Speech for the BPI Year-End Economic Briefing

Posted on December 15, 2016

Sec. Benjamin E. Diokno (BPI Year-End Economic Briefing, 29 November 2016, Dusit Thani Hotel)

Esteemed guests, leaders in business and finance, fellow workers in government, ladies and gentlemen: Good afternoon!
I am honored to speak to you today to share with you the bold aspirations of the Government for the next six years, as well as some accomplishments we have made in the first five months of the Duterte administration.

As 2016 comes to a close, the Filipino people have much reason for optimism. This rational optimism is grounded on two fronts – economic growth and poverty reduction.

Third Quarter Gross Domestic Product (GDP) growth rate was a robust 7.1 percent. The Philippine economy has beaten market expectations as we have sustained rapid growth without election-related spending padding our figures. Comparative data also suggest that we are now the fastest growing emerging economy, surpassing other Asian tigers like China and Vietnam . This is no small feat and is a testament to our strong macroeconomic fundamentals.

More importantly, full-year poverty incidence statistics for 2015 indicate that growth has started to benefit the poor – it has dropped to 21.6 percent . In the past ten years, poverty rate stagnated at 25 to 26 percent. So 21.6 percent is welcome news, though such a rate remains unacceptable.

As Budget and Management Secretary, my task is to make sure that policy continues to support our development objectives. In measurable terms, this is the Duterte Administration’s goal of making the Philippines a high-middle income country by 2022, accompanied by rapid poverty reduction of 1.25 – 1.5 percentage points annually.

First, we have tweaked our fiscal policy to secure these ambitions. The deficit-to-GDP ratio will be increased from 2 to 3 percent for the next six years. This will allow adequate funding for our expenditure priorities.

But let me assure you that we will exercise fiscal responsibility. The planned deficit is manageable, appropriate, and sustainable. Besides, we will outgrow our debt burden. Debt-to-GDP ratio is projected to decline from 45 percent in 2015 to 35 percent in 2022.
The increased funding will allow us to invest heavily in infrastructure development. Infrastructure boosts productivity, generates jobs, and attracts investments. It also facilitates the conduct of business and improves the mobility of people and accessibility of basic services. We must make infrastructure a catalyst for growth instead of a binding constraint.

The Proposed Budget for 2017, approved in record time by both the House and the Senate, allocates P860.7 billion for infrastructure development. This is equivalent to 5.4 percent of our Gross Domestic Product (GDP) and will be utilized in just one year.
This is only the beginning as spending will likely spike to 7 percent of GDP by 2022. I estimate that a total of P8.2 trillion to P9.0 trillion will be spent on public infrastructure under the term of President Duterte.

Transport infrastructure will be pursued to address the traffic crisis costing us, as a JICA estimate 3 years ago, P2.4 billion pesos daily. We will link rural sectors to growth centers, lagging regions to leading regions, to spur economic activity throughout the land. The poor, who are vulnerable to natural calamities like floods, will benefit from structural mitigation measures.

Transport infrastructure is a priority with road networks alone receiving P328 billion next year. Alternative modes of transport to decongest urban areas will also be pursued, such as the P25 billion for rail transport systems all over the country.

The Mindanao Logistics Infrastructure Network is another big-ticket project that will cost P31.5 billion pesos to improve trade and transport in Mindanao. A key factor to unlocking the potential of Mindanao is upgrading its infrastructure. This is especially true with Mindanao being the poorest island group in the country.

Next, school buildings and health facilities will have allocations of P125 billion and P10 billion, respectively. This is in line with our human capital development emphasis.

Irrigation systems will have P26 billion to support rural development and agricultural modernization. Specifically, the National Irrigation Administration (NIA) will extend its irrigation systems to cover an additional 30,000 hectares of land. These provisions will enable our rural sector to raise farm productivity and improve food security.

For more than 3 decades, infrastructure spending in the Philippines had fallen short of the ideal level of 5 percent of GDP. It only averaged 2.9 percent from 2010 to 2016. The consequences of such underinvestment are staggering: crumbling infrastructure, low mobility, and constrained development.

To fully tap the potential of the private sector, we will continue the Public-Private Partnership (PPP) program but with some enhancements for a more dynamic collaboration. The rules of engagement have been changed. We now entertain unsolicited proposals, subject to Swiss challenge.
At the same time, the economic managers recommended, and the President approved, that we will not use PPP as a way of raising revenues for the government. We will do away with the kind of PPP where the company that gives the highest premium wins. We feel that this is taxation without representation. Moreover, it will make public services costlier, perhaps even unaffordable, to users.

We prefer what we call Hybrid PPPs, where the government takes care of the financing and the construction, while the operations will be entrusted to the private sector. This way, the government can take advantage of lower borrowing costs through bilateral and multilateral financing. At the same time, it will allow the private sector to efficiently operate and maintain PPP projects.
As of November 16, 2016, 14 PPP projects worth P293.3 billion have been completed or are under implementation. The entire PPP pipeline is now worth more than P1.6 trillion pesos.

This includes the planned construction of a brand new and modernized Philippine National Railway (PNR), worth more than P250 billion. The new PNR will connect Tutuban to surrounding provinces such as Laguna, Batangas, Legaspi, and as far as Sorsogon.
In addition to public infrastructure, human capital development will be pursued resolutely. We have a young population and it is necessary to provide them with the tools – quality education, appropriate healthcare, effective social safety nets et cetera – to be an agile, competent and productive workforce. A dynamic labor force will enable us to achieve our growth potential down the road. Hence, we must continue preparing our youth.

Of foremost importance is the education sector, which will receive P700 billion. Department of Education alone will receive P567 billion for its goal of universal basic education. Beyond school buildings, we will provide seats, learning resources and additional manpower to our young students.

State Universities and Colleges (SUCs) shall also receive P60 billion to send deserving tertiary students to school. In addition, technical-vocational education is given P7 billion to mold Filipinos into workers with world-class technical expertise and artistry.
To complete the fiscal policy picture, a comprehensive tax reform package will be pursued by this administration. We intend to make the tax system simpler, fairer, and more efficient. Our outdated tax system with its high rates and narrow bases drives away investors. The present tax regime will also be unable to fund our lofty goals.

With that in mind, the first of many tax reform packages has already been submitted to Congress. It seeks to lower personal income tax rates from 32 percent to 25 percent, while expanding the Value-Added Tax base. The lowering of corporate income tax rates from 30 to 25 percent will follow suit next year. Other measures will also be introduced such as the lowering of estate taxes and the increase of excise taxes on petrol. These reforms will make our tax regime more equitable, more competitive in the region, and more suitable for our medium and long-term development prospects.

Clearly, the Duterte administration is serious in promoting economic growth that benefits all Filipinos, especially the poorest of the poor. We will push the economy to new heights founded on sound fundamentals and well-crafted policies. Indeed, we can all look forward to a safer, fairer, more prosperous, and more beautiful Philippines.

Thank you and good afternoon.