The one big saving grace of the Duterte watch is its economic team. The major accomplishments of this administration that really matters were done by the economic team led by Finance Secretary Carlos Dominguez and NEDA Secretary Karl Kendrick Chua.
The fiscal reform that Sec. Sonny promised at the start of the term was vigorously pursued with the help of Rep. Joey Salceda who headed the House ways and means committee. Sonny and Joey didn’t agree on everything, but they agreed on enough of the things that matter to make the difference the country needs.
Now, even as everyone in government is concerned about the elections, Sonny and his team are busy completing a fiscal consolidation plan for the next administration. Their message, Sonny’s and Joey’s, is the need to outgrow the country’s pandemic-induced debt.
Sonny and Joey very early on warned that new tax measures are needed to give the new administration more fiscal space to do what it must to help the economy recover from the pandemic.
The new president must also ensure that job-generating infrastructure investments far outweigh state spending on its operational expenses. Our government has been spending more for salaries and other operating expenses through the years. This has to change. We must invest in infrastructure. Get the private sector involved again via PPP.
First thing on the agenda, Dominguez told the Financial Executives Institute of the Philippines (FINEX) last Tuesday, should be to outgrow the country’s debt at the soonest possible time.
There is an urgent need to lower the share of debt in relation to the gross domestic product (GDP), a metric high in importance with credit rating agencies. This ratio spiked to 60.5 percent in 2021 from a historic low of 39.6 percent in 2019.
Dominguez explained that the government had to resort to emergency borrowings to cover the massive cost of COVID-19 response. There was also a substantial drop in revenues because of the mobility restrictions and economic slowdown arising from the global pandemic.
“The only way to make this sustainable is by growing the economy faster and investing in the future. The fiscal deficit should be lowered to cover only infrastructure investments and not operational expenses,” Sec. Sonny said.
The Finance chief also said the second priority of the next administration should be controlling food inflation by accelerating the liberalization of the agriculture sector. This means populist calls to roll back reforms like rice tariffication would go in the wrong direction.
In January 2022, inflation was mostly fueled by the high costs of electricity and fuel, and almost half was a result of price increases in food, especially meat, as the domestic hog sector continued to struggle from the outbreak of the African swine fever (ASF).
Third, Dominguez said, the need for the next president to try harder to reduce poverty incidence, which reached 23.7 percent in the first semester of 2021 because of the pandemic. Poverty incidence in 2015, Sec. Sonny pointed out, was at 23.5 percent, which the Duterte administration was able to bring down to 16.7 percent by the beginning of 2019.
Dominguez said the fourth concern that should top the incoming administration’s must-do list is addressing the mounting problems associated with climate change – and the huge cost this entails – without having to strain the country’s fiscal resources.
“We cannot rely entirely on COP (United Nations Climate Change Conference of the Parties) and on the financing commitments of the Western countries. We should not sit and wait idly while the planet burns,” Dominguez said.
Dominguez, who represents President Duterte in the Climate Change Commission (CCC), was referring to the annual $100-billion financing commitment of industrialized economies to developing countries like the Philippines to help them achieve their climate ambitions. This 2009 commitment by wealthier economies remains unfulfilled up to now.
Dominguez also called on the next administration to continue modernizing our financial sector to achieve financial inclusion among the Filipino people.
He said these four priorities on the fiscal front that the next president needs to address are “complex issues.” We will need the best and the brightest of our financial professionals who will be given the same freedom Sec Sonny got from Duterte to get the job done.
Dominguez said he has always been grateful to the private sector for its staunch support for the administration’s reform measures. Many of those reform measures have languished in Congress in the past because of the lack of political will.
Indeed, Sec. Sonny is so credible with the private business sector that he received enthusiastic support for the comprehensive tax reform program (CTRP); the measures to grow the corporate sector; and the initiatives to deepen, broaden, and digitalize the domestic capital market to make investment opportunities more inclusive for Filipinos – and also, modernization of our dated Public Service Act.
As the government’s fundraiser, Dominguez said the DOF’s responsibility is to put in place a taxation system that is simple, fair, and efficient so that citizens will be motivated to pay their taxes.
“The tax system should also catalyze, rather than paralyze economic growth. It is, therefore, important that we have efficient and honest tax collectors,” he added.
The DOF, he said, must also manage public borrowings and ensure that they are sustainable. The agency is the principal guardian of fiscal discipline. This is the reason President Duterte often refers to me as ‘Dr. No,’” he said.
“It is essential that we maintain or even increase our high credit ratings so we can borrow at lower costs and longer payment terms. This will ensure lower interest rates and more accessible financing for our private enterprises and for the ordinary Filipino people,” Dominguez said.
This is why I have called on the presidential candidates to name their finance secretary nominee. It will ease concerns of potential investors. Other than Leni Robredo, who has a degree in economics, the other presidential candidates know little about economic policy making.
Sec. Sonny showed what a competent economic team led by a credible Secretary can accomplish. The bar has been set high for Sec. Sonny’s successor.
Boo Chanco’s email address is bchanco@gmail.com. Follow him on Twitter @boochanco.