P-Noy nursed PH back to fiscal health
7th of a series
NO LONGER “the sick man of Asia,” but a rising star in the region. This was the Philippine economy under the Aquino administration.
With an average growth rate of 6.2 percent in the first five years of “Daang Matuwid,” the economy expanded at its fastest pace since the late 1970s, outshining most of its Asian peers.
Reforms were implemented that helped the Philippines secure investment grade credit ratings under Aquino’s watch—revenues were shored up, spending on infrastructure ramped up, the annual budgets were passed ahead of their implementation, more jobs were created, many were lifted out of poverty.
Aquino’s economic managers nonetheless acknowledge that much more needs to be done, moving forward, to further reduce the number of poor Filipinos and address unemployment as well as underemployment to make the robust economic growth more inclusive.
Sustainable growth
Finance Secretary Cesar V. Purisima, who heads Aquino’s Cabinet Economic Development Cluster, described the strides made during the past six years, especially by the Department of Finance (DOF), as “leading sustainable, inclusive economic growth and development.”
“The DOF has led the Aquino administration’s efforts in driving an economic transformation unseen in generations, spurring a virtuous cycle of confidence in the Philippines,” Purisima said in a report to House Speaker Feliciano Belmonte Jr.
“The nation is currently running a 6.2-percent gross domestic product (GDP) growth average for the duration of the Aquino administration, its fastest streak in 40 years. Meanwhile, the Philippines—now enjoying investment grade status—has been the world’s most upgraded sovereign, with 24 positive credit ratings actions in an unprecedented streak,” the outgoing finance chief noted.
As part of the initiatives under the 2010-2016 Medium-Term Philippine Development Plan (MTPDP), the DOF “worked with the rest of the government to advance inclusive, equitable, and sustainable development through the good governance framework set by the President,” Purisima said.
The DOF “led the management of the economic turnaround through sound fiscal policy, effective revenue generation, prudent liability management, efficient and optimal management of public assets and corporations … upholding long-term fiscal sustainability and stability above all else,” he added.
Purisima attributed the solid macroeconomic fundamentals achieved in the last few years to a healthy fiscal position.
“Fiscal sustainability is reflected in a fiscal deficit minimized to 1.8 percent of GDP in the last six years,” he said. The maturity profile of government debt tended toward longer-dated securities, with about 90 percent of debt accounted for by long-term securities, minimizing re-financing risk. The country closed 2015 with a debt-to-GDP ratio of 44.8 percent, the lowest since 1998, with foreign debt down to only 34.8 percent of the total, making for a more resilient debt structure amid a volatile global economic environment.
The Bureau of the Treasury, for its part, was able to demonstrate “proactive approach to prudent liability management,” such that the Philippines has become “a touchstone for sovereign issuances in the region.”
In February, the Philippines sold $2 billion in 25-year sovereign bonds at a record-low yield of 3.7 percent, reflecting a sustained investor confidence.
The coupon for the US dollar-denominated global bonds maturing in 2041 was lower than the initial pricing guidance of 4 percent and the lowest ever for an offshore issuance.
Tax evasion, smuggling
In terms of revenue generation, the DOF “reformed and strengthened its revenue generating agencies—improving collection efficiency, embracing technology, plugging loopholes, and taking on a law enforcement role against tax evaders and smugglers,” Purisima said.
Three anticorruption programs led by the DOF were instrumental in shoring up collections while reforming collection agencies. “The Revenue Integrity Protection Service (RIPS) has focused on weeding out corrupt agents among the ranks of revenue generating agencies. Since inception in 2003 until the end of 2015, RIPS has charged a total of 271 personalities. Successful resolutions of RIPS cases were only 103.
In the meantime, from 2010 to Feb. 5, 2016, the Run After Tax Evaders (RATE) campaign has filed 435 tax evasion cases involving tax liabilities of at least P73 billion. Run After the Smugglers (RATS), meanwhile, has filed 210 cases involving P57 billion in dutiable value since 2010.”
Even as tax authorities had filed more than 600 cases against alleged tax evaders and smugglers, only a handful had been convicted as cases languished in courts.
As Aquino promised, his administration was able to pass a tax measure, which also serves as a health measure—the Sin Tax Reform. This was why Aquino bucked the passage of a comprehensive tax reform package endorsed by the DOF last year.
The DOF package was aimed at drastically easing the burden of income taxpayers while slapping new or higher taxes on consumption. It included policy measures entailing legislation as well as tax administration improvements, which the DOF claimed would lead to a “competitive, equitable and progressive” tax regime.
It included an all-in tax exemption for those earning P1 million a year and lower tax rates for individuals and firms while raising the value-added tax rate to 14 percent and expanding its coverage.
“The passage of the sin tax bill into law in 2012 and its implementation in 2013 generated additional revenue to finance a wider social services. As of October 2015, total incremental revenue from sin tax reform reached P149.5 billion, pouring an unprecedented amount of resources to the government’s universal healthcare program. Specifically, 80 percent of the incremental increase in sin tax revenue collections was channeled to finance universal health care which includes funding the enrollment to and premium payments for the health insurance program of indigent individuals and senior citizens. The rest went to medical assistance to indigents and the improvement of health facilities,” Purisima noted.
Additional collections from higher excise taxes on sin products such as tobacco and alcohol were able to help jack up the share of tax revenue to the economy, which allowed increased budgets for social services.
“Total tax revenue grew robustly, topping P1.8 trillion in 2015 [such that] the tax effort has improved to 13.7 percent of GDP, from 12.1 percent in 2010. In addition to this, interest payments as percentage to total expenditure declined from more than 19 percent in 2010 to less than 14 percent in 2015, freeing more resources for more productive investments. With this, the government managed to double its education budget, double its infrastructure budget, triple its health budget and increase its social welfare budget by at least six times,” Purisima said.
Heavy investments
Citing the award of 12 public-private partnership (PPP) projects worth $4.36 billion, Purisima said the past six years under Aquino was “unquestionably the most intensive period of investment the nation has enjoyed in decades, if not its entire history.”
When the Aquino administration launched the initiative in 2010, it committed to roll out 10 PPP projects a year; however, only a dozen projects had so far been awarded to private sector proponents.
The dozen projects earlier issued notices of award were: Daang Hari-South Luzon Expressway (SLEx) link road or Muntinlupa-Cavite Expressway; PPP for school infrastructure (phases 1, 2); Naia Expressway (phase 2); Philippine Orthopedic Center modernization; Automatic Fare Collection System; Mactan-Cebu International Airport passenger terminal building; Light Rail Transit Line 1 Cavite extension, operation and maintenance; Southwest Integrated Transport System; Cavite-Laguna Expressway; South Integrated Transport System, and Bulacan bulk water supply project.
Early this month, the National Economic and Development Authority’s (Neda) investment coordination committee approved the changes earlier recommended by the Department of Transportation and Communications in the proposed P170.7-billion, 653-kilometer south line of the North-South Railway Project, which will run from Manila to Legaspi City, Albay.
This meant that the largest PPP project to date that will connect Metro Manila and Bicol Region would be delayed even if it was already approved for rollout by Aquino, who chaired the Neda Board, last year.
But for Purisima, “spending for infrastructure has widened significantly, leaping from a mere P165 billion in 2010 to what is now P760 billion in 2016, an investment translating to around 5 percent of our GDP—a goal experts have set in order to at least be on par with regional peers.”
“Infrastructure as a share of the national budget from the previous decade was at average, only 10.1 percent of the total. This 2016, it hit 25.5 percent, reflecting a growth of 245.4 percent since 2010,” he added.
To be continued
