
In the desire of the government to help the affected entrepreneurs through the economic stimulus package, President Duterte’s economic team has sought the swift enactment by the Congress of the proposed 2021 national budget as a key component of the government’s comprehensive plan to “rebuild the economy and decisively defeat COVID-19.”
On top of the proposed 2021 General Appropriations Act (GAA) of P4.506 trillion, the Duterte administration is also urging lawmakers to act in a “timely and decisive” manner on several economic priority measures designed to accelerate economic recovery and make support available for businesses, workers and families that were hit hard by the coronavirus-induced global crisis, Finance Secretary Carlos Dominguez III said.
Dominguez made use of the recent Development Budget Coordination Committee (DBCC)’s briefing for the House committee on appropriations to thank the legislators from both chambers for passing a “fiscally responsible” Bayanihan To Recover As One Act (Bayanihan 2), which, he said, “allows the country to meet the challenges of economic recovery without imposing a heavy burden on future generations.”
He said the other priority measures that require prompt congressional action are the proposed Financial Institutions’ Strategic Transfer (FIST) Act, which will allow banks to dispose of bad loans and non-performing assets (NPAs) through asset management companies; and the Government Financial Institutions’ Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bill, which seeks to allow state-run banks to form a special holding company that will infuse equity, with strict conditions, into strategically important companies facing insolvency.
Dominguez said the proposed Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), which will immediately lower the corporate income tax (CIT) rate from 30 to 25 percent once made effectively and will enhance the flexibility and efficiency of the incentives system for businesses, complete the list of priority measures that the Congress needs to act on swiftly to ensure the country’s speedy and strong recovery from the prolonged health emergency that has battered the global economy.
“The swift enactment of CREATE, FIST, GUIDE and the 2021 budget will serve to accelerate our economic recovery. We should not delay providing urgent and necessary relief to our people,” said Dominguez during last Friday’s DBCC briefing for the House appropriations panel on the proposed GAA or 2021 National Expenditure Program (NEP).
The DBCC is composed of the heads of the Departments of Budget and Management (DBM) and of Finance (DOF), National Economic and Development Authority (NEDA), Bangko Sentral ng Pilipinas (BSP); and a senior representative from the Office of the President (OP).
“We are committed to working closely with you on the recovery measures so that these can be enacted in a timely, decisive, and responsible manner,” Dominguez told members of the panel chaired by ACT-CIS partylist Rep. Eric Yap.
The Duterte administration will also continue to work with the legislature in passing the remaining packages of the comprehensive tax reform program (CTRP) that will, among others, institute reforms in property valuation and in the taxation of the financial sector, Dominguez said.
He said economic recovery also rests on sustaining President Duterte’s signature program “Build, Build, Build,” as sound infrastructure investments provide the largest multiplier effect on the economy in the form of more jobs, increased consumption, and the generation of additional productive activities.
Dominguez said that unlike past crises when legislation and spending restored confidence in the economic sector, the current one caused by COVID-19 “cannot be ended with a knock-out punch until a safe and effective vaccine becomes readily available for mass distribution.”
Thus, he said, the government should have the fiscal stamina to endure the expected drawn-out battle against the pandemic.
“How a country’s economy performs during COVID-19 and how quickly it can bounce back once the crisis is over will depend on its economic resilience,” Dominguez said. “This is why we have been consistent with our approach: we will do what is necessary, but we will not be wasteful.”
President Duterte’s prudent fiscal management policies, complemented by the bold tax reform measures passed by Congress and improved tax administration, have placed the country in a strong fiscal position to meet the challenges of the global crisis spawned by COVID-19, Dominguez said.
He said revenue collections totaling P3.14 trillion last year–representing a revenue effort of 16.1 percent, or the highest in more than two decades—was the result of the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) Law and improvements in tax administration.
The catch-up spending plan implemented last year to offset the delay in the passage of the 2019 budget year resulted to total expenditures of P3.8 trillion, which is 11 percent higher than in 2018, Dominguez said.
This robust spending produced a deficit-to-GDP (gross domestic product) ratio of 3.4 percent, he said.
In 2019, the debt-to-GDP ratio fell to a historic low at 39.6 percent, owing to the President’s prudent cash and debt management policy backed by steady economic growth, he noted.
COVID-19, however, forced the government to impose the necessary lockdowns to save lives and protect communities, which, expectedly, led to nationwide work stoppages and a subsequent drastic contraction of the economy that overturned most of the economic gains, Dominguez said.
“The effects of this pandemic would have been much worse had it caught us in a weak fiscal position. Fortunately, when it hit us, we had sufficient means to fight the battle and ramp up public spending,” he said.
Dominguez thanked the Congress for swiftly passing the first Bayanihan Act within a week after the imposition of the enhanced community quarantine (ECQ) in March.
The Congress’ quick action “cushioned the public from the worst of the initial shock of the lockdowns” through the emergency cash grants and wage subsidies provided under the first Bayanihan Law, he said.
The lockdowns severely curtailed economic activities and muted the government’s revenue-generation capacity, with total revenue collection reaching only P1.7 trillion in the first seven months of 2020–or 7 percent lower than the revenue takes in the same period last year, with 85 percent of the revenues coming from tax collections, and equivalent to a negative growth of 12 percent.
On the positive side, non-tax revenues from January to July this year posted double-digit growth, driven mainly by the Bureau of the Treasury (BTr)’s cumulative revenues for the seven-month period, which grew by 87 percent year-on-year to P190.9 billion, he said.
Dominguez traced the growth largely to higher dividends and other remittances from government-owned and –controlled corporations (GOCCs) as well as other government service income.
This additional income and savings from prudent debt management will enable the government to fund Bayanihan 2, Dominguez said.
Increased government spending amid lower revenue collection pushed the fiscal deficit to P700.6 billion in the first seven months of the year, which is six times higher compared to that in the same period in 2019.
Given these realities, Dominguez said the DBCC projects revenue collection in 2020 to reach P2.5 trillion or 13.4 percent of GDP; P2.7 trillion in 2021; and P3 trillion in 2022.
The deficit-to-GDP ratio is projected to reach 9.6 percent at the end of 2020 as the government spends more to beef up the health system and to provide relief to individuals and sectors hardest hit by the pandemic.
This ratio will decline to 8.5 percent in 2021 and 7.2 percent in 2022, he said.
To bridge the budget gap, he said the DOF has so far secured a total of $8.83 billion in financing for the government’s COVID-19 response efforts from its development partners and the commercial markets.
Of the total amount, $5.98 billion is budget support financing from the Asian Development Bank (ADB), World Bank, Asian Infrastructure Investment Bank (AIIB), the French Development Agency (AFD) and the Japan International Cooperation Agency (JICA).
A total of $2.35 billion was sourced from the government’s latest global bond offering that fetched its lowest ever coupon in the US dollar market.
The remaining $496.36 million is from grant and loan financing from the Philippines’ development partners for various COVID-19 specific projects.
Dominguez said that total government borrowings for 2020 and 2021 are projected to reach P3 trillion to support priority expenditures necessary for the country’s swift recovery from the COVID-19 crisis and public investments in infrastructure and social services.
Borrowings are expected to settle at P2.3 trillion in 2022, with funding in favor of domestic sources
The debt-to-GDP ratio is projected to settle at 54 percent this year; 58 percent in 2021; and 60 percent in 2022, he said.
He added that these projections are still lower when compared to the country’s all-time high debt level of 71.6 percent of GDP in 2004, he noted.