After the much-needed approval of the bill that would help would cushion banks and credit-granting institutions from the build-up of bad loans due to the COVID19 pandemic,  Finance Secretary Carlos Dominguez III has thanked Congress for its swift and timely passage of the Financial Institutions Strategic Transfer (FIST) Act, a law recently signed by President Duterte that allows financial institutions to efficiently offload their bad loans and non-performing assets amid the COVID-19-induced global economic slump.

“We thank our lawmakers for acting quickly in passing the FIST bill, which was signed into law by the President on February 16, 2021. The bill was passed within the first year of the pandemic, making it an effective measure in ensuring the stability of our financial system amid the global health and financial crises. The FIST law will allow banks to free up much-needed liquidity for lending to the productive sectors of our economy that are crucial to our recovery,” Dominguez said. 

Dominguez said the enactment of Republic Act (RA) No. 11523, otherwise known as the FIST Act, will assist the banking system in performing its crucial role of efficiently mobilizing savings and investments for the country’s quick and sustainable economic recovery by extending more loans to micro, small and medium enterprises (MSMEs) badly hit by the global economic turmoil unleashed by the coronavirus pandemic. 

“This FIST law is part of the stimulus package of the Duterte administration to energize the domestic economy and guide it to a quick and sustainable recovery from the lingering coronavirus pandemic,” Dominguez said.

Dominguez cited the able leadership of Senate President Vicente Sotto III and Speaker Lord Allan Velasco who both steered the swift passage of the measure in their respective chambers in the 18th Congress.

He also thanked Senate Majority Leader Juan Miguel Zubiri; House Majority Leader Ferdinand Martin Romualdez; Senator Grace Poe, the Chairperson of the Senate Committee on Banks, Financial Institutions and Currencies; and Quirino Representative Junie Cua, the Chairman of the House Committee on Banks and Financial Intermediaries, for getting the bill passed and ratified quickly by the bicameral legislature. 

The FIST bill, similar to the Special Purpose Vehicles (SPV) law of 2002, was certified as urgent by President Duterte last October 2020. 

Dominguez said the swift congressional approval of the FIST bill would help more banks and other financial institutions facing delayed loan collections drastically reduce their growing non-performing loan (NPL) ratio—unlike when the SPV Law was enacted five years after the Asian financial crisis struck in 1997.

He recalled that while the banking system entered the 1997 crisis with strong fundamentals, the delayed passage of the SPV Law led to the deterioration of the quality of its assets, with the NPL ratio of the local banking system peaking in June 2002 at 20.05 percent from only 4.7% in December 1997.

In contrast, other countries of the Association of Southeast Asian Nations (ASEAN) were able to aggressively implement programs to aid their respective banking systems as early as 1997 or 1998. 

On top of bank recapitalization programs, asset management companies similar to SPVs were established to help pull down the amount of bad loans in the banking systems of South Korea, Malaysia, Thailand, and Indonesia. 

“Faced with a mild banking problem, the Philippines did not implement any government initiative to bail out the banking sector until 2002, with the enactment of the SPV Law. While this law helped banks lower their NPL ratio over time, the law’s positive impact on our financial system had already been diluted because of its delayed congressional passage and enactment into law,” Dominguez said. 

“Thus, credit must be given to the hardworking members of our Congress today, and to the President for acting fast in signing the FIST law, as this measure is crucial to realizing our goal of a quick, robust, and sustainable recovery for our economy,” Dominguez said. 

According to estimates of the National Economic and Development Authority (NEDA), the FIST law can possibly free up P1.19 trillion-worth of loans from the sale by banks of their non-performing assets (NPAs) to asset management companies to be known as FIST corporations (FISTCs).

To encourage FISTCs to acquire the banks’ soured loans and NPAs, the new law provides for tax exemptions and lower fees on certain FIST-related transactions.

By helping banks keep their lending operations strong, the measure also aims to assist about 600,000 MSMEs in continuing their operations and retaining around 3.5 million jobs.

There are signs that the banking system has remained resilient despite the COVID-19 pandemic. Despite initial industry fears that the NPL ratio of banks by end-December 2020 would increase to 5.0 percent or an equivalent of P556.6 billion in NPLs, actual data from the Bangko Sentral ng Pilipinas showed the ratio to have eased to 3.61 percent, or P391.7 billion. Banks further expect 50 percent to 80 percent in expected losses on such NPLs. Non-performing asset (NPA) coverage also remains strong at 78.95 percent. 

Still, while such losses can still be absorbed by the banking system’s capital buffer, this would lead to a  deterioration in the banks’ loan portfolio if left unchecked, and  severely affect their solvency in  the long-term. The enactment of the law will also improve the management of banks’ distressed asset ratio, which has increased to 6.19 percent in December 2020 from 3.35 in January 2020. 

President Duterte earlier certified the FIST Act as urgent that allowed its swift passage. In the certification, President Duterte noted that the FIST bill will “strengthen financial initiatives towards national economy recovery and maintain the stability of the financial sector amidst the COVID-19.”

Dominguez urged the Congress to also pass this year the remaining packages of the Duterte administration’s comprehensive tax reform program—the reforms in the real property valuation system and the proposed Passive Income and Financial Intermediary Act (PIFITA)—as well as the remaining economic recovery legislation, the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bill.

Spearheaded by its International Finance Group (IFG), the DOF secured US$7.73 billion or 45.3 percent of this amount from multilateral lenders, US$2.86 billion (16.7 percent) from the Philippines’ bilateral partners, and US$6.47 billion (37.9 percent) from the commercial markets.

The continued provision last year of program loans from the Philippines’ bilateral and multilateral partners is “a testament to the timely delivery of our key sectoral reforms,” said Finance Undersecretary Mark Dennis Joven in his report to Finance Secretary Carlos Dominguez III.

“Out of the total external financing contracted in 2020, around US$15.44 billion is for the emergency requirements for our COVID-19 response, while the remaining US$1.62 billion is for other initiatives including ‘Build, Build, Build’ infrastructure projects,” said Joven, who heads the DOF-IFG.

In his report to Dominguez, Joven said US$14.52 billion in budget support financing was contracted by the DOF in 2020 to help cover the deficit of P1.38 trillion (US$27.81 billion or 7.6 percent of GDP or gross domestic product) resulting from the expected reduced collections of revenue agencies and the massive spending requirements of  COVID-19 response programs.

The remaining amount of US$2.54 billion in project loans was successfully negotiated by the IFG in 2020 to support the government’s key projects that will be implemented over several years starting in 2020, Joven said.

Of the US$14.52 billion, a total of US$8.05 billion was in the form of Official Development Assistance (ODA) financing and another US$6.47 billion was from funds raised in the overseas bond markets, Joven said.

The amount of US$12.18 billion out of this US$14.52 billion was already disbursed as of end-December 2020, he added.

“Because of a higher emergency funding requirement in light of COVID-19, the amount of external financing contracted in 2020 increased by 75.43 percent year-on-year. This also represents an overall 33-percent expansion of the external borrowing program from 2016 to 2020,” Joven said.

Joven said that in securing financing from external sources, the DOF has always maintained “its bias towards cheaper and multilalateral loans.”

“The government has consistently availed debt for budget support, recognizing that program loans and global bonds provide more flexibility in terms of utilization,” he said.

Aside from loans, the IFG also processed grants and technical assistance amounting to US$859.53 million last year, of which US$26.74 million is intended for COVID-19 response.

“In 2020, the IFG also facilitated the provision of various donations, such as testing kits, masks, personal protective equipment (PPEs), ventilators, face shields, and others, from China,” Joven said.

Also, the US$77.38 million Agreement on Economic and Technical Cooperation that the DOF signed recently with the China International Development Cooperation Agency (CIDCA) may be fully or partially used for the government’s COVID-19 response programs subject to discussions with the Chinese government, he said.

For 2021, Joven said the IFG is targeting to secure a total of US$23.71 billion in financing from external sources to bridge the budget deficit and provide funds for priority projects.

Of this amount, US$8.06 billion (34 percent) will be contracted for budget support purposes, while US$15.65 billion (66 percent) will be for project financing.

“We are planning to source a total of US$7.67 billion in loans and grants from multilateral institutions, US$10.54 billion from our bilateral partners; and raise US$5.5 billion from the commercial markets this year,” Joven said.

By Alithea De Jesus

As the need to be digitally equipped and efficient in line with President Duterte’s thrust to make government transactions efficient, the President has authorized the Department of Finance (DOF) to enter into talks with the United States Trade and Development Agency (USTDA) for a possible US$809,450 (about P39-million)  grant meant to assist the Bureau of Internal Revenue (BIR) in its digital transformation program. 

In a statement, the DOF said the President has approved its request for a Special Authority designating and authorizing any one of its senior officials–Undersecretaries Antonette Tionko and Mark Dennis Joven along with BIR Deputy Commissioner Lanee David—”to negotiate and/or facilitate, in accordance with law, for and on behalf of the Government of the Republic of the Philippines (GPH), with the authorized representatives of the USTDA.” 

Tionko and Joven are the respective undersecretaries for the DOF’s Revenue Operations Group (ROG) and  International Finance Group (IFG), while David is the deputy commissioner for the BIR’s Information Systems Group.

The Special Authority covers the negotiations for an agreement on the grant of US$809,450.00  (approximately P38,850,873.20) by the USTDA for the BIR’s Information and Communications Technology (ICT) Modernization Strategy and Data Center Technical Assistance Project, the DOF said in a statement.

President Duterte also  designated and authorized Finance Secretary Carlos Dominguez III or BIR Commissioner Caesar  Dulay “to conclude, sign, execute and deliver the said Grant Agreement.”

The BIR project  aims to modernize the bureau’s  infrastructure and operational environment, the DOF said. 

“The project funded by the USTDA grant  will ensure an in-depth technical assessment of the BIR’s current ICT environment, the development of an Enterprise Architecture roadmap/framework, and an assessment of the organizational framework of the BIR’s Information System Group (ISG) including recommended restructuring and training programs,” the DOF said. 

Dominguez has cited the BIR’s digital transformation efforts  as among the factors that led to a dramatic  improvement of its services  to taxpayers and  its  robust collection performance ahead of the COVID-19 pandemic-induced crisis. 

He said the digitally enhanced administrative reforms being undertaken by the BIR are now beginning to pay off by way of the significant improvement in the country’s tax effort from 13 percent of gross domestic product (GDP) in 2015 to 14.5 percent of GDP in 2019.

The digital switch has also led to  the more convenient and efficient electronic filing of tax payments, especially during this coronavirus pandemic, he said.

Starting Feb. 14 last year, the BIR allowed the use of the PayMaya mobile application as an additional electronic payment channel for tax payments.  

On top of PayMaya, these other e-payment tools are GCash, LandBank Linkbiz, DBP PayTax, Union Bank Online and PESONet.

The BIR has also improved  the tax forms deployed in the e-BIR Forms System to make the filing of tax returns more accessible and convenient to taxpayers. 

It began the pilot implementation  in April 21 last year of its web-based Internal Revenue Integrated System (IRIS) that will be the central tool and repository to process taxpayers’ information.  

The IRIS is targeted to be available nationwide by the end of 2021.

 
An  Electronic Audited Financial System (eAFS) was also launched last June 1 to allow business taxpayers to electronically submit  their financial statements to the BIR. 

 
The BIR likewise concluded last June its competition dubbed the ‘HACK-A-TAX Challenge,’ which  brought together talented information technology (IT)  professionals, start-ups and students across the country to develop innovative digital-based solutions for the bureau.

To enable  taxpayers to continue consulting revenue officials on their tax-related concerns even with the mobility restrictions imposed to curb the spread of COVID-19, the BIR launched its eAppointment Facility on October 19. 

In  November 2020, the BIR also launched its web-based Procurement, Payment, Inventory and Monitoring System (PPIMS) and its Online Application for Tax Clearance for Bidding Purposes (eTCBP). 

By Alithea De Jesus

A committee chaired by the Secretary of the Department of Finance (DOF) has been tasked to identify the private sector projects that will qualify for the grant of regulatory relief under certain conditions as provided for in the Bayanihan To Recover As One Act (Bayanihan 2). 

With the Secretaries of the Department of Environment and Natural Resources (DENR) and the Department of Trade and Industry (DTI) as members, the DOF-led committee was created in compliance with Implementing Rules and Regulations (IRR) of Section 4 (nnn) of Republic Act (RA) No. 11494 or the Bayanihan 2 Law. 

The committee has also been tasked to identify the specific permits, licenses, certificates, clearances, consents, authorizations, or resolutions that shall be waived in accordance with the IRR of this Bayanihan 2 provision. 

Finance Secretary Carlos Dominguez, Trade Secretary Ramon Lopez, and Environment and Natural Resources Secretary Roy Cimatu signed the IRR. 

“The Committee will work towards achieving the goal of the Bayanihan 2 to spur investments by speeding up the approval and implementation of private investments, stimulate economic activity and create jobs, so that our economy can recover from the effects of the COVID-19 pandemic,” Dominguez said.

He added, though, that while the panel has the power to grant regulatory relief and promote investments, “it will not be granting blanket relief as the committee will still carefully consider the over-all contribution of the projects and their impact on the general health and welfare of the public.” 

Lopez said the regulatory relief measures provided under the Bayanihan 2 will “fast-track high impact investments and help our country to build back better and lead to our post-pandemic recovery. It will also allow private projects to provide more employment opportunities for our fellow Filipinos that is critical at this time of the pandemic.”

“While permits, licenses, and other similar authorizations will be waived for private projects that meet the directives of the Act, we will ensure that their proponents comply with all the other laws pertinent to the implementation of these projects,” Cimatu said.

Under Bayanihan 2, private projects determined to be “nationally significant”, ”with high economic returns” or “with high employment potential” may have certain permits,  licenses  or other requirements waived,  to avoid delays in their implementation,  and  immediately stimulate economic activity and create jobs during the state of national emergency declared by the President as a result of the COVID-19 pandemic. 

These regulatory relief measures exclude those relating to taxes, duties, border control and environmental laws and regulations, as stated in Bayanihan 2 and in Section 6 of the IRR. 

Section 4 (nnn) of Bayanihan 2 states that the authority of the committee “shall be valid during the state of national emergency as declared by the President and the economic rehabilitation period or until the last day of June 2022, whichever is later.” 

Under its IRR, the DOF shall serve as the committee secretariat, where the private sector proponent of the project is required to submit the application for regulatory relief.

In identifying which covered projects shall be granted regulatory relief and the specific requirement or requirements that shall be waived, the committee is mandated under the IRR to evaluate them on a per-requirement basis; and determine the economic and social impact of the project (economic returns, job generation potential, effect on the delivery of critical services) on both the national and local economies.  

The committee shall also consider the impact of the lack of the requirement to be waived on the operations and quality of the output of the covered project, and the health and safety of the personnel working on the project, among other factors as stated under Section 5d of the IRR. 

Taking into account the new normal, the IRR states that covered projects under the following sectors may also be considered by the Committee as projects of national significance:

(a) housing and resettlement in support of the Balik Probinsya, Bagong Pag-asa Program (BP2P); 

(b) water supply and sanitation to accelerate achievement of full coverage; 

(c) watershed rehabilitation and protection; 

(d) power generation, transmission and electrification to support the digital economy; and 

(e) provision of other critical services that contribute to providing security and promoting peace.

Moreover, in determining the national significance of a project, the committee shall consider “the significant sectors that would accelerate the recovery and bolster the resilience of the Philippine economy” and may also take into account “the project’s direct and indirect contribution to economic growth and development, implementation readiness, and such other facets that would stimulate the local economy.”    

“As such, the total project cost of the Covered project is not necessarily the sole basis in determining national significance,” the IRR states. 

Section 10 of the IRR prohibits any court, except the Supreme Court (SC), from issuing any temporary restraining order (TRO), preliminary injunction or preliminary mandatory injunction against the Committee and the operation of the Covered project granted regulatory relief.

A technical working group (TWG) composed of representatives from the DOF, DTI, DENR and other government agencies identified by the Committee may be created to serve as its technical arm in evaluating applications, the IRR states. 

The TWG is responsible for conducting the necessary inter-agency coordination and consultation in evaluating the applications for regulatory relief; and in submitting  a comprehensive report to the Committee with its recommendations supported by factual, technical and legal reasons. 

The procedures and requirements in applying for regulatory relief and the limitations and coverage of such relief measures are outlined in the IRR. 

It also states that “(t)he Committee shall not be held liable if there will be a subsequent finding by the appropriate agency that the application should be disapproved.”

Under the IRR, any approval of regulatory relief by the Committee may be revoked at any time in case the project “is determined to have violated any condition given in the grant of such relief.” 

The IRR took effect following its publication in a newspaper general circulation on January 7, 2021.

The Office of the National Administrative Registrar of the University of the Philippines (UP) Law Center, the official repository of all IRRs issued by the different agencies of the government, were provided three (3) certified copies of the new IRR. 

Despite massive spending due to COVID19 pandemic, the Philippines remains in a strong fiscal position to meet the financial challenges of beating the COVID-19 pandemic and rebooting the economy as a result of the game-changing reforms put in place by President Duterte and the Congress over the past four years, Finance Secretary Carlos Dominguez III said.

Dominguez said the higher deficit spending to cover the requirements of the 2021 national budget is necessary to implement government programs that will help the economy bounce back from the pandemic and preserve jobs while creating more employment opportunities next year.

“So we are in a good financial position and we can finance the deficit that we have. We have not cut the budget. We also don’t cut the budget because if you cut the budget, you will make the situation even worse,” Dominguez said during President Duterte’s televised Talk to the People aired this week.

Dominguez said the reforms pushed by President Duterte, such as the Tax Reform For Acceleration and Inclusion Act (TRAIN) and the Rice Tariffication Law (RTL), to name a few, enabled the government to be financially prepared for the challenges of the coronavirus-induced global crisis.

“We are still in a good financial position. We are not under stress,” Dominguez said.

“We have a good economy. What is happening is that this very strict quarantine is holding it back. We have to really open the economy more,” he added.

Dominguez said the government will cover the budget deficit this year through three sources: improving tax collections, securing foreign and domestic borrowings, and higher dividend remittances from government-owned and -controlled corporations (GOCCs).

The Development Budget Coordination Committee (DBCC) earlier projected this year’s deficit to widen to 9.6 percent of gross domestic product (GDP). For 2021 and 2022, the deficit is expected to go down to 8.5 percent and 7.2 percent of GDP, respectively.

Dominguez reported to the President that from January to September this year, preliminary data show that the Bureaus of Internal Revenue (BIR) and of Customs (BOC) were able to collect P1.82 trillion, which is P138.94 billion or 8.26 percent more than the DBCC-set target of P1.68 billion for this period.

“Our collections are good. The BIR and the BOC  are doing a good job. Of course, the total collections compared to last year are lower because of less business activity this year,” Dominguez said.

Dominguez said financing support from the country’s development partners and the commercial markets to help fund the emergency spending needed to fight COVID-19 and keep the economy afloat now amounts to US$9.9 billion, which makes up 30 percent of the government’s total borrowings. The remaining 70 percent was sourced from the domestic market, he said.

He said the government was able to secure loans from the country’s development partners at lower interest rates and longer repayment terms.

To further supplement the financing for the pandemic response effort, Dominguez said the  Department of Finance (DOF) was also able to collect in the first eight months of 2020 a record P128 billion in dividend contributions from GOCCs, which is 85 percent higher than the P69.2 billion collected in 2019.