Finance Secretary Carlos Dominguez III said the Duterte administration is investing heavily in human capital development to train its young, talented workforce and capitalize on the Philippines’ “demographic sweet spot,” which he describes as the Philippines’ comparative advantage in competing with Asia’s tiger economies.
Dominguez urged potential investors gathered at the Deutsche Bank Access (dbAccess) Philippines Conference held at the The Manila Peninsula hotel in Makati City to “profit from the newfound dynamism” under the Philippines’ fast growing economy as the Duterte administration continues to implement reforms to ensure a business environment conducive to sustaining the growth momentum.
He said the government’s massive investments in education, training and research, as well as in health care and other social services, will be supported in part by the first phase of the Duterte administration’s proposed tax reform program, which is expected to be approved by the Congress later this year.
“One of the least mentioned advantages of the Philippines is that we have a very young and talented work force. This is an asset in a region with aging workforces. Over the next few years, we expect to hit a demographic sweet spot,”
-Finance Secretary Dominguez, at the opening of the 2017 dbAccess Philippines Conference.
He said this large number of young employable Filipinos is, at the same time, a challenge for the economy “to expand quickly enough and draw larger volumes of investments” to create the jobs needed for the new entrants into the country’s labor force.
“We are investing heavily in training young Filipinos to be more competitive in the new global economy. We understand that this young workforce will be our economy’s comparative advantage long into the future. That young and talented workforce produces complementarities with the other economies of the region,”
-Finance Secretary Dominguez
Besides allowing the government to increase spending on human capital development, Dominguez said reforming the tax system will also enable it to invest massively in infrastructure without compromising the country’s fiscal position.
The Duterte administration, Dominguez said, is planning to spend $20 billion each year through the medium term to build its urgently needed infrastructure.
“I invite the investment community to take a hard look at the emerging opportunities in our fast-growing economy. Partner with us. Invest in the growth. Profit from the newfound dynamism. Be part of Asia’s newest tiger economy,”
The first package of the Duterte administration’s comprehensive tax reform program—dubbed the Tax Reform for Acceleration and Inclusion Act—aims to slash personal income tax rates while raising additional revenues via adjustments in the excise taxes on fuel and automobiles and broadening the value added tax (VAT) base, among other measures.
The TRAIN was approved by the House of Representatives last May 31 after President Duterte certified the bill as an urgent and priority measure. The Senate is currently holding plenary debates on its version of the tax reform bill.
“We anticipate the measure will be passed into law before the year ends. The reforms enjoy the support of the business community, professional economists and a large number of private groups wishing to see a simpler and more efficient tax system. We aim to achieve a tax effort closer to the regional norm of 15 percent of GDP,”
He said the Philippine economy has become “an engine of growth” in Asia, with its second quarter GDP expanding by 6.5 percent, which is well on track in meeting the full-year target growth rate of 6.5 to 7.5 percent.
An even more significant development is that GDP growth was led by the industry sector at 7.3 percent, and agriculture at 6.3 percent, which is a “departure from the earlier pattern where growth was led by the services sector,” Dominguez said.
Overseas workers’ remittances, meanwhile, accounted for about a 10th of the GDP and the country’s high domestic consumption demand, he added.
“We are also expecting more investments coming in as we modernize our infrastructure and reform our economic policies to spur business activity,”
“Investment-led growth will make our domestic economy more inclusive and create quality jobs for our people,” which would, in turn, help bring down poverty incidence from the current 21%to 14% by 2022, he noted.
Dominguez said a benign interest environment encouraged a property development boom and increased business activity, while pulling down the country’s public debt to “more than manageable levels.”
“This produced a virtuous cycle. The lighter debt load won us better credit ratings that in turn helped us keep interest rates low.”
Despite the increased spending on infrastructure and social services, Dominguez said the Philippines expects inflation to hover just between 2 percent and 4 percent through the medium term.
On the Duterte watch, public sector deficit will be limited to 3 percent of GDP and an 80-20 ratio on loans in favor of domestic borrowings will be a matter of policy to lessen foreign exchange risks, the finance chief said.
“Over the past few years, our GDP grew faster than our debt accumulation. Prudence dictates that we strive to maintain this trend. Fiscal stability is key to the sustainability of our economic expansion. We are further modernizing our capital markets to enable the consolidation of capital to support long-term growth,”
-Finance Secretary Dominguez
Dominguez also cited the government’s continuing efforts to improve the ease of doing business by cutting red tape, curtailing corrupt practices and limiting its negative list for foreign investments, as among the factors that would sustain the economy’s high growth and haul in more long-term investments.