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Salceda on Fitch ratings report: Outlook to recover to ‘stable’ with tax reforms

July 13th, 2021

Salceda on Fitch ratings report: Outlook to recover to ‘stable’ with tax reforms; House economic recovery co-chair calls on government to focus on “growth”

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) says that the country’s credit outlook will recover to “stable” from the most recent change to “negative” by credit rating agency Fitch Ratings once it completes the comprehensive tax reform program and reaches for “low-hanging fruits such as the POGO tax and the e-sabong tax.”

“Overall, we have weathered the possibility of a downgrade. That’s the headline here: no credit grade downgrades for us, even when our peers are getting pulled down some notches. Outlooks change depending on what we do with policy now,” Salceda said.

“Fitch aptly pointed out that one of our most important saving graces is the strength of our comprehensive tax reform program, which my committee completely turned over to the Senate as early as 2019,” Salceda said.

“We should also reach for very low-hanging fruits such as the POGO tax regime and the e-sabong tax regime. President Duterte himself said that these areas can be revenue generators. We will be better served if we impose tax regimes that regulate them well. We will give President Duterte a POGO tax bill to sign by August. Hopefully we can do e-sabong by September. We are just waiting on the Senate to do it,” Salceda added.

“Over the next 5 years I expect revenue inflows from the POGO taxes to be P144.54 billion. For e-sabong, total public resources generated should be P28.04 billion. On the first year, combined, we’re looking at P32 billion. That moves our revenue-to-GDP by around 0.16% percentage points. Fitch projects that we will recover to 15.2% revenue-to-GDP, so add that and we reach around 15.4%. That is higher than any revenue effort in the 2008-2018 period, and only exceeded by President Duterte’s own performance in 2019,” Salceda explained.

“So passing these reforms is critical, and I would urge the Senate to move with them. The e-sabong tax, in particular, is not very complicated since it follows the POGO tax model, which they already approved,”
Salceda said.

Focus on growth, vaccination

Salceda also pushed the government to “focus on growth” in GDP, as “much of the worries cited by Fitch hinge on GDP growth.”

“The main source of Fitch’s outlook is really its projection of only moderate growth in 2021. They think we will only achieve 5.0%. A country like ours, with low GDP base last year, has the potential to go 12% GDP growth during periods of recovery. Nonetheless, since some quarantines were still imposed this year, we should at least aim for 7% this year,” Salceda said.

“That’s still doable. The BPO sector is recording demand for more office space than it did pre-pandemic. We are seeing strong recovery in the manufacturing sector. Mining is a potential area for expansion. And CREATE has ended investor uncertainty over taxes, so as long as we sell the reform well, we should see more foreign capital into the country,” Salceda explained.

“There is an overhang with CREATE investments because the Strategic Investment Priorities Plan has not yet been released, and, of course investors are waiting for herd immunity so that their capital can be maximized,” Salceda said.

Salceda adds that vaccination remains the most critical economic intervention.

“We are doing around 239,000 vaccinations daily. We should expand to 750,000 if we want to reach herd immunity by end of 2021. If we can do that, 2022 should be an exceptionally strong recovery year, with all the pent-up investments,” Salceda said.

“Our current supply is Sinovac: 12,000,000 (57.86%), AstraZeneca: 5,708,100 (27.52%), Pfizer: 2,469,870 (11.91%), Sputnik V: 312,200 (1.51%), and Moderna: 249,600 (1.20%). But we will see more Pfizer and Moderna arrive by end of the month, so we need to start completing our cold chain transport and storage facilities in the regions.”

“If we can significantly grow our vaccination rate and actually achieve herd immunity this year, I have no doubt the outlook will improve,” Salceda concluded.

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