DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. “PH - PROGRESO” Philippine Program for Recovery with Equity and Solidarity Turning the crisis into an opportunity A proposed economic recovery program Draft proposal for discussion purpose only as of 19 May 2020 1
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Contents 1. Overview 2. Where are we now? a. Real economy: GDP, income, and jobs b. Fiscal position: revenue, expenditure, deficit c. Survey results: consumers, MSME, farmers 3. DBCC-proposed phased and adaptive economic recovery program (PH-PROGRESO) a. Bayanihan II (expenditure side) b. CREATE: Corporate Recovery and Tax Incentives for Enterprises Act (tax incentivesside) 2
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Phased and adaptive recovery approach Period March to May 2020 June to Dec 2020 2021 onwards Analogy Intubation in ICU Dextrose in regular room Vitamins at home Law Bayanihan I Bayanihan II, CREATE 2021-22 GAA and other reform laws Pillar Pillar I and II Pillar III and IV Plan for a Healthy and Resilient PH ● Budget and procurement ● Budget and procurement flexibility ● Reprioritization of the 2021 and Key features flexibility. ● Reprioritization of 2020 budget. 2022 budget. ● Subsidy to poor and low income. ● Priority BBB resumption. ● Structural reforms to turn crisis ● Small business support ● Demand side to raise income into opportunity to prepare for the (grace period, wage and create jobs : better targeted new normal. subsidy) and implemented Bayanihan I ● Support Balik Probinsya, Bagong ● Support to key sectors (e.g. agri programs. Pag-asa (BP 2 ) Program. and OFW). ● Supply side to support firms : ● Health system, capacity, Liquidity and equity infusion, and and insurance. guarantee thru the financial sector. ● Support front-liners. ● Targeted tax incentives. 3
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Overview 4
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Key messages 1. The Philippines entered 2020 with strong growthprospects. a. Building on past reforms and solid macroeconomic management to deliverbetter. b. Among the fastest growing economies (average of 6.6% from 2016 to 2019). c. Likely to become upper middle income country in 2020 (USD 3,512 per capita). d. Low and stable inflation (average of 3.0% from 2016 to 2019). e. Among the lowest ever rates of unemployment (5.3%), underemployment (14.8%), and poverty (16.6%). f. Strong fiscal position (revenue of 16.1 percent of GDP, highest since 1997). g. Falling debt to GDP ratio (39.6 percent of GDP, lowest since 1986). h. High gross international reserves (USD 89 billion or 7.9 months of import). i. BBB+ credit rating (one notch below the A-rating) i. Illustration: for every one trillion pesos in borrowing, a 1% lower interest rate due to good credit rating translates to a savings of 10 billion pesos per year. 5
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Key messages 2. This strong foundation is dueto... a. Conservative and responsible fiscal management. b. Tax reform (4 tax laws, 3 more packages to go). c. Structural reforms (rice tariffication, ease of doing business, national ID, UHC, universal access to tertiary education, etc.). d. BBB program (infra spending exceeded 5% of GDP in 2018). 3. But we have faced totally unexpected shocks in 2020: a. Taal volcano eruption in January. b. Decline in tourism and trade due to global pandemic starting February. c. ECQ starting March to contain the virus. 6
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Four-pillar strategy to respond to the COVID-19 crisis P595.62 billion P58.63 billion P1.09 trillion P846.59 billion or $11.72 billion or $1.15 billion or $21.44 billion or $16.65 billion (3.1% of GDP) (0.3% of GDP) (5.7% of GDP) (4.4% of GDP) To be funded in largeby pillar III, not includedin total Grand total: P1.74 trillion or $34.32 billion (9.1% of GDP) as of May 18,2020 7 Note: Due to rounding, percentages may not precisely reflect the absolute figures.
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Strong fiscal and financial position to address the crisis. The Economist ranks the Philippines 6th among selected emerging economies in the world, and the best among those ranked from Southeast Asia, in terms of economic, fiscal, and financial management. Source: Economist, “Debt in developing 8 countries: next in line,” 2 May 2020.
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Where are we now 9
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Macro-fiscal framework has weakened, but fundamentals still strong Key variables 2019 2020 2020 (approved (approved by DBCC by DBCC as as of of May 12) March 26) GDP real growth (%) 6.0 0 to -0.8 -2.0 to -3.4 Nominal GDP 19.5 19.8 19.3 revised (trillion pesos) Revenue (% GDP) 16.1 16.8 13.6 Expenditure (% GDP) 19.5 22.1 21.7 Deficit (% GDP) -3.4 -5.3 -8.1 NG debt (% GDP) 39.6 44.4 49.8 10
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. The range of analysts forecasts is wide, with some analysts forecasting that the Philippines could experience as low as -4.8 percent growth in 2020 Institution 2020 PHL GDP growth forecast Date of forecast After Q1 2020 GDP release Fitch -2.0 May 2020 RCBC -2.0 to -4.0 May 2020 ING -2.9 May 2020 PHL as of May 12 -2.0 to -3.4 May 12, 2020 DBCC UOB -3.5 May 2020 Nomura -4.8 May 2020 Sources: Various news articles, ADB, IMF, and WB 11
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Survey results corroborate the economic decline Key variables Consumer survey MSME + large survey Agriculture survey Respondents 389,859 44,097 6,863 Period of survey April 5 to 8, 2020 April 4 to 8, 2020 April 3 to 8, 2020 Estimated -87.2% in March vs 65% were able to revenue/inc February (extrapolated: 44% say income is sell 35% were not ome impact 767billion) not enough to meet able to sell (108.5 (66% zero sales, basicneeds million in losses) 33% decreased sales) Estimated job loss 44% -10.5% in March vs February (of non-government (extrapolated: 2,240,610workers) 86% continued to farm worker respondents (74.4% no lay-off, 25.4% with lost their job or source of income) lay- off) Estimated firm closures N/A 33,041 firms (74.9%) 35% were not able to sell Top 3 needs Payment deferment to Cash assistance Access to food supply government, banks, andutilities and essentials Production support (seeds, Tax discounts or tax planting materials, fertilizers, etc.) More efficient health credits Low interest Machinery and equipment (tractor 1 s 2 , system Transportation cultivators, pumps, etc.) Sources: NEDA and DOF loans from government and banks
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Top 10 hardest hit sectors per the MSME survey (revenue loss) Rank Sector Count of firms Average lossesin Count of firms Assumed number % of sales for firms of months open during ECQ closed during ECQ open during ECQ closed in 2020 Arts, entertainment, and recreation 1 1,874 -82.3 18,661 9 Tourism 2 2,686 -81.9 29,147 9 Repair of other items 3 652 -77.0 6,872 6 Education 4 1,059 -76.8 12,244 6 Construction 5 2,282 -74.6 14,075 3 Repair of motor vehicles and motorcycles 6 1,696 -73.4 12,536 6 7 Finance and insurance activities 4,047 -71.2 5,703 6 8 Sports and fitness 773 -70.4 16,345 9 9 Real estate 2,883 -68.6 6,750 6 10 Professional, scientific, and technicalactivities 3,739 -67.1 13,105 6 Total 21,691 -74.3 135,438 Source: DOF MSME survey 13 Note: Count of firms is estimated using weights calculated from the survey sample.
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Top 10 hardest hit sectors per the MSME survey (job loss) Rank Sector Jobs lost Percent change in 2020 from total full-year employment 1 Construction 689,974 -1.6 2 Education 130,514 -0.3 3 Repair of motor vehicles and motorcycles 74,758 -0.2 4 Tourism 51,446 -0.1 5 Finance and insurance activities 41,027 -0.1 6 Arts, entertainment, and recreation 39,446 -0.1 7 Sports and fitness 31,547 -0.1 8 Professional, scientific, and technical activities 24,579 -0.1 9 Repair of other items 23,364 -0.1 10 Real estate 20,964 -0.0 Total 1,127,619 -2.6 14 Source: MSME survey, LFS2019
DRAFT FOR DISCUSSION ONLY. SUBJECT TO CHANGE. Proposed (PH-PROGRESO) Philippine Program forRecovery with Equity and Solidarity Turning the crisis into an opportunity An economic recovery program 15
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