The Philippine Economy, Challenges, Challenges and Emerging Priorities

National Economic and Development Authority

September 22, 2010

Outline of the Presentation

I. The Philippine Economy and Challenges II. The Growth Framework

I. The Philippine Economy and Challenges

Average GDP growth in the Philippines has been modest...

12.0 8.0 4.0 4 0 0.0 -4.0 2001 2002 2003 2004
Malaysia

2005

2006
Philippines

2007
Thailand

2008

2009
Vietnam

2010 S1

Sources: National Statistical Coordination Board Indonesia

Structure of Demand 2005-2010 S1 2005(Ratio to GDP, in %)

110
17.6 17.6
6.7 3.51 2.09

Gross Domestic Investment 2005-2010 S1 2005(Ratio to GDP, in %)

30.0 30 0
0.59

18.4
6.6

18.2
6.4

17
7.1

26.6

26.5

80

6.4

16.8
6.9

27.0 24.0 21.0 21 0

26.0

27.8

25.7

50
78.2 78.3 77.4 78.2 80.5 67.1

Philippines Asian economies, ave.

20
-6.45 -1.12 -3.3

18.0 15.0
2010 S1 private 15.3

17.2 15.4 14.6

-10

2005 net exports

2006

2007 investment

2008 government

2009

12.0 12 0

14.6

14.5

2005

2006

2007

2008

2009

2010 S1

Source: National Statistical Coordination Board Note: may not add up to 100% due to statistical discrepancy

Source: NSCB, Asian Development Outlook 2010 Note: selected Asian economies/countries include Taiwan, Thailand, HK, China, Korea, Malaysia Singapore, Indonesia

Risks to economic growth

W ld economic condition World i diti

Concerns over the slow pace of recovery

Fi Fiscal position l ii

Less revenues, less infrastructure projects and social protection programs d i l t ti

Dubai crude oil

Higher oil price

Risks to economic growth

Consumer prices

Domestic prices to increase slowly Higher demand for food and oil as economic activity rebounds f t ti it b d faster
Volatility in exchange rates

Unsure path of domestic prices Cost of imported raw materials and commodities d
Effects of weather disturbances Narrowing source of investment
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Increased competitiveness should be at the core of the development process...

Country Rankings GCI 20092010
3 11 12 19 24 29 36 54 75 87 110

GCI 2010-2011 2010 2011

3 11 13 13 26 27 38 44 59 85 109

Singapore Hong Kong Taiwan, China Korea, Rep. Malaysia M l i China Thailand Indonesia Vietnam Philippines Cambodia

*Source: The Global Competitiveness Report 2010-2011, World Economic Forum

Growth dynamics reflect imbalance between sectoral output and employment...

Sectoral Output Shares, 2005-2010
17.4%
34.2%

Employment Share by Sector, 2005-2010

49.3% 33.3%

50.7% 15.1%

Agri
14 12 10 8 6 4 2 0 2004 China Indo

Industry

Services

Agri

Industry

Services

Source: National Statistical Coordination Board

Source: National Statistics Office Labor Force Survey

Comparative Unemployment Rates in Asia (in %), 2004 - 2009

11.9 7.9 8.0 7.3 73

Results of the PHILIPPINES LABOR FORCE SURVEY Jan Jul 2009 Jan - Jul 2010 35,896 974 2.8 7.4 18.5

7.4

7.5

Employment level (000) Employment Generated Employment Growth (%)

34,922 982 2.9 7.6 19.0

2005 Mal

2006 Philippines

2007 Sing

2008 Thailand

2009 Vietnam

Unemployment rate (%)

Underemployment rate (%)

Source: Asian Development Outlook 2009; NSO-Labor Force Survey Note: Starting April 2005, the LFS adopted the new unemployment definition

Source: National Statistics Office Labor Force Survey

The slow pace of rural development remains a challenge for the agriculture sector... h l
Low Productivity and Weak Competitiveness
- Inadequate rural infrastructure - Limited access to productive resources and quality support services

Physical Constraints y
- Relatively scarce land resources compared to ASEAN neighbors. - Luzon and Visayas periodically suffer from weather disturbances causing

crop damages. - The archipelagic nature of the country makes it costly to transport goods compared to other countries with contiguous areas.
Population Growth Rate, 1800-2007 (in %) ( )
5 4 3 2 1 0 1800 1812 1819 1829 1840 1850 1858 1870 1877 1887 1896 1903 1918 1939 1948 1960 1970 1975 1980 1990 1995 2000 2007

Poverty and Inequality

Poverty Incidence of the Total Population
Millions
28 27 26 25 24 23 22 21 33.0 34 32.9 30.0 25.5 2000 23.8 2003 27.6 2006 Poverty Incidence 33 32 31 30 29 28 Magnitude of Poor
%

0.4900 0.4800 0.4700 0.4600 0.4500 0.4400

GINI Concentration Ratios, Philippines

0.6 0.5 0.4
0.4822 0 4822

GINI Concentration Ratios, Regional

0.3 0.2 0.1

0.4605 0.4580

0.0 -0.1 01

2000

2003

2006

10
Sources: National Statistical Coordination Board, National Statistics Office

2000

2003

2006

Addressing poverty and inequality requires ensuring inclusive access to human capital...
25

TaxEffort(Percentof Tax Effort (Percent of GDP)

20 15 10 5 0
Phils. Indonesia Malaysia Singapore Thailand China HongKong Vietnam

30 25 20 15 10 5 0
Phils.

RevenueEffort(Percentof Revenue Effort (Percent of GDP)

Indonesia Malaysia Singapore Thailand

China

HongKong Vietnam

2007

2008

2009

2007

2008

2009

Education Budget 2000-2009 (Ratio to GDP, in %)

4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
3.5 3.2 3.2 3.0 30 2.6 2.4 2.4 2.5 2.5

0.6 0.5
2.7 0.4 0.4

Health Budget 2000-2009 (Ratio to GDP, in %)

0.4 0.3 0.2 0.1 0.0

0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3

11

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Sources: Budget of Expenditures and Sources of Financing - DBM

Climate change also poses a major risk to growth and poverty alleviation... th d t ll i ti
Observed Mean Annual Mean Temperature Anomalies in the Philippines Period: 1951-2006 (departures from the 1971-2000 normal values)

An increase of 0.62C from 1951-2006 (56 years)

12
Source: Climate Baseline and Change Scenario for the Philippines, CAD/PAGASA/DOST

II. II The Growth Framework

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SOCIAL CONTRACT WITH THE FILIPINO PEOPLE

VISION A country that has achieved inclusive growth and is h i characterized b rapid, sustained, and b d t i d by id t i d d broadbased economic growth; focused on creating more jobs and new opportunities to achieve full employment; and significantly reduced poverty

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1. Attain a sustained and high economic growth that provides productive employment opportunities;

2010 RealGDPgrowthrate Real GNPgrowthrate 56% 78%

20112016 78% 910%

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A stable macroeconomic environment

Fiscal Monetary, Financial, and External

Commitment to low and

stable inflation conducive to balanced and sustainable growth

Reduce external

vulnerabilities
Strengthen financial

capitalization, supervision and market discipline

16
Source: Department of Finance Source: Bangko Sentral ng Pilipinas

2. Equalization of access to d E li i f development l opportunities;

Better education, primary health care and

nutrition, and other basic social services Equal access to infrastructure, credit, land, technology, and other productive inputs Improve governance and strengthen institutions to promote competition

17

Better Governance for Greater Private Sector Participation

Sound and consistent public policies Effective good g g governance measures Enforcement of the rule of law Efficient investment programming processes Pursue Public Expenditure Management (PEM) Reforms

18

PPP Development Strategies

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Focus on infrastructure support facilities for tourism, agriculture, social services, and growth t i i lt i l i d th centers Provide incentives to stimulate private resources Ensure competition, fairness and transparency Provide assistance in preparation of business case, pre-FS, full FS, detailed engineering, tender document, etc Fast-track Fast track project approval process Protect public interest Creation of PPP Center

3.Implement social safety nets

Protect and enable those who do not have the

capability to participate in the economic growth process

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Thank you.

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