In the first part of this interview, we spoke about the fiscal pressures brought about by COVID-19 on the Philippines, the country’s monetary and fiscal response to the pandemic and the economic recovery.
In the second part of this conversation, we speak with Carlos G Dominguez III, Finance Secretary of the Philippines, about the long-term lessons for Asian economies from the pandemic, potential interest rate hikes by the Fed, and sustainable finance in the Philippines.
Unravel: What are some long-term lessons from the pandemic for economies in Asia/ Southeast Asia from a fiscal balancing perspective?
Carlos G Dominguez: The key in ensuring economic resilience amidst events of large shock—such as the pandemic—is to build and maintain ample fiscal space during good times as it is because of our low initial debt that the Philippines was able to navigate the pandemic without losing access to cheap credit.
Additionally, the fiscal response should be conservatively balanced with long-term debt sustainability. It is very easy to succumb to the public and political pressure of providing more amelioration. However, cooler heads should always consider long-term ramifications. In the case of the COVID-19 pandemic, great uncertainty still remains with regards to the length and depth of the crisis, thus, similar to a 12-round boxing match, we should not throw all our best punches in the first round. Instead, interventions should be calculated and conserved to last the full 12-rounds.
Unravel: In the current economic context, what risk does the possibility of an interest rate hike by the Fed present to economies in Southeast Asia?
Mr Dominguez: The interest rate hike by the US Fed is a risk factor for emerging market economies. Nonetheless, the Philippines remains in a sound position to weather such external headwind on the account of its sound macroeconomic fundamentals.
The Philippine economy ended its five-quarter contraction from Q1 2020 to Q1 2021 when it grew by 12% in Q2 2021, by 7.1% in Q3 2021, and 7.7% in the final quarter of last year. Our full-year GDP growth in 2021 of 5.6% exceeded the government’s target range of 5% to 5.5% for the year. This strong growth performance has been supported by the government’s accelerated vaccination programme which enabled the safe and targeted reopening of the economy, as well as the implementation of appropriate economic response and recovery plan.
The Philippine Government, through its central bank Bangko Sentral ng Pilipinas, also has enough policy instruments to address potential capital flow volatility. A flexible exchange rate system remains the first line of defence in absorbing external macroeconomic shocks. The central bank maintains a market-determined exchange rate, in recognition of its important role as an automatic stabiliser in the face of external shocks.
Unravel: Do you see a growing role for the treasury in pushing for sustainable finance in the Philippines? What are some measures being taken in this respect?
Mr Dominguez: The Philippines has been very active in implementing climate change actions on the ground. We have decided not to rely entirely on the Conference of the Parties (COP) and on the financing commitments of Western countries. We will not sit and wait idly while the planet burns. We will take action on our own.
Last year, we put together a group of local experts to prepare and execute localised action plans. We launched the Philippines’ Sustainable Finance Roadmap to encourage public and private investment in green projects. We are also embarking on a project with the Asian Development Bank to accelerate the country’s transition from coal to clean energy.
To urge the Filipino people to do their part on a daily basis in saving the world’s environment, we are pushing for a law banning single-use plastics.
This year, we inaugurated a Sustainable Finance Framework for green bonds to support our climate action commitments. In the coming weeks, the Philippines will issue its first-ever environmental, social and governance sovereign bond for a benchmark size of at least $500 million.
Apart from these, we will sustain our calls for Western countries to take responsibility for having contributed and continuing to contribute the most to greenhouse gas emissions. At the COP26 meeting, the Philippines placed a spotlight on the true concept of climate finance, which the COP has continuously failed to take into account for over two decades now.
We underscored that climate finance should be a mix of grants for capacity building; investments for green projects; and subsidies that should address the financial costs and risks of communities transitioning to a climate-resilient economy.
Western countries must bear greater burden in paying for the grants, investments and subsidies needed for the most climate-vulnerable countries to mitigate the effects of global warming.
As these funds are ultimately from taxpayers, accountability and transparency are paramount to ensure the prudent use of such aid. We specifically broached a proposal to the World Bank, the Asian Infrastructure Investment Bank, and the Asian Development Bank to help catalyse financial flows to developing countries in order to meet our climate change objectives. We believe that multilateral institutions are capable of creating processes that enhance trust, enforce transparency and encourage prudence. They are in the best position to provide a seal of good housekeeping to help spur private investments in green projects.
Carlos G Dominguez III
Mr Carlos Dominguez has over 40 years of vast experience and an outstanding track record of achievements at the helm of various organisations in the public and private sectors. His expertise was borne out of his experiences as a shareholder, board chairman and a member of over a dozen corporations across multi-industries such as power, agriculture, mining, banking, hospitality, real estate, and investment. He was appointed as Cabinet Secretary thrice: as Secretary of Environment and Natural Resources (1986-1987), Secretary of Agriculture (1987-1989), and currently as Secretary of Finance since 2016. Under his leadership, the Department of Finance (DOF) was able to draft and introduce to the Congress the first of a series of the Duterte administration’s proposed tax reform packages known as the Tax Reform for Acceleration and Inclusion (TRAIN) Act. This was followed by other successes in the legislature—such as the passage of the Tax Amnesty Act, the Tobacco Tax Reform Law, a new Sin Tax Reform Law which raised excise taxes on alcohol and electronic cigarettes, and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. On his watch, the Philippines’ key revenue agencies—the Bureaus of Internal Revenue (BIR) and of Customs (BOC) also continue to achieve strong revenue growth rates. It was also under his leadership that the BIR was able to secure its largest tax settlement ever—amounting to about $600 million—from a single taxpayer in Philippine history.