PH can achieve upper middle-income status by 2022: NEDA

MANILA – The Duterte administration is banking on key policy measures and reforms, including those aimed at placing the Philippines in a strong position to weather the impact of the pandemic, to boost recovery to achieve an upper middle-income country status by next year.

The Development Budget Coordination Committee (DBCC) retained its growth targets of 6 percent to 7 percent this year, and 7 percent to 9 percent in 2022.

The Philippine economy shrank a record 9.5 percent in 2020 and posted a smaller contraction of 4.2 percent in the first quarter of 2021 but was expected to stage a strong recovery before the end of the year with the rollout of vaccines against coronavirus disease 2019 (Covid-19).

“This is a strong signal for the return to pre-pandemic or 2019 output levels by 2022. Growth will be driven by the government’s three-pillar strategy to accelerate economic recovery,” Socioeconomic Planning Secretary Karl Kendrick Chua said in a reply to questions from the Philippine News Agency.

Chua said the three pillars that will govern economic recovery include the safe re-opening of the economy, the implementation of the recovery program, and the timely implementation of the government’s vaccine deployment program.

“Once the present spike is over, the government will implement quarantine relaxations in a phased approach to boost our recovery this year. Over the near term, the government will work towards moving NCR (National Capital Region) to MGCQ (modified general community quarantine), or better, allow families and children to participate in the economy, and restart face-to-face schooling,” he said.

As of July 22, some 5,560,029 Filipinos have been fully vaccinated against coronavirus while 10,866,238 doses have been given as the first dose, according to the National Task Force Against Covid-19.

Chua said the recovery program includes the PHP4.5-trillion fiscal year 2021 General Appropriations Act (GAA), the extended validity of the 2020 GAA, and the implementation of the Corporate Recovery and Tax Incentives (CREATE) and Financial Institutions Strategic Transfer (FIST) laws.

The 2021 GAA aims to address the Covid-19 pandemic through health-related response programs and accelerate infrastructure development through the “Build, Build, Build” (BBB) infrastructure program.

“We are investing in a wide range of infrastructure projects. They are not only roads or airports but also health facilities, also digital infrastructure –one of them is the National ID (identification). All of these are needed during this pandemic and our move to the new normal,” Chua earlier said in a media briefing.

The National Economic and Development Authority (NEDA) said seven projects amounting to PHP39.9 billion that were part of the infrastructure flagship project (IFP) list approved in 2017, 2019, and 2020 have been completed.

On the current list of 112 IFPs that was confirmed by the NEDA Board last May 12, there are 17 projects amounting to PHP154.8 billion that are expected to be completed by June 2022 when Duterte’s term ends.

Key policy measures

Duterte last March 26 signed into law the CREATE Act that aims to attract more investments and maintain fiscal prudence and stability by introducing reforms to the corporate tax and incentives system.

The law ensures that the grant of tax incentives is performance-based, targeted, time-bound, and transparent. It also reduces the corporate income tax rate by 5 to 10 percent for micro, small and medium enterprises (MSMEs) and other corporations.

Chua, who is also NEDA chief, said amid the global contraction of FDIs due to the Covid-19 pandemic, CREATE will put the country in a better position to compete for investments. However, the gains from CREATE will be limited if the government does not relax restrictions on foreign investments.

“To maximize the benefits from the enactment of CREATE, we urge Congress to urgently pass the amendments to the Public Service Act, the Foreign Investment Act, and the Retail Trade Liberalization Act this year. These bills will complement CREATE by easing restrictions on foreign investments,” he earlier said.

On the other hand, the FIST Act, enacted as Republic Act No. 11523 on February 16 this year, seeks to encourage financial institutions to dispose of non-performing loans and assets to asset management companies by granting tax exemptions, reduced registration, and transfer fees.

The country also implemented the first and second Covid-19 response packages –the Bayanihan to Heal as One Act or Bayanihan I, and Bayanihan to Recover as One Act (Bayanihan 2).

As of April 15 this year, the Department of Budget and Management released a total of PHP646.97 billion to support the various projects, activities, and programs in response to the Covid-19 pandemic under the Bayanihan laws.

The government also released this year PHP22.9 billion for financial assistance to qualified beneficiaries in the NCR Plus placed under strictest enhanced community quarantine (ECQ).

Other reforms

Chua said other reforms have been enacted while some started implementation just before the pandemic hit.

“These proved to be useful in facilitating the transition to the new normal or in mitigating the adverse impacts of the quarantine restrictions implemented,” he said.

These include the Ease of Doing Business and Efficient Government Service Delivery Act that aims to improve administrative efficiency in the public sector, and a major reform in the agriculture sector which is the Rice Tariffication Law (RTL).

“By reducing processing time for government transactions, this is expected to attract foreign and Filipino investors and entrepreneurs to start a business in the country,” Chua said.

A long overdue reform that is designed to open the market for rice trade, the RTL instead replaces the quantitative restrictions on imported rice with tariffs of 35 to 40 percent.

The law also establishes the Rice Competitiveness Enhancement Fund (RCEF) from the tariff revenues with an annual appropriation of PHP10 billion for six years to fund programs on farm mechanization, seed development, propagation and promotion, credit assistance, and extension services.

These will help improve the productivity of rice farmers, reduce production costs, and provide better linkages in the value chain.

The NEDA said the impact on consumers was evident as the retail price of rice went down by about 9 percent from 2018 to 2020.

The palay sub-sector, meanwhile, grew by 7.2 percent during the second quarter of 2020 as compared to the same period in 2019 amid the stringent quarantine restrictions.

Other reforms implemented are the Universal Health Care Act that aims to provide health care coverage to all Filipinos by reducing their financial burden, and the Social Security Act of 2018 strengthening the Social Security System.

The latter also provides economic support to workers who have been involuntarily displaced.

The proposed economic liberalization bills such as the amendments to the Public Service Act, Retail Trade Liberalization Act, and Foreign Investment Act will also allow the country to better attract FDI and new technologies.

“It can create a more competitive environment to help ensure more affordable and reliable goods and services in the country. This is also expected to accelerate the digital transformation of the country,” Chua said.

Meanwhile, Chua said the Philippine Identification System (PhilSys) or the National ID program is on track to meet its target of 50 to 70 million registrations by the end of 2021 as over 38 million Filipinos have completed the initial step.

As of July 16, over 38.2 million individuals have finished Step 1 registration (collection of demographic data) and more than 19.3 million have finished Step 2 registration (biometric data collection). Over 524,000 have already received their physical ID.

“Our objective here is to have 100-percent financial inclusion at the family level by the end of the year. So next year, when we need to provide subsidies, it will only (be) through bank accounts,” Chua said, adding that financial inclusion is among the priority use cases for the PhilSys.

Signed into law by President Rodrigo Duterte in August 2018, Republic Act 11055, or the PhilSys Act, aims to establish a single national ID for all Filipinos and resident aliens.

The national ID shall be a valid proof of identity that shall be a means of simplifying public and private transactions, enrollment in schools, and the opening of bank accounts.

It will also boost efficiency, especially in dealing with government services where people will only need to present one ID during transactions.

Upper middle-income country status

Chua said in a past briefing the country had targeted in 2022 the achievement of two important economic milestones –achieving an upper middle-income country (UMIC) status and lifting some six million Filipinos out of poverty.

Prior to Covid-19, the Philippines was expected to become a UMIC in 2020.

However, the NEDA estimates that the Philippines may graduate to UMIC status around 2022 due to the pandemic.

As of July 1, 2021, the World Bank defines upper middle-income economies as those with gross national income (GNI) per capita between USD4,096 and USD12,695. These thresholds are updated annually at the beginning of the Bank’s fiscal year.

The Philippine GNI per capita reached USD3,850 in 2019.