Finance Secretary Carlos Dominguez III said Wednesday that fiscal discipline will save the country from the worst economic impact of the COVID-19 pandemic.
Dominguez said in an online Development Budget Coordination Committee hearing at the Senate that with fiscal discipline and economic reforms that work, the Philippines came fully prepared to meet the global health crisis head-on.
“When the pandemic struck, we were financially ready. Our strong fiscal position, buttressed by our tax reforms and better tax administration, served us well,” Dominguez said.
He said the government collected revenues of P12.4 trillion from 2016 to 2020, 20 percent or P2 trillion more than what the previous administration ]raked in during its six-year term.
Dominguez said the enacted tax reform measures, such as the TRAIN law, new sin taxes and the Tax Amnesty Act collectively added P347 billion to the coffers from 2018 to 2020. They translated into more than P100 billion in additional taxes collected annually, he said.
He said that from 2016 to 2020, the Duterte administration’s revenue effort climbed to 15.9 percent of the gorss domestic product from an average of 14 percent of GDP during the previous administration.
“In fact in 2019, we achieved a two-decade high revenue effort of 16.1 percent. This underscores the improved efficiency and professionalism of our revenue collection agencies. Despite the pandemic, revenue effort remained at 15.9 percent of GDP in 2020,” Dominguez said.
Meanwhile, he said the total dividend remittances collected from government-owned or -controlled corporations reached P317.5 billion under President Duterte’s term. The amount includes dividend contributions retained by state banks to boost their capital requirements.
“The Duterte administration maintained a prudent deficit level notwithstanding our large investments in the Build, Build, Build program, which is the President’s main strategy to help Filipinos lift themselves out of poverty. From a meager 2.9 percent of GDP in 2015, infrastructure spending nearly doubled to 5.4 percent of GDP in 2019,” he said.
Dominguez said last year, despite the effects of the pandemic, the government was able to maintain its infrastructure expenditures at 4.8 percent of GDP.
“Expectedly, the unplanned spending needed for our pandemic response temporarily pushed up our deficit levels. Last year, our deficit-to-GDP ratio expanded to 7.6 percent—or about double the threshold we worked hard to maintain. Nevertheless, this level is still sustainable considering that we had to rapidly enlarge our health care capacity and procure sufficient doses of vaccines for our people,” Dominguez said.
“Prudent fiscal management, appropriate economic investments, and improved revenue collections brought the country to the highest credit rating levels we have ever achieved. These ratings have been maintained amid the wave of downgrades globally,” he said.
Dominguez said the country’s high credit ratings and exemplary debt management gave the government easy access to financing from development partners with very concessional rates and terms, especially during the difficult months of the pandemic.
He said that last year the government raised P2.7 trillion in gross financing to support budget needs, respond to the contagion, and continue economic investments. “With abundant liquidity in our own financial system, we have continued to source more than 70 percent of our borrowings from the domestic market,” he said.
He said that amid increased spending to support both health and economic requirements, the pandemic resulted in the global trend of higher government debt-to-GDP ratios last year.
“What sets the Philippines apart, however, is that we entered 2020 with a historic low debt-to-GDP ratio of 39.6 percent. This means that we could better absorb additional borrowings than other countries whose debt ratios were already at 60 percent before the pandemic,” he said.
“Hence, the 15-percentage point increase in our debt-to-GDP ratio in 2020 is still within the prescribed bounds of fiscal viability and the experience of our neighbors and rating peers globally,” he said.
He said more of the government’s fiscal resources were being directed towards productive spending rather than debt servicing. He said the ratio of interest payment to expenditure dropped from 13.9 percent in 2015 to only 9 percent in 2020.
“This indicates that our additional borrowing is beneficial to economic development rather than a burden to growth,” he said.