Panayam kay Department of Finance Chief Economist Usec. Domini Velasquez kaugnay ng S&P Global Ratings positive outlook para sa economiya ng bansa

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00:00S&P Global Ratings Positive Outlook para sa Ekonomiya ng Bansa.

00:06Ating tatalakayan kasama si Undersecretary Dominique Velasquez, ang Chief Economist ng Department of Finance.

00:15Yusef Velasquez, magandang tanghali po.

00:17Magandang tanghali Nina.

00:19Welcome.

00:20Thank you. Thank you for inviting me also.

00:23Yusef Velasquez, please explain to us the meaning of S&P Global Ratings and its impact on our country.

00:31Please explain to us first, Yusef,

00:34the credit rating of S&P Global Ratings in the Philippines,

00:38from stable to positive, what does it mean?

00:43Okay.

00:44Usually, we look at different credit ratings.

00:48Let me give you a background.

00:50The big ones are S&P, Fitch, and Moody's.

00:55Then, there are two Japanese credit rating agencies.

00:58Those are called R&I and JCRA.

01:02The two Japanese are A.

01:04These three are investment grade on all credit rating agencies.

01:10Moody's and Fitch were actually two notches below an A rating.

01:15So, when you look at it, it's like a ladder, right?

01:18There are two more steps to get an A rating for that.

01:21S&P is actually just one notch.

01:25So, it's just one step.

01:26Then, what this latest report means,

01:29that the outlook is positive,

01:31is actually within 12 to 24 months,

01:33if they see that our economic growth is still high,

01:37our fiscal is still consolidating,

01:41our deficit to GDP is decreasing,

01:43our debt to GDP is decreasing,

01:45they actually can make a decision to upgrade us.

01:48And this credit rating is like a score.

01:52So, for example, it's like a person, right?

01:54For example, when you apply for a credit card or a loan,

01:56they look at your credit.

01:58They look at if you paid before.

02:00So, it means that when you increase,

02:02actually, the credit rating agencies have more confidence in us.

02:06We can borrow.

02:07For example, in the part of the government,

02:09we can borrow at lower interest rates.

02:11That's good, right?

02:13Positive development in our country.

02:16So, compared to all these agencies

02:19that give us a credit rating,

02:21S&P is the highest now.

02:24S&P, yes.

02:25But the others are not bad.

02:26Not bad.

02:27We're all investment-grade rating.

02:29For the Japanese ones, we're all rated A already.

02:32So, we expect not just S&P,

02:36but Moody's also to move

02:38because actually, before the pandemic,

02:41they wanted to upgrade us.

02:43For example, they have an intention.

02:44They've been communicating with us to upgrade us

02:46even though we're in a pandemic.

02:48So, this is where it started.

02:49What we want to do is,

02:51by the end of the Marcos Jr. administration term,

02:54we get to an A rating.

02:56I hope so.

02:57That's what we're hoping for.

02:58Now, for the ordinary citizens

03:00who are listening to us now,

03:02what are the guidelines

03:03for increasing the credit rating outlook of a country?

03:07Let's look at the different sectors.

03:10There are four, I think.

03:12One is the economy.

03:14So, the size of our economy.

03:16We know that during the Marcos administration,

03:18our economy grew.

03:19Our GDP grew by 6%.

03:22So, for the year to date, it's 5.8%.

03:26But what we expect,

03:27not just us,

03:28even if you look at, for example,

03:29IMF, World Bank, ADB,

03:31around 6% for us.

03:33And we're the fastest growing now.

03:35We're the second fastest.

03:36Second.

03:37Second to Vietnam.

03:38Second to Vietnam.

03:39But still substantially higher

03:41than a lot of the ASEAN countries.

03:43So, that's one.

03:45But if you look at it,

03:46it's not just the size of the economy.

03:48It's what we call GDP per capita.

03:51So, because we're 110 million Filipinos,

03:54they're dividing it, right?

03:56How much each country earns per country.

03:59That's a bit lower for us.

04:02So, that's one of the hurdles also.

04:04So, what we want is to bring a lot more Filipinos out of poverty,

04:08bring them to the middle class

04:10so that their income will increase.

04:12Then, the second,

04:13maybe what we're looking at in the DOF,

04:15this is what we have under us,

04:17the fiscal performance.

04:19Meaning, what we want is

04:21the deficit to decrease.

04:23Meaning, the deficit.

04:25So, now, we have a deficit.

04:28Meaning, our expenses are higher

04:30than what we earn.

04:32So, the government earns through taxes,

04:35through some other non-tax revenues,

04:37the income of the GOCC.

04:39So, now, we have a deficit.

04:41Last year, that was 6.1% of GDP.

04:45This year, our target is 5.6% of GDP.

04:49Until 2028,

04:50what we want is to decrease this

04:52to a bit lower,

04:54to 3.7% of GDP by 2028.

04:56Wow, is this possible?

04:58We're quite confident that this year,

05:00we'll achieve 5.6%.

05:02But, of course, every year,

05:04we've planned the gradual fiscal consolidation.

05:07Just because we don't just want

05:09the deficit to decrease,

05:11we also want to spend

05:13on infrastructure,

05:15social services, health.

05:17That's why we're also discussing

05:19the budget for 2025.

05:21So, that's what we're looking at.

05:23And, of course, debt to GDP.

05:25Our debt also increased

05:26when our deficit increased during the pandemic.

05:28So, the decline is also gradual.

05:30A little bit more than 60% now,

05:33we want around 56.3%

05:37of the national government debt to GDP by 2028.

05:42Then, there are only two.

05:44One is a bit BSP-per-view,

05:46external and monetary.

05:49So, what we're looking at is

05:51our inflation within target.

05:54What we're looking at is

05:55if we have a lot of reserves.

05:57The international reserves that we're talking about.

05:59Because if there's a shock to the economy,

06:01this international reserve is used.

06:03So, it's quoted in US dollars.

06:05That's around US$111 billion.

06:09So, if you look at the ratio,

06:11how much import cover does this have?

06:13So, 8 months.

06:14So, that's very, very high.

06:15Normally, the threshold is around 4 months of import.

06:20So, us, 8%.

06:21So, we have sufficient reserves

06:23to address external shocks if it happens.

06:26And then, lastly,

06:27the other one is the governance indicator.

06:30So, it looks at not only

06:32what happened to our institutions,

06:36if our people have a voice.

06:39There are rules of law.

06:41So, in the S&P's last assessment,

06:44actually, they cited the institutional strength of the Philippines.

06:48They saw that we have laws

06:50that passed the PPP law last year.

06:53Then, the one that was recently passed by the President,

06:55Create More.

06:56Yes.

06:57So, those are the new laws.

07:00How does this have an impact

07:03in giving us a positive credit rating outlook?

07:07We can also explain to our fellow Filipinos

07:09about the PPP and the Create More bill.

07:12So, for both laws, actually,

07:14these two laws,

07:16these two laws are actually pro-business.

07:19So, the PPP,

07:20it actually eases the regulations for businesses.

07:24The businesses, actually,

07:26can participate in public infrastructure projects, let's say.

07:34So, one reason for this,

07:36for our fellow Filipinos to be familiar,

07:39is the NIA privatization.

07:41Yes.

07:42The NIA operations are already in San Miguel.

07:45And that happened within a span of two years, the fastest.

07:48So, we expect better services.

07:50We expect improved service delivery.

07:53We expect higher tourism

07:55because of improved services.

07:57On the other hand,

07:58the Create More,

07:59this is what our investors are asking for

08:02because it simplifies a lot of your,

08:04for example, on the part of the DOF,

08:06the VAT refund.

08:07Before, it was hard for them to get a VAT refund.

08:10The other exporters,

08:11now, they are zero rated.

08:13It also simplifies your local taxes to 2%.

08:17Because before,

08:18there were a lot of steps

08:20for you to know what taxes you have to pay the LGU

08:23because that's different from the national government.

08:25Now, it's simplified to 2%.

08:27So, we are more friendly

08:29with the investments of our country.

08:32But, it means,

08:33some economists say that

08:35the taxes we will earn will be reduced.

08:40Actually, it will be reduced a little.

08:42Just a little?

08:43It will be reduced a lot

08:44compared to the investments we will get.

08:46Not just investments,

08:47but employment,

08:48technology,

08:51or what we will learn

08:53when these investments come in.

08:55So, what you are telling us is good,

08:58Usec Velasquez,

08:59that we are showing that,

09:00aside from the numbers,

09:02we can see that physically,

09:04what our government is doing

09:08to give us a better image

09:11in other countries.

09:13You're talking about tourism,

09:14is our tourism getting better?

09:17Actually, it's already 4.4 million,

09:20but still,

09:21it's still far from pre-pandemic

09:23because it slowly recovers, right?

09:25In the next 2 years,

09:26I think the target of DOT

09:28is actually to go back to pre-pandemic.

09:31I think pre-pandemic,

09:32more than 8 million tourists

09:34are coming to us.

09:35So, now, it's in the middle,

09:37but it's growing.

09:38Yes, but we have 3 months left,

09:41I think until September.

09:43Yes.

09:44So, 6 million, maybe.

09:46Yeah, hopefully.

09:47Hopefully, right?

09:48Hopefully.

09:49Well, usually,

09:50the increase is the holiday season,

09:52Usec.

09:53But you were also talking about

09:55infrastructure,

09:56because it's related,

09:58even if you say DOT,

10:00DOTR is also included.

10:02Yes.

10:03So, even DPWH.

10:05Correct.

10:06So, all of that,

10:07it's like a whole-of-government approach.

10:08Yes.

10:09So, what we are doing,

10:10we have priority legislative measures.

10:12So, on the part of DOF,

10:14actually, there are 2 that passed.

10:16One is VAT,

10:17or Digital Service Providers.

10:19So, actually,

10:20those are your Netflix,

10:22your Amazon Prime.

10:24It's not a new law,

10:25because the local,

10:26the domestic suppliers,

10:28they already have VAT, 12%.

10:30It's just a leveling of playing field.

10:32Even the foreign,

10:33they already have 12% VAT.

10:35So, the VIR announced

10:37increased a bit.

10:39Ah, yes.

10:40That's why others are complaining,

10:41how come it's increasing?

10:43Netflix and Amazon,

10:45and HBO Go.

10:46But that's it,

10:47we're just doing a level

10:48for the domestic suppliers.

10:50So, they already have the domestic VAT,

10:52the foreign should have it, right?

10:54And then,

10:55it's good that you mentioned the airports,

10:57because that's the first thing

10:58investors will see

10:59when they come to our country.

11:00It's really important

11:02that they get a very good first impression.

11:04Correct.

11:05So, that's why we have more of this

11:07PPP-like,

11:08our airport now.

11:10And you said,

11:11there are two more.

11:12Yes,

11:13Lagindingan has been awarded,

11:14and I think DOTR is lining up

11:16other airports

11:17to be privatized.

11:18Because,

11:19we're an archipelago,

11:21we can't just train.

11:23So, we really need

11:24our regional airports

11:26up to international standards also.

11:28What about peace and order,

11:30security?

11:31That's also one of the factors

11:33that will give us

11:36a better image in other countries.

11:39I think,

11:40for example,

11:41when we talk to other investors,

11:43of course,

11:44peace and security

11:45in the West Philippine Sea

11:47is always

11:49a flag for them, right?

11:51But, you know,

11:52it's being managed very well.

11:55It's something that will always be there

11:59as a risk.

12:00But, based on the past,

12:02this is still managed.

12:04So, it's not just the Philippines,

12:08it's the region also.

12:10That's true.

12:11And also,

12:12the feeling of security

12:13when you're here in the Philippines,

12:14like on the ground.

12:15If you're a foreigner,

12:17or let's say an expat,

12:19you work here.

12:21What is the general sense of feeling

12:24in our country?

12:25Is it something like,

12:26I'll send my businesses and business there

12:29because it's safe and beautiful in the Philippines?

12:31I'm not familiar,

12:33but we haven't heard anything

12:35in terms of

12:37if they're afraid to come here.

12:39There's nothing like that.

12:40Actually,

12:41I was talking to an investor recently.

12:44He mentioned that

12:46he just got used to it recently.

12:48Oh, that's good news.

12:49Yes.

12:50Okay.

12:51So, from the fiscal policies

12:53of the administration

12:54that we mentioned,

12:56what are the steps of the government

12:58to reduce the fiscal deficit?

13:01And how have the reforms,

13:03investments,

13:04and projects

13:06helped the S&P credit rating of our country?

13:09So, now,

13:10in the Department of Finance,

13:11we're looking at two things.

13:13One is the policy.

13:14So, those are the legislative reforms,

13:16VAT on DSP,

13:18Real Property Valuation Act.

13:21Those will increase our revenues.

13:24Another is actually improving

13:26the tax administration

13:29in BIR and BOC.

13:31So, actually,

13:32as much as possible,

13:33what we want

13:34is to get more tax collections

13:36without imposing new taxes.

13:38We don't want to raise taxes

13:39as much as possible.

13:41If we can do this through digitalization,

13:44through data sharing,

13:45so that BIR has more data,

13:47we can do that.

13:49So, those are the focus of SECRECTO

13:52until 2028,

13:54until the end of this term.

13:55Okay.

13:56And what is the target of the government

13:58for the credit rating outlook?

14:00And what are the steps

14:02for us to commit to this?

14:03You mentioned, of course,

14:04the goal is to get a higher rating.

14:07Yes.

14:08So, what we want

14:09is what we call

14:10President Road to A Initiative,

14:13for us to get an A rating.

14:14So, that's why we're very happy here at S&P

14:17that actually,

14:18when the outlook is upgraded,

14:20in 12 to 24 months,

14:21they have to act on it,

14:22whether they upgrade us to A-

14:24or we're just stable.

14:27So, what we're doing is

14:28we're looking at

14:29a whole-of-government approach.

14:31There's a committee looking at it, right?

14:33So, we're looking at

14:34what we can do with the fiscal.

14:35So, DOF,

14:37CBSP will be there,

14:39OSAPEA is there,

14:40the office of SECGO,

14:41in terms of ease of doing business.

14:43And other, for example,

14:44ARPA, NEDA,

14:46we're looking at the various indicators

14:48so that we can really improve

14:49our credit rating.

14:51Yousef, we have a question

14:53from our media partner,

14:55Ivan Myrina of GMA News.

14:58In your view,

14:59how will the current political climate

15:01affect the positive economic outlook?

15:04Will this create the perception

15:06of political instability

15:08and push investors away?

15:10Or at least,

15:11go on a wait-and-see mode?

15:13This has been happening

15:14for the past few days,

15:15especially.

15:16Based on our conversations

15:19with investors,

15:20actually,

15:21the Philippines

15:22really has a political noise,

15:24especially since we're here,

15:25we know it better.

15:26But actually,

15:27foreign investors

15:29are more insulated

15:30in the political noise.

15:31Of course,

15:32they read about it

15:33because there's international media

15:34that covers the Philippines also.

15:36But I think

15:37it doesn't really matter

15:39because we've proven ourselves

15:41that actually,

15:42we're beyond this political noise.

15:44We're able to pass reforms.

15:45So, here,

15:46create more,

15:47we passed it.

15:48We're able to consolidate

15:50our finances.

15:52And this is why

15:53we have a positive outlook

15:57from S&P.

15:58It's because we already have

15:59a track record

16:00that we're able to do this.

16:01Whatever the political noise,

16:03it's not just this administration.

16:05Before,

16:06we already upgraded.

16:07I think,

16:08during President Aquino's administration,

16:10we started the investment

16:11grade rating.

16:12So, that's it.

16:13It just continued.

16:14It just increased

16:15even during the time

16:16of President Duterte?

16:18During the time

16:19of President Duterte,

16:20they wanted to upgrade again.

16:23Actually,

16:24it was because of the pandemic

16:25that we had a little change

16:27in outlook.

16:28But it was reverted.

16:29It was actually

16:30stable and positive.

16:32Because during the pandemic,

16:34it's not just us

16:35who had a low rating.

16:36Because all of us,

16:38we spent during the pandemic.

16:40So, it went down.

16:41Our deficit increased.

16:42Our debt increased.

16:43So, if we were able to survive

16:45the time of the former administration,

16:47hopefully,

16:48we can survive

16:49whatever happens.

16:50So, these are just

16:51noise you're saying.

16:52So, the government

16:53continues to do

16:54its work.

16:55Yes.

16:56It should not affect.

16:57Yes.

16:58In terms of investments,

16:59you know,

17:00I think,

17:01they're really looking

17:02at the economic strength

17:03of the Philippines,

17:04how we're able

17:05to pass reforms,

17:06how we're working

17:07with both congresses

17:08to actually pass reforms.

17:10Thank you so much.

17:12Thank you, too.

17:13Thank you for that

17:14wonderful explanation

17:15and answering all our questions.

17:17Maraming kong salamat

17:18sa inyong oras.

17:19Undersecretary Dominique Velasquez,

17:22Chief Economist

17:23ng Department of Finance.

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