PH FDI magnet

Fitch unit sees more FDIs in Philippines

Lawrence Agcaoili

The Philippine Star

28 July 2019

Tax reform, free trade deals expected to provide boost

MANILA, Philippines — The tax reform program in the country is seen boosting the country’s chances of bagging more foreign direct investments (FDI) , according to the research arm of the Fitch Group.

In its latest industry trend analysis, Fitch Solutions Macro Research said tax reforms in the Philippines would attract foreign investments particularly in the field of medical devices..File

In its latest industry trend analysis, Fitch Solutions Macro Research said tax reforms in the Philippines would attract foreign investments particularly in the field of medical devices.

“The tax reform program in the Philippines will boost the country’s attractiveness and encourage foreign investment. The Philippines currently has the second highest corporate tax rate in East And Southeast Asia,” Fitch Solutions said.

Fitch Solutions said FDIs in the country are somewhat hindered by a high fiscal burden through the high tax rates, which pose operational headwinds to firms and create barriers to investment.

Under the proposed tax reforms, the government intends to reduce corporate tax to 20 percent from 30 percent over 10 years from 2021, as well as reducing the number of capital income tax rates to 42 from 80.

“We believe that this will benefit medical device companies and boost foreign investment, as the tax reforms promote a more business friendly environment in the Philippines,” Fitch Solutions said.

The free trade agreements (FTAs) are also seen further boosting the country’s competitiveness and ease of trading for businesses.

For one, Trade Secretary Ramon Lopez held talks with Terumo last March to discuss the company’s plans to expand production of IV catheters at its manufacturing plant in Laguna Technopark in  Biñan, Laguna.

This follows the  approval of the Tax Reform for Acceleration and Inclusion Package 2 (TRAIN-2) in 2018, and as of 2019, the Duterte administration has remained optimistic that all packages of the proposed comprehensive tax reform program will be approved by 2020.

“On the other hand, the extent to which companies will benefit from the tax reforms will be limited by the proposed changes in investment incentives. We note that there have already been reports of some firms putting on hold their planned investments amid concerns of the proposed changes in the incentives regime,” it said.

Fitch Solutions said the changes include shortening income tax holidays for companies, as well as removing the five percent tax incentive on gross income earned, which companies registered with the Philippine Economic Zone Authority (PEZA) can claim.

“Businesses investing in the Philippines will benefit from a broad range of FTAs. Regional trade for medical device companies in the Philippines is facilitated by the country’s membership of the ASEAN, which has reduced or removed tariff and non-tariff trade barriers for most goods in recent years,” it said.

The ASEAN has also inked FTAs with some of the Philippines’ major trade partners, including China, Japan and South Korea. This will continue to boost the country’s competitiveness and ease the trading process for businesses, making it a more attractive destination for medical device companies.         

PH powerhouse economy

‘PHL growth faster than regional powerhouses’

Rea Cu| Business Mirror

27 June 2019

GROWTH of the Philippine economy will be faster than other regional economic powerhouses under the Duterte administration, the Department of Finance (DOF) said on Wednesday, citing the World Bank (WB) for such projection.

The country’s strong macroeconomic fundamentals provide the basis for the Bank’s expectations that the Philippine economy will grow faster than China and Malaysia, the DOF said in a statement on Wednesday.

Finance Undersecretary Gil S. Beltran said the World Bank based its projections on the Philippines’s solid external stance and “highly domestically driven” economy, which provides it “ample cushion” against external headwinds that are generally foreseen to slow down global growth this year.

“The Philippines is also expected to remain as an attractive destination for foreign direct investments [FDI]. We are pushing for further liberalization of investment ownership in the country,” said Beltran, also the chief economist of the DOF.

According to World Bank forecasts, the Philippines’s gross domestic product (GDP) is expected to grow by 6.4 percent this year, second only to Vietnam’s 6.6 percent, and higher than China’s 6.2 percent, Indonesia’s 5.2 percent and Malaysia’s 4.6 percent.

In 2020 and 2021, the Philippines’s GDP growth of 6.5 percent for both these periods will equal Vietnam’s 6.5 percent, also for both periods, and surpass China’s 6.1 and 6.0 percent, respectively.

The Indonesian economy is projected to expand 5.3 percent for 2020 and 2021, while Malaysia will maintain its growth at 4.6 percent in both these years.

Based on an economic research published by Standard & Poor’s (S&P) Global Ratings for June entitled Apac Monthly Snapshots: Trade Wars and Currency Corners, the country’s GDP is seen to settle between 6 percent and 6.5 percent this year.

“We continue to expect GDP growth to come in at the low end of the 6 percent to 6.5 percent range in 2019, with a likely resumption of the infrastructure build in the second half of the year to bring the fiscal impulse for the year to around neutral after being negative in the first half of the year. We also expect BSP [Bangko Sentral ng Pilipinas] to maintain its easing bias this year, supporting growth, as inflation will likely stay benign especially compared to last year’s spike,” the economic research said.

Beltran noted that the country’s debt-to-GDP ratio also continued its downward trajectory on the Duterte watch despite its ambitious infrastructure buildup under its “Build, Build, Build” (BBB) program, with national government debt in relation to GDP at 42.1 percent in 2017, and falling further to 41.9 percent in 2018.

“Moreover, the Philippines has implemented monetary and nonmonetary policies to keep inflation manageable and bring it back to the government’s target range of 2 to 4 percent this year. Perceived overheating risks have abated, driven by government measures and policies,” Beltran said.

Fitch Ratings has also maintained its “BBB” with a stable outlook for the Philippines as of May this year, while Moody’s also affirmed its Baa2 with a stable outlook as of November 2018.

PH improving credit standing

PHL readies road map for an ‘A’ credit rating

Bernadette D. Nicolas
Business Mirror
09 May 2019

THE Bangko Sentral ng Pilipinas (BSP) is looking to finalize—along with the Department of Finance (DOF) a road map next week to ensure a calibrated approach to the Philippines’s “active pursuit of an A level rating.”

The Philippines last week received its highest credit rating from a major ratings agency to date, as S&P Global Ratings announced that it is assigning a “BBB+” rating on the Philippines’s long-term sovereign credit rating.

With just a notch away from the “A” level rating, BSP Deputy Governor Diwa C. Guinigundo said they are now embarking on an agenda called the “Road to A.”

Guinigundo said the BSP and the DOF are eyeing to organize an interagency committee that would formalize this road map.

“Such road map will evidence the buy-in and commitment of key economic and infrastructure officials to get our efforts properly credited to A before 2022 to help further bring about more benefits to the economy and to our people,” he said in a Palace briefing.

Moving forward, Guinigundo said their goal is to sustain policy and structural reforms, which he said is one of the nonnegotiable keys to an upgrade aside from continuous engagement with the credit-rating agencies. “We have a long way to go, many more miles to travel. We don’t need a crisis or an international financial institution to tell us what to do. We shall be doing things for the sake of our people. If these efforts start bearing fruits that are good to eat, then the upgrade will just logically be a consequence,” he said.

Guinigundo pointed out that efforts must also be directed at addressing these issues: further increasing the country’s per-capita income, enhancing the country’s potential input, strengthening the external payments buffers, keeping prices stable, fortifying public finance and elevating governance standards.

“So all of these, I think, are priorities of the national government in addressing these particular issues—not because we wanted another A or another upgrade, but because pursuing these very important reforms on various fronts will be useful to us, because we want to sustain our economic growth; we want to make sure that employment opportunities are available and to make a dent in terms of our efforts to reduce poverty in the Philippines,” he added. 

Meanwhile, Finance Secretary Carlos G. Dominguez III stressed that the credit-rating upgrade is a direct result of President Duterte “choosing to invest his political capital wisely in difficult but game-changing reforms” such as the Tax Reform for Acceleration and Inclusion (TRAIN) law and the Rice Tariffication Act. 

Dominguez, however, immediately pointed out that they did not pursue these reforms to get a better credit rating. 

“This upgrade is the effect of pursuing ‘game-changing reforms’ that would lead to a flourishing economy and a more comfortable life for law-abiding Filipinos,” he said. 

“The effect of a BBB+ rating may not be immediate, but it is very clear, it is a stepping stone to our goal of achieving and sustaining upper middle-income country status in the near future,” he added. 

P3-B savings

NATIONAL Treasurer Rosalia V. de Leon also cited the potential benefits of the country getting this credit-rating upgrade, including generating savings of at least P3 billion for commercial bond issuances and attracting more foreign direct investments that would lead to more jobs.

Since foreign investors have stringent guidelines before investing, de Leon explained that they will not go to an economy with a credit rating lower than BBB. 

“So with the BBB+, we’re able to throw the net far and wide, catch more fish into our pond of borrowing,” she said.

Even the private sector will also reap the benefit of lower cost of borrowing from the credit-rating upgrade, noting that the national government is considered as the benchmark for borrowing rates. 

“So if we borrow at this level, even the private sector would also be reducing their own borrowing cost. So, what does it mean? Then they will be able to have more capital expenditures, produce more jobs,” she said.

“This is more inspiring for us because all the fruits of our labor are now producing results. And we are more challenged but, at the same time, more inspired to deliver more reforms, and at the same time, really make it up to the coveted A rating that we are all also aspiring for,” she added. 

PH: Potentially Asia's fastest growing economy

Philippines has 'potential' to become Asia's fastest-growing economy: ADB

Cathy Yang

ABS-CBN News

02 May 2019 

NADI, Fiji -- The Philippines has the "potential" to become the fastest-growing economy in Asia, propelled by an unprecedented infrastructure overhaul, tax reform and a young workforce, the Asian Development Bank said Thursday.

A recent credit rating upgrade from S&P Global is also an indication of the "fundamental strength" of the Philippine economy, which has maintained growth at above 6 percent, said ADB Chief Economist Yasuyuki Sawada.

The Philippines' GDP growth has been among Asia's fastest, racing China and Vietnam. Official first quarter GDP numbers are due out on May 9, the same day as the Bangko Sentral ng Pilipinas' policy-setting meeting.

"It's quite possible for the Philippines to be the fastest-growing economy in Asia," Sawada told ANC. Debt is "well under control" and over-all fundamentals are "quite strong," he said.

The Philippines' work pool is also English-proficient and among the youngest in the region, with an average age of 28. Sawada said this would serve the needs of technology and business process outsourcing companies.

TRADE WAR RISK

The trade war between the US and China poses the "highest risk" to economic growth in Asia.

Should growth in China slow down because of the trade dispute, it could adversely impact the region indirectly, Sawada said on the sidelines of the ADB Annual Meeting here.

The same slowdown, however, could provide Asian economies an opportunity to offer themselves as an alternative to China, he said.

"The overall impact to Asian economies is rather moderate and strictly speaking, slightly positive," he said.

The Asia-Pacific region is the "global engine" for growth, contributing 60 percent to the world's economic expansion, he said.

ADB Chief Economist Yasuyuki Sawada speaks to ANC's Cathy Yang on the sidelines of the Asian Development Bank's annual meeting in Nadi, Fiji. ABS-CBN News

DISASTER RESILIENCE

Disaster-prone countries like the Philippines should consider resilience when building new infrastructure.

A recent earthquake in Central Luzon killed over a dozen people and damaged Clark Airport, highlighting the country's location in the Pacific "Ring of Fire." The Philippines is also battered by an average of 20 typhoons per year.

"Building back better is a concept, after the disaster, putting back society and the economy in a better situation than the status quo prior to the disaster," he said.

"I think this shift in focus is quite an important element of building back better," he said.\

In a statement in Manila, Presidential Spokesman Salvador Panelo said Malacanang was "pleased" with the S&P Global upgrade.

"The economic team of the President has done a splendid job in putting the economic house in order and spearheading bold economic reforms, in cooperation with Congress, in bolstering the domestic economy, which is projected to become the world's top 25 economy," he said.

PH favorable growth prospects

Fitch affirms Philippines’ debt rating


Business World Online
20 December 2018


“The ratings on the Philippines balance favorable growth prospects, lower government debt and a net external creditor position against lower per capita income levels, a weaker business environment and lower standards of governance compared with its rating category peers,” - FITCH

FITCH RATINGS has maintained its grade for Philippine debt, citing the country’s sustained strong overall economic growth even as it flagged overheating risks evidenced by rapid bank lending and a growing trade gap.

The global debt watcher kept the Philippines’ credit rating at “BBB” — one notch above minimum investment grade — with a “stable” outlook. This is meant to vouch for the Philippine government’s ability to pay its debts, in turn helping reduce borrowing costs from foreign creditors.

“The ratings on the Philippines balance favorable growth prospects, lower government debt and a net external creditor position against lower per capita income levels, a weaker business environment and lower standards of governance compared with its rating category peers,” Fitch said in a Dec. 19 statement.

This comes a year after Fitch upgraded the Philippines from minimum investment grade, putting it on the same level as the ratings given by S&P Global Ratings and Moody’s Investors Service.

Fitch credit analysts drew optimism from “favorable” growth prospects here, as they expect strong domestic demand and rising infrastructure investments led by the state to propel expansion. They expect gross domestic product (GDP) to grow by 6.6% in 2019 and 2020, faster than the 6.3% January-September average.

Robust state spending for infrastructure will continue to drive growth, while keeping the budget deficit “manageable” at three percent of GDP over the next two years and in line with government projections.

At the same time, revenue collections are rising on a boost from the first tax reform package that took effect Jan. 1.

A healthy fiscal balance will keep the country’s debt burden “broadly stable” at 37% of GDP by 2020 from 37.5% this year, Fitch added.

Fitch also expects inflation to slow in 2019 after overshooting the central bank’s 2-4% target band this year. “Fitch expects full-year inflation to average 5.2% in 2018 and to decline to within the central bank’s target range of 2-4% in 2019 and 2020 as the cumulative rate increases of 175bp (basis points) in 2018 take effect and as the impact of excise tax hikes in 2018 dissipates,” the debt watcher said.

However, Fitch flagged overheating risks — or signs that the economy may be growing faster than potential that is capped by constraints like inadequate infrastructure — as seen through double-digit increases in bank lending as well as a ballooning external trade gap. “Fitch believes that overheating risks remain in place, highlighted by rapid credit growth and a widening current-account deficit, although the central bank’s stated intention is to remain vigilant against developments that could affect the inflation outlook,” the statement read further.

The current account — which measures fund flows from goods and services trading — is expected to expand to a $6.4-billion shortfall this year, equivalent to 1.9% of GDP which would be the widest since 2001. Latest data from the Bangko Sentral ng Pilipinas (BSP) put the current account deficit at $6.47 billion in the nine months to September, as imports continued to outpace exports.

Fitch said it sees the current account deficit at equivalent to two percent of GDP this year due to a surge in capital goods imports and a sharp drop in exports. The level is likely to be sustained at 1.9% of GDP in the next two years, buoyed by dollar inflows from remittances, tourism receipts and outsourcing revenues.

BSP Deputy Governor Diwa C. Guinigundo countered this view, saying the economy is not in danger just yet.

“While credit is growing, the pace of increase is within levels considered manageable based not only on the BSP’s own metrics but even on international benchmarks. Additionally, credit growth in the country is driven not only by consumption, but more importantly by investment activities which boost the economy’s productive capacity,” Mr. Guinigundo said in a press statement.

“As such, we see growth in demand continually and sufficiently being matched by rising supply, thereby continuing to dampen demand-side inflationary pressures moving forward.”

Still, the credit rater draws optimism from “high” dollar reserves maintained by the BSP and a “fairly steady” banking sector.

Foreign direct investments should also receive a boost from the recent easing of the government’s negative list that otherwise spells out sectors and economic activities where foreign participation is either banned or restricted.

Continued strong economic growth, stronger governance standards and increased revenue collections may trigger credit rating upgrades in the future, Fitch said.

On the flip side, the reversal of reforms and a “sustained period of excessive credit growth” could lead to downgrades. — Melissa Luz T. Lopez

PH to be upper miidle income economy

Philippines set to become upper middle-income economy by 2019 


Julito G. Rada
Manila Standard
18 September 2018



The sustained economic growth will enable the Philippines to join the ranks of upper-middle-income economies by 2019, the government’s economic managers said Tuesday.

The economic team said strong macroeconomic fundamentals coupled with massive infrastructure spending by the Duterte administration would keep the economy robust in the face of domestic and external headwinds that threaten to stifle growth.

“The Philippine economy is strong and the growth momentum can be sustained by policy and fiscal reforms implemented by the government,” Finance Secretary Carlos Dominguez III said during the Philippine Economic Briefing held at the Bangko Sentral ng Pilipinas.

“We expect the infrastructure program to hit a stride in the coming months,” Dominguez said.

National Economic and Development Authority director-general Ernesto Pernia said an upward growth trajectory remained possible because the economy was more broad-based now, driven not just by consumption but also investments.

Pernia said the country could become an upper middle-income economy by 2019, adding the government was “more than on track” to meet this target.

“Government spending continues to boost economic activity,” Budget Secretary Benjamin Diokno said.

“Our expansionary fiscal policy is prudent, sustainable, and supportive of development objectives,” he said.

Diokno said with a robust growth target of 7 percent to 8 percent in the next five years, the Philippine economy would be the fastest growing among the top five Asean economies.   He said this would be supported by strong fiscal performance. 

“The revenue effort is projected to increase from 15.7 percent in 2017 to as high as 17.6 percent in 2022,” he said. 

“In nominal terms, revenue collection will rise from close to P2.5 trillion in 2017 to as much as P4.6 trillion in 2022,” Diokno said.

Government spending is expected to surge from just over P2.8 trillion in 2017 to as high as P5.4 trillion in 2022. Diokno said with a strategy to keep the deficit at 3 percent of GDP in 2018 and eventually to 3.2 percent in 2019, the strong momentum in infrastructure spending was poised to be sustained.

Dominguez said the implementation of the first package of the Comprehensive Tax Reform Program would ensure good revenue flows for the government.  The Tax Reform for Acceleration and Inclusion law took effect in January, which cut personal income taxes but raised the excise tax on tobacco, fuel, alcohol, automobile and sweetened beverages.

“The government also is not suffering from deficits and we have a very good credit rating,” Dominguez said. The Philippines currently enjoys investment grade ratings from global debt watchers Moody’s Investors Service, Fitch Ratings and S&P Global Ratings.

Dominguez also cited the country’s low indebtedness, high gross international reserves, and high domestic liquidity.

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said the economy experienced 78 quarters of uninterrupted growth, although the challenge was how to sustain this momentum.

The economy grew by 6.3 percent in the first half, lower than the expected 7 percent to 8 percent targeted by the country’s economic managers at the start of the year.