Gov’t vows to maintain conservative borrowing strategy

Despite the economic recession seen in the Philippines due to coronavirus (COVID-19) pandemic-prompted lockdown measures, fiscal managers are not keen on unleashing a fiscal bazooka in a way that would harm the government’s investment credit rating.

In an economic forum hosted by Security Bank on Thursday, Finance Secretary Carlos Dominguez III affirmed that keeping a “conservative” borrowing program and maintaining a very good credit standing would remain a key priority.

Dominguez estimated that the government’s fiscal deficit ratio would be capped at 9.6 percent as a ratio of gross domestic product (GDP) this year, before bringing the ratio down to 8.5 percent next year and further down to 7.2 percent by 2022.

“Essentially, in a crisis like this, it brings out to the fore what you did well and you did not do well in the past. I think that as a society, we did very well over the past years in strengthening our financial systems, in being very prudent in our spending, in passing very important tax reform laws. And for that I have to thank both the Senate and the House for passing the various tax reform measures, including the rice tariffication act, which actually brought down the price of rice by around 20 percent from the high of 2018,” Dominguez said.

“So those measures prepared us, gave us the stamina to take this very heavy hit that frankly, no one anticipated. So I guess it tells us also what we should do for the future and that is, to be very prudent in your spending, make sure that your tax collection efforts and your tax collection agencies are doing their job and making sure that our borrowing is very conservative and maintain a very good credit standing around the world,” he said.

This was on the heels of calls from business and economists for greater COVID-19 stimulus to perk up the sagging domestic economy, which contracted by 16.5 percent year-on-year in the second quarter, worsening from the 0.7-percent year-on-year contraction in the first quarter. This was the worst performance seen in over four decades.

Many economists and businessmen have backed the P1.3-trillion fiscal stimulus program under the proposed Accelerated Recovery and Investments Stimulus for the Economy (ARISE) bill.

Dominguez, however, instead favors the CREATE or Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) legislation, which seeks to lower corporate income taxes to 25 percent from 30 percent across industries and rationalize fiscal incentives.

He said CREATE could be the “biggest stimulus” ever needed by the domestic economy.

Of all the proposed COVID-19 stimulus packages, Finance Assistant Secretary Tony Lambino said ARISE had the highest price tag.

“It’s something that would have really blown the deficit to the water. That’s why the (Finance) Secretary and the economic managers have been very clear that any stimulus package should of course allow us to respond effectively, keep the powder dry for succeeding rounds of this fight that we’re waging against COVID19,” Lambino said in the same forum.

“Incidentally, when our credit rating is good and our borrowing capacity is good, we provide an umbrella for private companies to go into the foreign debt markets and raise capital as well,” Dominguez said.

Around this time last year, he noted that total foreign borrowings by the private sector amounted to only $3.5 billion.

“This year, it’s over $5 billion and again they get very good terms because the country itself, our sovereign credit rating is quite good so when there are people who say – forget the credit rating, I think that’s anti-Filipino,” he said

“A lot of our recovery will depend on our ability to either live with this virus or to conquer it. Of course the latter is better, but if that is not in the immediate horizon, probably it is important for us to learn how to live with it also to not get discouraged when we have little (COVID-19 case) spikes. The whole world is experiencing these spikes … The attitude is—we have this contagion and we have to live it, and live with it long enough so we can defeat it,” Dominguez said.