"S&P Global’s credit rating upgrade of the Philippines by one notch higher is an undeniable tribute to President Duterte’s unwavering commitment to bold reforms and sound economic policies."
One of President Rodrigo Duterte’s most important decisions at the onset of his administration was when he picked Carlos “Sonny” Dominguez III as his Finance secretary and the de facto head of his economic team.
In a span of two years and 10 months since Dominguez took over the post, much has improved in the way the government handles its finances, raises revenues, fights tax cheats, attracts foreign direct investments, supports education, builds infrastructures and boosts economic growth.
The country received record foreign direct investments over the past two years, achieved its highest credit rating in April 2019 and is poised to snag the status of upper-middle-income economy this year—all significant milestones in Philippine history. “We are proud to announce that the Philippines will achieve the status of an ‘upper middle-income’ nation ahead of [the 2022] schedule,” Dominguez announced recently before the World Bank.
Dominguez is a 40-year veteran in public service and business sector. He led several corporations engaged in aviation, power, agriculture, mining, banking, hospitality, real estate and investment. He was a former chief executive of Philippine Airlines, the country’s flag carrier. His family owns Marco Polo Hotel in Davao City, one of the top hotels in southern Mindanao.
Before joining the Duterte administration, Dominguez led the Agriculture and Environment departments under the Cory Aquino administration. In 2016, he became the 31st secretary of the Finance Department.
As the head of the DoF, Dominguez is in charge of raising more revenues to finance the unprecedented P8.4-trillion ‘Build, Build, Build’ infrastructure program through the Tax Reform for Acceleration and Inclusion or Train law that reduced personal income taxes but raised the excise taxes on tobacco, alcohol, fuel, sugar-sweetened beverages and automobile.
The program aims to construct more bridges, roads, tollways, airports, seaports and railways including the country’s first subway.
“Fast-tracking our ‘Build, Build, Build’ program will bridge the infrastructure gap that has long been one of the major deal breakers for investors. We aim to raise infrastructure investments to 7 percentof gross domestic product by 2022 and further improve our absorptive capacity in implementing projects,” Dominguez told Manila Standard.
He said infrastructure development and eliminating red tape and corruption hold the key to attracting more foreign direct investments.
“Apart from attracting investors, infrastructure modernization will also sustain and boost our growth momentum, given that infrastructure development has the highest multiplier effects by creating jobs and opening new areas for investments that further stimulate economic activity,” he said.
Strong economy
Dominguez said fiscal prudence, which made it possible for the government to invest in big-ticket projects, would result in building a strong economy that the Filipino people deserve.
Pursuing the remaining tax reform packages, he said, would expand the government’s revenue base and provide a steady revenue stream for the Build, Build, Build program and enable the country to secure further credit rating upgrades.
The Train law—the first package of the administration’s Comprehensive Tax Reform Program—took effect in January 2018. Other tax reform packages include the reduction of the corporate income tax rate to make it closer to the regional average and the rationalization of the fiscal incentives to create an even playing field for businesses.
“The other packages cover reforms in property valuation to make the system more equitable, efficient and transparent; the rationalization of capital income taxation to address the multiple tax rates and different tax treatments and exemptions on capital income and other financial instruments; increasing the excise taxes on tobacco and alcohol products and the government’s share from mining revenues; and the automatic exchange of tax information and relaxation of bank secrecy laws,” he said.
S&P Global Ratings which upgraded the Philippines credit rating to “BBB+” on April 30 said the accelerated implementation of the infrastructure program and passage into law of the remaining tax reform packages would help fuel robust, sustainable and more inclusive economic growth.
“We will also continue cultivating our young and highly-skilled labor force. We are looking at every opportunity for economic complementation with our industrialized neighbors with aging populations that will ensure ample opportunities for our very young labor force. Our law previously ensured free basic education for all Filipinos,” said Dominguez.
“Now, free tuition has been extended to students enrolled in state colleges and universities or SUCs. Increased investment flows over the past years strengthen our faith that we are implementing the right economic strategy at this juncture of our country’s history,” he said.
With the improving business environment and the relentless campaign against corruption, the country in 2017 and 2018 received a total of $20 billion in foreign direct investments, or an average of $10 billion a year, double the inflows that came in 2015.
“This is unprecedented. The tight spread of our bond offerings demonstrates the confidence of the investment community in our commitment to fiscal discipline. Thus, after the successful issuances of Panda and Samurai bonds in China and Japan, respectively, the government’s economic team is currently on a roadshow in Europe, this time to float Euro bonds in financial capitals such as London, Paris, Frankfurt, Milan, and Zurich,” said Dominguez.
More investments
Dominguez has been very active in informing foreign investors that the Philippines is now one of the best places where they can expand their businesses.
In April 2019, he called on Japanese and American companies to invest more in the Philippines’ fast-growing economy, where higher consumer demand fueled by tax reform and an aggressive infrastructure program, along with improving peace and order, open wide business opportunities for foreign investors.
Dominguez assured a delegation from the Kansai Economic Federation based in Osaka, Japan that the second package of the Duterte administration’s tax reform program—which aims to cut the corporate income tax rate and rationalize investment incentives—would be a game-changer that would expand, rather than curtail, opportunities for them to do business in the Philippines.
Meanwhile, he told American businessmen in Washington D.C. that now is the “best time” to invest in the Philippines so they could maximize the benefits of participating in a robust economy which is poised to become Asia’s next economic powerhouse.
Upper middle-income
Dominguez said the Philippines' strong partnership with multilateral lenders such as the World Bank was a key factor in helping the country secure its status as an upper-middle-income economy in 2019, three years ahead of the targeted schedule.
The Duterte administration had targeted to achieve the upper middle-income status by 2022, and become a high-income economy by 2040. The government also aimed to bring down poverty incidence from 21.6 percent in 2015 to just 14 percent by the end of President Duterte’s term.
It looks like the target for upper-middle-income status would be achieved this year. Based on World Bank criteria for the fiscal year 2019, an upper middle-income country should have a gross national income per capita of$3,896 to $12,055. The Philippines is currently classified as a lower middle-income country with a GNI per capita of $3,700 in 2017.
With the resilience it had displayed under an inclusive economy which grew 6.2 percent last year, the Philippines is poised to reach the upper middle-income status ahead of target, according to Dominguez.
“By striving to make our economy more inclusive and our governance more responsive to the waves of technological change, we strive to continue building on our growth momentum,” he said.
Fight against tax cheats
Under Dominguez’s leadership, the Department of Finance made history in 2017 by collecting from Mighty Corp. a total of P30 billion in unpaid taxes, the biggest sum on record raised by the government from a tax settlement.
After the Bureau of Internal Revenue filed three separate criminal complaints before the Department of Justice against Mighty for the alleged widespread use of counterfeit tax stamps, the firm offered in July 2017 to shut down its operations and settle its tax liabilities.
Mighty’s manufacturing and distribution assets were sold to Japan Tobacco Inc. for around $1 billion. As a conditionality, Mighty paid around P30.4 billion (roughly equivalent to $600 million) in taxes, comprising previous tax liabilities and transaction taxes, to settle its obligations to the government.
Dominguez also said nobody should be exempt from paying the correct amount of taxes to the government, including foreign nationals working in the country.
“Enforce the law so we can collect the tax,” Dominguez said in a recent executive committee meeting of the DoF.
Avoiding debt trap
Amid concerns from different sectors, Dominguez downplayed the idea that the Philippines would default on its concessional loans to countries such as China. He said these fears were unfounded, given that the government had never failed to pay its debt even during the worst of times.
“The Philippines has never, never defaulted on its loans. The Philippines has not done it even in the worst time and the worst time was right after Marcos,” Dominguez said.
He said that even when the Philippines was cash-strapped, it had never defaulted on any of its loans, recalling that the country even paid its obligations on the $2.2-billion Bataan Nuclear Power Plant project which was then considered a “white elephant”.
“The Philippines has no history of defaulting on its loans. So why are people saying now that we will default? Do they have no faith in the Philippines? I don’t know why people are saying ‘There might be a default.’ That means to say those people have no faith in their own country,” Dominguez said.
Dominguez said there was no collateral involved in the loans that the government signed with any country as he invited the public to examine the terms of all the loan accords which are available for viewing at the Department of Finance website.
The government’s borrowing program, Dominguez said, remained “very conservative in the sense that we only borrow to invest in projects that will generate economic gains which are greater than the borrowing cost.”
He said that as of 2018, the government’s project debt exposure was only 0.66 percent to China and 9 percent to Japan in relation to the total debt.
By 2022, when most of the financing for the Build, Build, Build program will have been accessed, the country’s project debt to China is expected to account for only 4.5 percent, while that of Japan will be twice as large at 9.5 percent.
Credit goes to government
Dominguez’s accomplishments as Finance secretary did not go unnoticed. Two renowned publications have already distinguished him for a job well done, but he refused to accept the awards, saying what the government achieved so far was a fruit of concerted efforts of all its members and not by one person alone.
In December 2017, Dominguez declined to accept an award from BizNewsAsia that cited his exemplary performance as the head of the Duterte administration’s economic team, saying he was just doing his job and what the government achieved so far is a result of a team effort.
Prior to that, he also declined to accept an award as “Finance Minister of the Year” for East Asia Pacific from a joint publication of the World Bank and the International Monetary Fund in September 2017.
After the long-anticipated S&P Global Ratings’ upgrade of the Philippines’ sovereign investment-grade rating from “BBB” to “BBB+” on April 30, Dominguez said the credit belongs to President Duterte’s strong leadership and his 10-point economic program.
“S&P Global’s credit rating upgrade of the Philippines by one notch higher is an undeniable tribute to President Duterte’s unwavering commitment to bold reforms and sound economic policies as embodied in the 10-point Socioeconomic Agenda of the administration and his strong political will to get these tough initiatives done at the soonest,” Dominguez said.
The upgrade put the Philippines at par with Mexico, Peru, Thailand and Trinidad and Tobago. It is even higher than the “BBB” ratings of Italy, Portugal, Hungary, Panama, and Uruguay.
“Credit should be given to President Duterte’s decisive political leadership and commitment to sweeping reforms. Our president’s swift action in delivering on his 10-point socio-economic agenda has been recognized by the international financial community as demonstrated anew just recently by S&P Global’s latest upgrade on the Philippines’ credit rating from ‘BBB’ to ‘BBB+’ with a ‘stable’ outlook,” Dominguez said.
Dominguez said to further enhance the Philippines’ credit rating and make the country an investment magnet in the region, the Executive Department would be relentless in engaging Congress to act on President Duterte’s proposed reform measures that aim to level the playing field for investors and improve the ease of doing business in the country.
“We will also vigorously implement sectoral and administrative reforms that include the new law further empowering our central bank, the rapid adoption of new digital technologies to improve governance through real-time payment systems, the introduction of a national ID system, the rice tariffication law and new platforms to minimize the cost of doing business,” he said.