Diokno details policy tools for sustained growth at Post-SONA briefing

Finance Secretary Benjamin E. Diokno engaged in in-depth discussions on policy reforms in the pipeline which are necessary to sustain the Philippines’ growth momentum during the Post-State of the Nation Address Philippine Economic Briefing (Post-SONA PEB) on July 25, 2023 at the Philippine International Convention Center (PICC) in Pasay.

“Higher economic activity and increased investments will bring us to even greater heights. The policy environment for foreign direct investments is the most open and liberal it has ever been,” Secretary Diokno said during the opening fireside chat with Euben Paracuelles, Chief ASEAN Economist of Nomura.

Economic liberalization bills such as the Retail Trade Liberalization Act, Foreign Investments Act, and Public Service Act, as well as the opening up of the renewable energy (RE) sector to full foreign ownership have made the Philippines’ conducive to investments.

Apart from these structural reforms, Secretary Diokno said that the government is also improving the public-private partnership (PPP) mechanism to enhance the quality and pace of infrastructure development in critical sectors.

The proposed PPP Act or Senate Bill (SB) No. 2233 is currently pending second reading. The bill provides for a unified legal framework for all PPPs covering all types of PPP arrangements at the national and local levels, increases approval thresholds for national PPP projects, and improves the framework for unsolicited proposals, among others.

Just recently, the President signed into law the Maharlika Investment Fund (MIF) Act, creating the country’s first sovereign wealth fund designed to serve as a ‘vehicle for growth.’

According to Secretary Diokno, the MIF is expected to widen the fiscal space and reduce reliance on official development assistance (ODA) in funding big-ticket infrastructure projects in areas such as green and blue projects, rural development, digitalization, sustainable development, and healthcare.

The Department of Finance (DOF) is also pursuing the passage of the proposed tax revenue measures under the Medium-Term Fiscal Framework (MTFF) such as the Passive Income and Financial Intermediary Taxation Act, value-added tax (VAT) on non-resident digital service providers, and excise taxes on single-use plastics and pre-mixed alcoholic beverages, which are expected to be implemented in 2024.

“As early as the first month of the Marcos, Jr. administration, we designed what is called the Medium-Term Fiscal Framework. That’s our North Star. We want to be where we want to be by 2028. Down the road we will continue to reform the tax system to make it even better,” Secretary Diokno said.

Reforms to the military and uniformed personnel (MUP) pension system will be pursued to widen fiscal space and ensure the sustainable provision of pensions in the long-term. Secretary Diokno said that the results of the consultations conducted by representatives of the economic team have been encouraging.

Secretary Diokno also discussed the economic team’s pursuit of upgrades to the country’s sovereign credit ratings, saying that the ‘Road to A’ is well underway.

“[Credit rating agencies] do not doubt our ability to service our debt. So they are looking for more structural reforms that will make our fiscal position stronger––and I think with this MUP pension reform, the rightsizing of the bureaucracy plus more tax reform, I think we’ll qualify for ‘A’ rating,” Secretary Diokno explained.

National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco G. Dakila, Jr., and Department of Budget and Management (DBM) Principal Economist Joselito R. Basilio also participated in the panel discussion on a fast-growing and forward-looking economy.

Following the first panel, private sector panelists Teresita Sy-Coson (Vice Chairperson, SM Investments Corporation), Atty. Benedicta Du-Baladad (President, Management Association of the Philippines), Ragnar Gudmundsson, PhD (Resident Representative to the Philippines, International Monetary Fund), and Pavit Ramachandran (Country Director Philippine Country Office, Southeast Asia Department, Asian Development Bank) shared their views on President Ferdinand R. Marcos, Jr.’s second SONA and the Philippines’ socioeconomic agenda.

On PPPs, Sy-Coson emphasized the importance of clarity and simplicity in government regulations, saying, “If we can make it simple, the ordinance or the regulations of the government simple and easier for anyone interested to invest in the Philippines that would be a big plus.”

Atty. Du-Baladad supported her view, stressing that the ease of doing business at the local level is very significant.

According to her, the Management Association of the Philippines has drafted a Memorandum of Understanding (MOU) with the Department of Trade and Industry to address concerns on the ease of doing business.

For IMF’s Gudmundsson, investments that would close the infrastructure and education gaps will be key to enhancing productivity and attracting new investments that will in turn generate higher value added exports and narrow the current deficit over the medium-term.

ADB’s Ramachandran noted that the Philippines already has ongoing projects to improve connectivity, transportation, and modernization. These include the Malolos-Clark Railway Project, North-South Commuter Railway, and the Davao Public Transport Modernization Project, which will be funded by the ADB.