Philippines Macroeconomic Updates December 2016 Table of Contents - - PowerPoint PPT Presentation
Philippines Macroeconomic Updates December 2016 Table of Contents Policy Agenda 3 Favorable Macroeconomic Trends 7 Firm Institutional Foundations through Structural Reforms 21 Infrastructure Development 25 Sound and
December 2016
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relax foreign ownership restrictions
Development Plan (PDP) for the period 2017-2022. The proposed PDP Framework will be anchored on the country’s long-term vision or the AmbisyonNatin2040 and will translate the President’s 0-10 Socioeconomic Agenda into concrete plans, strategies and programs. Vision for the Philippines
vision to eliminate poverty, as a guide for development planning in the country. Broad strategies to achieve the vision
*Refer to Vision 2040: http://2040.neda.gov.ph/
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fiscal, monetary, and trade policies.
collection, indexing taxes to inflation.
effort will draw upon successful models used to attract business to local cities (e.g., Davao), and pursue the relaxation of the Constitutional restrictions on foreign ownership, except as regards land ownership, in order to attract foreign direct investment.
GDP, with PPP playing a key role.
agricultural and rural enterprise productivity and rural tourism.
address bottlenecks in land management and titling agencies.
education systems, matching of skills and training to meet the demand of businesses and the private sector.
innovation and creative capacity towards self-sustaining, inclusive development.
CCT program, to protect the poor against instability and economic shocks.
Reproductive Health Law to enable especially poor couples to make informed choices on financial and family planning.
Strong mandate from people ensures political capital to advance transformational reforms that will move the economy to even higher growth plane and improve welfare of Filipinos. Action-oriented, results-driven leadership style of the President boosts prospects for a more robust investment climate characterized by common compliance to law and order in a more conducive regulatory environment
television channels for Muslims and the Lumad
as a predicate crime to money laundering
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Corps5
Economic Agenda Legislative Agenda1
4Based on the President’s 2017 Budget Message 5http://www.rappler.com/nation/146324-list-priority-bills-duterte-administration 1Based on the State of the Nation Address of President Rodrigo Duterte on July 25,
2016
2Based on pronouncements of Economic Managers 3On July 24, 2016, President Duterte signed an Executive Order implementing
freedom of information in the Executive Branch
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Net trust rating of “Excellent” at +76%
Continued Favourable Prospects under the Duterte Administration
closest rival at the May 2016 national elections
Weather Survey (SWS) at 64% and 76%, respectively
lower compared to the previous quarter remained positive at 39.8%
44.9% a quarter ago on the back of robust domestic demand
2017 increased to 31.7% from 28.1% last quarter
BSP’s Consumer Expectations Survey. According to respondents, their optimism during the current quarter was due to improvements in the peace and order situation, and availability of more jobs, among others
Net satisfaction rating of “Very good” at +64%
Source: Social Weather Station, Pulse Asia, BSP
Performance & Trust Ratings of President Rodrigo R. Duterte September 25 – October 1, 2016 / Philippines (in %)
86% Performance and Trust Ratings
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Sound economic management and transformational reforms to accelerate growth and improve welfare of Filipinos
Firmer institutional foundations bode well for greater governance, competitiveness reforms and quest for lasting peace
and order underpin the government’s growth agenda
institutionalized over the years
Institutions and citizenry eager for more reforms that are
supportive of propelling long term economic growth and ensuring political stability
have been positively recognized internationally, including their impact
bolstering the Philippines’ economic fundamentals
ROP has achieved significant improvements in measured
governance and competitiveness across the years
Solidifying gains from these is top agenda
Acceleration of infrastructure and industries development to bring about more robust growth across the archipelago, create jobs and uplift the lives of more Filipinos
spending targeted to accelerate to account for 5.1% and 5.4% of GDP in 2016 and 2017, respectively
easing bottlenecks to accelerate implementation
productive capacity of the economy
up agriculture and manufacturing development plan will create more jobs, particularly for low-skilled labor
Credible and effective monetary policy helps the economy stay resilient to domestic and external challenges
BSP has ample monetary policy space and has at its disposal a wide range
tools, including macroprudential measures to stem any emerging risks and financial stresses
Continued
solid growth in a low inflation environment
Diversified
sources
foreign exchange (remittances, IT-BPO, and tourism) support the country’s BOP and cushion economy from external stresses
Favorable macroeconomic trends supported by strong domestic demand, increasing contribution of investments and services to GDP, an emerging higher value-adding manufacturing sector and favorable demographic profile
from 6.0% in 2016 and to 6.7% from 6.2% in 2017
expectations surveys. Emerging as
the top promising destinations of FDIs based on United Nations Conference of Trade and Development (UNCTD)’s World Investment Report 2016
demographics, policy focus and budgetary allocation towards regional development and education and social protection to tackle poverty and inequality reducing growth
Commitment to ensuring medium-term fiscal sustainability
spending path include reforming the tax system through a comprehensive tax reform package, institutionalizing transparency and accountability in granting fiscal incentives, reducing tax evasion and instituting stronger public finance accounting and management standards
debt and manageable fiscal deficit provides greater fiscal space to accelerate spending
poverty reducing measures as well as implement countercyclical policies in the event of a shock
affordability continues to improve with lower debt service burden
Achieve Lasting Peace Foster a Law Abiding Society Reduce Poverty
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Real GDP Growth (6-year moving average) GDP (constant 2000 prices)
1 2 3 4 5 6 7 8 1955-1960 1957-1962 1959-1964 1961-1966 1963-1968 1965-1970 1967-1972 1969-1974 1971-1976 1973-1978 1975-1980 1977-1982 1979-1984 1981-1986 1983-1988 1985-1990 1987-1992 1989-1994 1991-1996 1993-1998 1995-2000 1997-2002 1999-2004 2001-2006 2003-2008 2005-2010 2007-2012 2009-2014 6-yr moving average 6.2% 2010-2015 ave 1971-1976; 1972-1977; 1973-1978 2010-2015
Source: National Economic and Development Authority (NEDA) Staff Calculations
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7.2 8.7 6.2 5.8 3.9 5.4 4.8 (0.5) 0.2 2.4 7.3 5.8 5.9 4.8 2.9 3.9 3.1 3.2 2.9 1.3 7.4 4.9* 7.0 5.0 3.3 3.8* 2.3* 3.5* 2.6 0.3* 7.6 5.2 6.4 4.9 3.2 3.3 2.2 3.1 2.3 0.1 7.6 5.8 6.7 5.3 3.3 3.0 2.7 2.2 1.8 0.8
India (BBB-/Baa3/BBB-) Panama (BBB/Baa2/BBB) Philippines (BBB/Baa2/BBB-) Indonesia (BB+/Baa3/BBB-) Thailand (BBB+/Baa1/BBB+) Turkey (BB+/Baa3/BBB-) Colombia (BBB/Baa2/BBB) Spain (BBB+/Baa2/BBB+) Slovenia (A/Baa3/BBB+) South Africa (BBB-/Baa2/BBB-) FY 2010-14 average 2015 Q1-Q3 2016 2016F 2017F Source: PSA; International Monetary Fund (IMF); Bloomberg L.P.
One of the fastest growing economies regionally and amongst similarly and higher rated peers Real GDP growth (%)
Note: 2016 and 2017 Forecast based on IMF WEO October 2016 update *Latest available data is 1H2016 Ratings: S&P/Moody’s/Fitch
it at 6.5%, aided by the success of ongoing structural reforms. NEDA estimates potential output to rise to 6.9% to 7.9% by 2022
trend in potential growth across many emerging markets
greater capital formation
structural reforms. These include comprehensive tax reform, sustained investment in infrastructure, human capital development, easing of restrictions on foreign investments, reduction of cost of doing business, and strengthening of agro-industrial linkages
and most especially the marginalized Filipinos. The Duterte Administration targets to reduce poverty incidence to 17.0% by 2022
Source: PSA
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2.5 3.3 3.8 4.2 4.9 0.3 0.6 0.6 1.1 0.4 0.7 2.4 3.3 5.4
1990-1999 2000-2009 2010-2015 Q1-Q3 2015 Q1-Q3 2016 Consumption Government Investment Net Exports 5.7% 7.0% 6.2% 4.5% 2.8% 0.7 1.2 2.4 1.9 2.7 1.8 2.8 3.7 3.7 4.4 1990-1999 2000-2009 2010-2015 Q1 - Q3 2015 Q1-Q3 2016 Agriculture Industry Services 2.8% 4.5% 6.2% 5.7% 7.0%
Source: PSA Note: Numbers may not add up due to rounding
Capital formation remains strong Gross capital formation (PHP bn, constant prices) … and is an increasingly key driver of growth GDP breakdown by expenditure (%)
2011 2012 2013 2014 2015 Q1-Q3 2015 Q1-Q3 2016 Construction Durable Equipment Others +2.8%
+27.7% +5.2%
Investments and services increasingly becoming major drivers of growth GDP breakdown by component
1,568 1,490 1,165 1,217 68.2 11.2 26.3
0.8 68.1 10.9 22.7
Household Expenditure Government Spending Capital Formation Net Exports Statistical Discrepancy
Q1-Q3 2016
1,805 +15.1%
Contribution to growth: supply side (%) Contribution to growth: demand (%)
+23.8% 1,556.5 1,257.2
Q1-Q3 2015
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4.3 6.0 6.8 6.5 4.2 5.4 1.3 1.4
2010 2011 2012 2013 2014 2015 H1 2015 H2 2016
1.1 2.0 3.2 3.7 5.7 5.8 3.2 5.4
2010 2011 2012 2013 2014 2015 Jan-Aug 2015 Jan-Aug 2016
Manufacturing, 49% Finance and Insurance, 15% Water Supply, Sewerage, and Waste … Real Estate, 9% Wholesale and Retail Trade, 7% Mining and Quarrying, 5% Others, 9%
Total Approved Foreign Investment **(USD bn)
ROP gaining attractiveness as an FDI destination
Average Growth of FDI, 2012-2015 (%)
Increasing investments in manufacturing
Net FDI - Sector, 2012-2015 (%)
Sustained inflows from foreign investors and bright prospects highlight confidence in ROP’s fundamentals
Net Foreign Direct Investment Flows* (USD bn)
Source: PSA, NEDA, BSP, UNCTAD, Bloomberg; * BOP Concept; ** Investment approved by the Philippines’ Investment Promotion Agencies – Board of Investments (BOI), Clark Development Corporation (CDC), Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB), BOI-Autonomous Region of Muslim Mindanao (BOI-ARMM), and Cagayan Economic Zone Authority (CEZA); amount of approved investments converted to USD
+9.2% +71.1%
88.63 60.03 32.43 12.68 9.38 4.15
0.00 20.00 40.00 60.00 80.00 100.00 TH TW PH VN IN SG ID2 CH MY
ROP is one of the top 15 destinations of investments, along with Australia, France and Malaysia, by multinational enterprises (MNEs) for 2016-2018 based on UNCTAD’s World Investment Report 2016. Further liberalization of industries and efforts to improve business
BOI incentive regime, to be at par with ASEAN countries; remove nationality requirement and export-bias; provide menu of incentives, and strengthen regional investment promotions
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Source: PSA, DTI, DA
Economy increasingly supported by a vibrant manufacturing sector
Real growth (%)
Industry development is getting a big push Manufacturing sector targeted to contribute 30% to the country’s GDP by 2020 from the current 23% under the Comprehensive National Industrial Strategy (CNIS) while share of jobs to total is targeted to reach 15% from the current 8% DTI intensifying support programs to promote Micro Small & Medium Enterprises (MSMEs) through: trainings and capacity-building; one-town-one product (OTOP); next generation Negosyo Centers (Go Negosyo Act); shared service facilities/fabrication laboratory (FABLAB); innovation centers; incubation centers & coworking spaces; and access to finance Manufacturing Resurgence Program - will rebuild the existing capacity of industries, strengthen new ones, and maintain the competitiveness of industries with comparative advantage. The goals: close the gaps in the supply chain, provide access to raw materials, and expand domestic markets and exports
can produce 200,000 units for a single model over a six-year period
USD9.2bn Agriculture is seen as a potential growth driver that can create more jobs for less skilled workers Accelerate production of high value crops - key words are processing and value-adding Regain the country’s status as No. 1 coconut producer; support banana, rubber, pineapple, oil palm, etc. production Establish modern harvest and post-harvest facilities
7.1 6.9
2 4 6 8 10 12 14 GDP Manufacturing
Roadmap for the structural transformation of a globally competitive Philippines manufacturing sector
Phase I
2014 - 2017
Phase II
2017 - 2021
Phase III
2021 - 2025 Rebuild capacity of existing industries, strengthen emerging industries, maintain competitiveness of comparative advantage industries Shift to high value added activities, investments in upstream industries Link and integrate industries Deepen participation in regional/global production networks Become hubs in auto, electronics, machinery, garments, food
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1. Processed Fruit-Dried Mango 2. Processed Shrimp/Prawns 3. Seaweeds/Carrageenan
Agribusiness Manufacturing
1. Aerospace 2. Automotive 3. Auto Parts 4. Bamboo 5. Biodiesel 6. Cement 7. Ceramic Tiles 8. Chemicals 9. Coco coir
Services
1. Book Publishing 2. Information Technology and Business Process Management (IT-BPM) 3. Health Care Services 4. Mass Housing 5. Printing 6. Retirement
Elevating the development and growth of local industries as competitive players in the global market 36 Roadmaps completed
electronics, aerospace, etc.) while 6 are still being finalized. These sectoral roadmaps are the building blocks of the Manufacturing Industry Roadmap (MIR) and the Comprehensive National Industrial Strategy (CNIS)
government funding to support its key initiatives
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Source: BSP; PSA
Inflation remains benign demonstrating monetary policy credibility
Headline CPI (yoy, %)
Latest baseline forecasts suggest inflation to be close to lower end target in 2016 and within target bands in 2017-2018
BSP Private Sector Economists’ Survey (Mean forecast for full year, %)
Inflation target: 3.0 ± 1.0 % for 2015-2018
BSP policy stance successfully balances growth and inflation
GDP, CPI volatility (20Y Standard Deviation, 2001-2020F) 5.5 2.9 8.3 4.2 3.8 4.6 3.2 3.0 4.1 1.4 1.6 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Oct 2016 Inflation Target Band Headline CPI
3.6 4.1 3.3 2.9 2.4 2.3 2.2 2.3 1.7 1.5 1.6 3.2 2.8 3.0 2.2 1.1 1.7 1.0 1.5 1.6 1.8 1.7 Uruguay Kazakhstan Iceland Panama Peru Thailand Mexico Spain Philippines Colombia Poland
CPI volatility GDP volatility
Source: IMF World Economic Outlook, October 2016
1.0 2.0 3.0 4.0 5.0
2014 2015 2016
2016 2017 2018 target range 2016: 1.8 2017: 2.7 2018: 2.8
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Source: BSP; Bloomberg L.P.
Amendments to BSP Charter
Payments and Settlements System Bill
and meet global standards. The bill also empowers the BSP to regulate all types of payment and settlement systems in the country Interest Rate Corridor to enhance effectiveness of monetary policy Old Structure Interest Rate Corridor Structure Repurchase rate (RP)—6.0% Overnight Lending Facility—3.5% Ceiling Reverse Repurchase (RRP) rate — 4.0% Overnight Reverse Repurchase Facility—3.0% Policy Rate
Special Deposit Account rate —2.5% Overnight Deposit Facility—2.5% Floor Other reforms in the pipeline
Reconfiguration of the BSP’s existing facilities Introduction of Term Deposit Auction Facility (TDF)
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Microfinance
Sources: EIU; BSP, DTI; NSFI – National Strategy on Financial Inclusion Increased access to finance and improved usage of financial services
2014 EIU Report, across a range of indicators on financial inclusion, behind
evaluate the national financial inclusion strategy”, lauded ROP citing “The Philippines pioneering and unique approach to gather relevant data on activities, inputs and indicators to enable collaborative reporting by the various implementing agencies [of the NSFI].
Advancing Equitable Financial Ecosystems, ROP gained the biggest improvement in
institutionalized in June 2016 through EO No. 208. FISC provides strategic direction, guidance and oversight in the implementation of the NSFI
2012 Micro, Small and Medium Enterprises (MSMEs)
Enterprises amounted to PHP199.21bn and PHP267.98bn, respectively, benefitting 1.4mn MSMEs
to come up with financing packages to capacitate SMEs
2016 from 7,585 in 2001
PH financial system evolving to be more responsive to the needs of the citizenry and able to channel resources to productive activities Highlighted Programs
increase the credit worthiness of MSMEs that are experiencing difficulty in
and credit track records. As of Dec 2015: 45 CSFs established nationwide; PHP 2.3bn lent to MSMEs; CSF has been institutionalized into law (RA No. 10774 dated 6 February 2016)
e.g., 1) Shared Service Facilities (SSF) which provides equipment for common use of MSMEs; and 2) SME Roving Academy which provides learning programs designed to promote entrepreneurship and skills enhancement
Proposed PHP 1bn regional credit access for MSMEs for construction of
additional SSFs among others. Archipelagic barrier poses a big challenge to financial access. 36.2% of 1,634 cities/municipalities without banking presence. BSP is at the forefront
ensuring increased access to credit particularly for microenterprises. Key Strategic Initiatives Enables banks and other financial service providers to deliver a wide range of financial services – saving, credit, insurance, payments and remittances – to all Coordinated Roadmap to ensure policy coherence, maximize partnerships, and address duplication to improve financial access Survey to provide accurate benchmark on the state of financial inclusion in the country, support evidence based policy making and provide for an adequate measurement of progress System will promote electronic payments and interoperability to facilitate efficiency, lead to lower business costs, drive innovation and possibly increase consumer expenditure. Greater access to payment or transactional accounts can be an effective on-ramp to a broader range of financial services Enabling Regulatory Framework National Retail Payment System National Strategy for Financial Inclusion (NSFI) National Survey on Financial Inclusion
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Per Capita GNI (US$ PPP basis) 2014 in 20 yrs in 30 yrs
8,302 41,510 91,322
Year x5 x11 x2
Note: GNI is significantly larger than GDP in the Philippines owing to worker remittances that supplement residents’ domestically-generated income, and is a stronger measure of wealth; 2016 Per Capita Income data is annualized as of 1Q-3Q 2016 Source: NEDA; World Bank Report No. 93530-PH, January 2015
Sin Tax Reform Law (RA No. 10351)
Program (NHIP), upgrading of medical facilities and financing additional medical assistance programs Responsible Parenthood and Reproductive Health Act of 2012 (RA No. 10354) will be put into full force and effect
responsibilities of national and local government agencies Full implementation of Magna Carta for Women from agencies up to barangay level to protect women’s rights Amendments to the Expanded Senior Citizens Act (RA No. 10645)
Increasing per capita income
Social reforms and programs to reduce people’s vulnerabilities and build resilient and empowered individuals and communities
incomes of households. According to latest World Bank estimates, the average income of Filipinos can double within 10 years and grow eleven-fold in 30 years at the current pace of economic growth (WB cited 6% annual growth) in 10 yrs
16,604
5,069 5,735 6,122 6,545 6,958 7,324 7,776 6,392 6,870 7,377 7,953 8,422 8,8… 9,358 2006-10 average 2011 2012 2013 2014 2015 2016*
GDP per capita (PPP basis) GNI per capita (PPP basis)
Rising average income Per capita income at current prices, USD
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Strengthening access to education and training for life skills
Enactment of the Kindergarten Act of 2012 (RA No. 10157)
Enhanced Basic Education Act of 2013 (RA No. 10533)
international standards
Grades 7 to 10 (Junior High School); Grades 11 and 12 (Senior High School)
upper secondary education The additional years will equip students with skills for work, entrepreneurship or higher education to better prepare them for the future Three tracks available for senior high school students: Academic: Business, Accountancy, Management (BAM); Humanities, Education, Social Sciences (HESS); and Science, Technology, Engineering, Mathematics (STEM) Technical-Vocational Livelihood The proposed 2017 budget for DepEd of PHP570.4bn will sustain the K to 12 program through construction of nearly 37,500 classrooms, hiring of 53,831 additional teachers and provision of scholarships in private schools for 2.7mn students Social reforms and programs to reduce people’s vulnerabilities, and build resilient and empowered individuals and communities
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Ladderized Education Act of 2014 (RA No. 10647)
Comprehensive & Unified Student Financial Assistance UniFAST (RA No. 10687) Speed up the delivery of government scholarships/ student financial assistance for qualified beneficiaries and adopting uniform standards for selection and retention Improving health access and quality
priority infectious and non-communicable diseases; b) provide financial risk protection through expansion in the enrolment and benefit delivery of the National Health Insurance Program (NHIP); c) improve access to quality health care by upgrading public hospital and health facilities, ensuring adequate competent health human resources and securing the availability of essential medicines Expansion of social protection
Pilipino Program (4Ps) – Philippines has the third largest CCT coverage in the world, behind Brazil and Mexico, according to the IMF
education grant equivalent to P300 per child every month for ten months, or a total of PHP3,000 every year (up to a maximum of three enrolled children only)
schoolchildren aged 6 to 14; enrolment of children in day care, elementary and secondary schools; and family development sessions
independent and self-reliant
Social reforms and programs to reduce people’s vulnerabilities, and build resilient and empowered individuals and communities
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Year Selected Structural/Policy Reforms in the Philippine Economy 1993 Creation of the Bangko Sentral ng Pilipinas (RA No. 7653) 1994 Liberalization of foreign bank entry (RA No. 7721) 1995 Liberalization of the telecommunications industry (RA No. 7925) 1996 An Act to Further Liberalize Foreign Investments, Amending for the Purpose RA7042 (RA No. 8179) 1997 Privatization of water services (MWSS) (RA No. 8041) 1998 Deregulation of the oil industry (RA No. 8479); Adoption of consolidated bank supervision 2000 Philippine E-Commerce Act (RA No. 8792) 2001 Liberalization of the power sector (EPIRA) (RA No. 9136) 2002 Inflation Targeting Framework; Special Purpose Vehicle Act (RA No. 9182); PhilPass 2002 Government Procurement Reform Act (RA No. 9184) 2004 Securitization Act; Adoption of Basel 2; Financial Sector Forum (FSF) 2005 Expanded value-added tax (E-VAT) (RA No. 9337); Fixed Income Exchange 2006 Wholesale Electricity Spot Market (WESM) 2007 Risk-based bank supervision 2009 Privatization of National Transmission Corporation (TransCo) and National Power Corporation’s (NPC) assets 2011 EO 29 on Open Skies Policy; Adopted phased-immigration to Basel III 2011 Government-Owned-and-Controlled Corporations Governance Act of 2011 (RA No. 10149) 2012 Amendments to Sin Tax Law (RA No. 10351)
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Year Selected Structural/Policy Reforms in the Philippine Economy 2012 Amendments to the Anti-Money Laundering Law (RA No. 10365) 2013 Act Allowing the Infusion Of Foreign Equity In The Capital Of Rural Banks (RA No. 10574) 2014 Comprehensive Agreement on the Bangsamoro 2014 Go Negosyo Act [promotes the development of micro, small, and medium enterprises ] (RA No. 10644) 2014 Ladderized Education Act (RA No. 10647) 2014 Full Entry of Foreign Banks in the Philippines (RA No. 10641) 2015 Philippine Competition Act (RA No. 10667) 2015 Act Allowing Foreign Vessels to Transport and Co-Load Foreign Cargoes for Domestic Transhipment (RA No. 10668) 2015 Department of Information and Communications Technology Act of 2015 (RA No. 10844) 2015 Tax Incentives Management and Transparency Act (RA No. 10708) 2016 Amendments to the Act to Facilitate the Acquisition of Right-of-Way Site or Location for National Government Infrastructure Projects (RA No. 8974) 2016 Amendments to the Philippine Deposit Insurance Corp. (RA No. 10846) 2016 Customs Modernization and Tariff Act (RA No. 10863) 2016 Operationalizing in the Executive Branch Full Public Disclosure and Transparency (Executive Order (EO) No. 2) 2016 Amendment to Investment Restrictions for Adjustment, Lending and Foreign Companies and Investment Houses (RA No. 10881) 2016 Approving and Adopting the Twenty-five-year Long Term Vision Entitled Ambisyon Natin 2040 as Guide for Development Planning (EO No. 5)
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LEDAC is composed of 20 members with the President as Chair and the following as members: Vice President (Vice Chairman); Senate President; Speaker of the House of Representatives; Seven members of the Cabinet designated by the President; three members of the Senate designated by the Senate President (nominated are Sen. Franklin Drilon, Sen. Vicente Sotto III, and Sen. Ralph Recto); three members of the House of Representatives designated by the Speaker of the House (nominated are Cong. Rodolfo Fariñas, Cong. Danilo Suarez, and Cong. Dakila Carlo Cua); representative of the Local Government Units (LGUs); representative from the Youth Sector; representative from the Private Sector
Super Majority Coalition in both Houses of Congress and convening of LEDAC* will help facilitate passage of priority legislative agenda House of Representatives Senate
Based on speech of House Speaker Pantaleon Alvarez on July 25, 2016 during the opening of Congress Federal parliamentary system through Constitutional Convention Re-imposition of the death penalty for heinous crimes Emergency powers for the President to address Metro Manila Traffic Amendment of the Government Procurement Act. or RA
Freedom of Information Law Simplified Income Taxation Legislative Franchise for Mining Firms Exportation of Processed Ore only Increase penalties presently in the statutes for the non- payment of minimum wage and address contractualization SSS Pension Hike During the 25 July 2016 inaugural address of Senate President Aquilino Pimentel III, he said that the Senate will support the legislative initiatives that President Rodrigo Duterte envisions as necessary to promote public welfare. He also said that the following essential elements of the Program of Government for Change that majority senators have agreed upon will hopefully, lay the basis for the development and progress of our country and people: Adoption of a Federal System of Government Reform the taxation system to make it more just, progressive All-out search for peace All-out war against crime, drugs, corruption Strengthen the rule of law Reform the budget, declare war on waste Work for sustainable, inclusive economic growth Protect the environment Deliver quality education, quality health care Fight abuse and the abusive Focus on the needs and situation of the helpless, impoverished members
because they need the help of government more than the others
*Legislative-Executive Development Advisory Council
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Accelerate public infrastructure spending to account for 5.1% of GDP (PHP756.4bn) in 2016, 5.4% of GDP (PHP860.7bn) in 2017 and further to 7.1% of GDP by 2022 to expand further the country’s productive capacity. Projects expected to create jobs, increase incomes and boost the economy, and deal with problems such as traffic congestion, insufficient and inefficient transportation system. In the long run, the infrastructure investments are expected to propel the economy to grow 7-8% The budget of DPWH, a key infrastructure agency, increased by 30.1% to PHP397.1bn in 2016 from PHP304.1bn in 2015 . Its 2017 budget is proposed to increase by 15.5% to PHP 458.6bn Closer coordination between major infrastructure agencies such as NEDA, DPWH, DOTr and BCDA to facilitate project implementation Successful coordination and implementation ensure completion of priority projects listed below within 3-5 years timeframe Priority Projects (announced on 3 November 2016) Bridges and Roads Railways, Urban Mass Transport, Airports and Seaports New and Better Cities NLEX-SLEX Connector Road – reduces travel time from Alabang to Balintawak to 30 minutes which usually takes more than an hour Santa Monica - Lawton – Bonifacio Global City Link Bridge – cuts down the number of vehicles passing EDSA by 100,000 UP - Miriam - Ateneo Viaduct – 80% decrease in travel time Iloilo-Guimaras-Negros-Cebu Link Bridge – allows travel by car and bus Davao City Bypass Construction Project – reduces travel time from Digos, Davao del Sur to Panabo, Davao del Norte to 45 minutes from the usual 2-hour travel Manila Clark Railway - Guaranteed 1 hour from Metro Manila to Clark International Airport Metro Manila Bus Rapid Transit System – fast and reliable schedule of bus trips in EDSA Mindanao Railway – 2 hours travel time from Davao to Surigao and CDO ensures freshness of produce Regional Airport Development – new and modernized airports for increased accessibility Roll-on/Roll-off (RoRo) Ports Development - accessibility and affordability of travel within the country Clark International Airport New Terminal Building – first worldclass airport in the Philippines that will reduce traffic and congestion at NAIA Clark Green City – the first of many new cities; a long-term solution to congestion and traffic woes in Metro Manila BGC to NAIA Bus Rapid Transit (BRT) System – 15 minutes travel time from Fort Bonifacio to NAIA Subic-Clark Cargo Railway Project – connection
Metro Manila with cargo trucks and reduce the price of goods
3% 3% 18% 5% 52% 19%
Investment Mix
Sea Ports BRT & Other Transport Others Airports Rail, Roads & Bridges New Cities
120,000 97,500 675,000 195,000 2,000,000 730,000
Jobs Created
Source: Presidential Communications Office
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Measures to Facilitate Infrastructure Development Administrative measures Sustain PPP Program to include also unsolicited projects and also pursue hybrid schemes (government to build then tap private sector for O&M) Execute expenditure reforms from budget preparation to project implementation to ensure speedy development of critical infrastructure Step up right-of-way acquisitions to speed up delivery of projects Started implementation of the following policies to improve and streamline the Government’s approval processes of major public investment projects: (1) Updated the economic hurdle rate from 15 percent to 10 percent to facilitate the economic justification for more projects; (2) Raised the cost of projects that will require Investment Coordination Committee (ICC) approval from PHP1bn to PHP5bn to declog the ICC project pipeline approval; (3) Streamlined ICC review procedures for minor changes in scope, design, cost, and extension of implementation or loan/grant validity of projects; and (4) Streamlined the NEDA Board and ICC membership i.e. NEDA Board membership down to 11 from 22 [new composition: President, Secretaries of NEDA, DOF, DTI, DPWH, DBM, DOTr, DOE, Executive Secretary, Chairperson of MINDA, and Deputy Governor of BSP] while the ICC has been limited to 6 members, composed of the Secretaries of DOF, NEDA, DBM, DOE, the Executive Secretary, and Governor of BSP Public Investment Program Online system (PIPOL) allows online submissions by agencies of their priority programs and projects, including comprehensive details and status updates. It also allows NEDA to review and validate agency submissions, as well as to generate reports Implement 24/7 construction work: higher expense to be offset by reducing economic cost of delays; will result in jobs and generate multiplier effects e.g., related enterprises such as convenience stores Legislative support RA No. 8975 or An Act to Ensure Expeditious Implementation of Government Infrastructure Projects - Prohibits lower courts from issuing temporary restraining orders on national government infrastructure projects covered by the Build-Operate-Transfer Law (BOT Law) RA No. 10752 or An Act Facilitating the Acquisition of Right-of-Way (ROW) Site or Location for National Government Infrastructure Projects Proposed critical measures to address institutional, legal and policy issues
Amend the Electric Power Industry Reform Act (RA No. 9136) Amend the Build-Operate-Transfer (BOT) law (RA No. 7718) Amend the IRR of the Government Procurement Law (RA No. 9184) Amend the Water Code of the Philippines (RA No. 1067) Create National Transport Policy
Source: Expenditures and Sources of Financing (BESF) 2017 - Department of Budget and Management (DBM)
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Addressing Metro Manila traffic and flooding
traffic enforcement under one chain of command
Patrol Group (PNP-HPG), Land Transportation Office (LTO), and Land Transportation Franchising and Regulatory Board (LTFRB).
Zapote Road and roads within the cities of Mandaluyong, Las Piñas, and Makati
country for 3 years unless withdrawn sooner by Congress. The following are its proposed salient provisions : 1) decongest traffic in highly urbanized areas; 2) establish a single authority to manage traffic; 3) expedite procurement processes for transportation projects; 4) limit the issuance of temporary restraining
acquisitions; and 6) reorganize the DOTr to provide enough manpower in implementing projects. Status: The Senate Committee on Public Services chaired by Senator Grace Poe concluded public hearings on the emergency powers on 22 September 2016. Ongoing reconciliation between Congress and Senate on draft bill on draft bill granting emergency powers to the President. DOTr submitted to the Senate a list of infrastructure projects that reflects costs and timelines for each project with and without emergency powers to convince and make Congress understand better the necessity for an emergency power
(Makati); Alabang Town Center (Alabang) to Greenbelt 1 (Makati); North EDSA (North EDSA) to SM Megamall (Ortigas) and Fairview to Makati
strategic places Support infrastructure for growth
29
Projects awarded amounting to USD7.05bn*
Sustaining PPP development
*Amount does not include premium payments. Change in the total cost of awarded projects from USD4.8bn to USD4.4bn accounts for (1) exclusion of O&M cash support of MPOC and approved minimum bid price of CALA and (2) inclusion of variation cost (for MCX and NAIA Expressway) and ODA component (for LRT Line 1 Cavite Ext. and O&M) **Amount includes reclamation cost of USD100mn ***This does not include 16 projects with no estimated cost yet. Status as of 16 November 2016; USD 1 = PHP 45.00
President Rodrigo Duterte has announced that his administration would honour existing government contracts and projects awaiting implementation and speed up the roll-out of projects under the PPP programme by streamlining the procurement system and reducing red tape. This bodes well for the construction and infrastructure sector. We expect rail and airport projects to gain traction and a slow transition from coal to renewables. – BMI Research, Philippines Infrastructure Report (November 2016)
Status
Projects
Cost (USD bn) PROJECTS UNDER IMPLEMENTATION Awarded 15 7.0* PPP PIPELINE Projects under procurement 13 7.5 For approval of relevant government bodies 3 5.1 For finalization of project structure 2 111.9** Projects with ongoing studies 3 0.1 Under conceptualization or development 17 TBD Sub-total for PPP Pipeline 38 124.6 TOTAL 53 131.6***
The NEDA Board approved the following major projects last 14 September 2016, including PPP:
Airport (PHP4.8bn)
Environment Protection Project (PHP7.8bn)
Rapid Response of Administration for Infrastructure Development
On 14 November 2016, the NEDA Board approved 8 projects as well as the ICC guidelines on processing projects that will require Chinese support for the conduct of pre-investment and investment activities. Out of the 8 approved projects, 6 are infrastructure while 2 are agriculture projects but with infrastructure component: Improvement/Widening of General Luis Road (Quezon City to Valenzuela City ) (estimated cost is PHP3.0bn if 24/7 work schedule is adopted and PHP2.8bn if through regular work schedule) Plaridel Bypass Road Project (PHP10.5bn) New Cebu International Container Port Project (PHP9.2bn) North-South Railway - South Line Project (PHP170.7bn) Malitubog-Maridagao Irrigation Project, Stage 2 (PHP5.4bn) New Nayong Pilipino at Entertainment City (PHP1.5bn)
The Philippines has one of the best performing Public-Private Partnership (PPP) programs in Asia…government is in the driver’s seat when it comes to infrastructure development, bringing in the private sector for expertise, capacity, and relevant experience…The Philippine PPP Center has done much to reduce some of the roadblocks to PPP implementation…Indeed, there are promising
reducing the infrastructure gap in the Philippines, and become a model for ASEAN infrastructure spending. – Jesse Ang, Principal Investment Officer, International Finance Corp. PPP Asia (26 November 2015)
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*Indicative project cost does not include premium payments Source: PPP Center
Awarded Projects Indicative Project Cost* (USD mn) Private Proponent Status Target Completion Date
49.6 Ayala Corporation Started operation on 24 July 2015 Completed
construction of about 9,303 one-storey and two-storey classrooms, including furniture and fixtures 219.8 Citicore – Megawide Consortium Inc. & Bright Future Educational Facilities As of 15 Dec 2015: 9,296 classrooms (100%) completed and delivered Completed
(O&M) of a 4-lane, 7.75 km elevated expressway and 2.22 km at-grade feeder road 398.4 Vertex Tollways Devt. Inc. (a wholly owned subsidiary of San Miguel Corporation) As of 23 September 2016: 94.14% completed April 2017
and constructing of 4,370 one-storey, two-storey, three-storey and four-storey classrooms, including furniture, fixtures, and toilets 85.8 Megawide Construction Corporation, Consortium of BSP & Co., Inc. & Vicente T. Lao Construction As of 31 August 2016: 2,626 classrooms (60.13%) completed TBA
magnetic-based ticketing system and replacing the same with contactless-based smart card technology on LRT Line 1 and 2 and MRT Line 3 38.2 AF Consortium Operational since December 16, 2015 Completed
Construction of a new world-class passenger terminal building and the operation of the
389.3 Megawide-GMR (India) Consortium As of 30 September 2016: 30.83% completed June 2019
extension of the current LRT 1 starting from Baclaran Station to the future Niyog Station in Bacoor, Cavite 1,442.2 Light Rail Manila Consortium (LRMC) Financial Closure achieved on 11 February 2016; and Ongoing soft renovation and upgrades of LRT Line 1 existing system and other pre-construction activities April 2019
55.6 MWM Terminals Contract signed on 24 April 2015; and Notice to Proceed issued by the DOTr on 17 October 2016 March 2018
44.63 km closed-system tolled expressway 787.3 Metro Pacific Investments Corp Contract signed on 10 July 2015; and Ongoing review of draft Detailed Engineering Design and other pre- construction activities June 2021
4.7ha ITS terminal 115.6 Ayala Land Incorporated (ALI) Contract signed on 26 January 2016; and Ongoing Independent Consultant procurement and pre- construction activities April 2018
and maintenance of conveyance facilities, treatment facilities and water source 542.2 Consortium of San Miguel Corporation and Korea Water Resources Corporation Groundbreaking ceremony held on April 15, 2016; and Ongoing pre-construction activities September 2018
elevated expressway over its entire length from Buendia, Makati to Balintawak, Q.C. with a distance of about 14.82 kms. and also includes improvement works in selected at-grade sections. 831.8 Citra Central Expressway Corporation (CCEC) As of 25 August 2016: 15.239% completed January 2018
elevated railway line with 14 stations from San Jose Del Monte, Bulacan to MRT 3 North Ave. in Quezon City and the 22-km. asphalt road from Bocaue Interchange of the North Luzon Expressway (NLEX) to the intermodal terminal in Tala 1,540.0 San Miguel Corp. Groundbreaking ceremony held on April 20, 2016; and Ongoing pre-construction activities September 2019
registry operations of the Philippine Statistics Authority (PSA) 35.3 Unisys Public Sector Services Corp.
Contract signed on 30 September 2016
TBA
expressway over the Philippine National Railway (PNR) right of way 515.6 Metro Pacific Tollways Development Corp. (MPTDC) and its subsidiary Manila North Tollways Corporation (MNTC) MPTDC and its subsidiary MNTC accepted the NOA on September 26, 2016 TBA
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Administrative measures to complement proposed legislative fiscal reforms to ensure healthy fiscal position
Proposed administrative measures at the BIR and BOC Simplify tax system to expand the tax base, modernize governance, reduce corruption and inefficiency, and cut red tape Expand BIR’s electronic filing saturation (current baseline of 62.5% or 22mn returns in 2015) Expand BIR’s Large Taxpayer Service which monitors 3,000 taxpayers and improve taxpayer segmentation for better management of revenue base Rationalize the import permit requirements for BOC Craft IRR of Customs Modernization and Tariff Act (RA No. 10863) with inputs from stakeholders Adopt random audit of shipment Peg valuation of goods to prevailing real time prices in the international market Accelerate the RATE, RATS and RIPS program and work closely with DOJ to speed up resolution of pending cases Other legislative measures being studied to support collection efficiency Exempt BIR and BOC employees from Salary Standardization Law Increase fiscal autonomy of BIR and BOC
13.5 13.6 12.2 12.1 12.4 12.9 13.3 13.6 13.6 14.2 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Sep 2016
Tax effort is back on a higher trajectory Rigorous tax administration continues to yield positive results
NG Revenue (% of GDP), BIR and BOC Revenue (PHP mn)
14.0 13.4 14.0 14.5 14.9 15.1 15.8 15.9* 750,287 822,623 924,146 1,057,916 1,216,661 1,334,762 1,433,302 1,293,226 220,307 259,241 265,108 289,866 304,925 369,277 367,534 321,298 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 2009 2010 2011 2012 2013 2014 2015 Jan-Oct 2016 Revenue-to-GDP BIR Reveneus BOC Revenues
Sources: Department of Finance (DOF), Bureau of the Treasury (BTr) *Q1-Q3 2016
Revenue impact from administrative measures is estimated to reach PHP200bn or 1% of GDP by 2019
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Priority Legislative Measures Offsetting Measures
The Comprehensive Tax Reform Package which aims for a simpler, more equitable and efficient tax system with a goal of lowering the tax rate at the same time broadening the tax base and increasing revenues Lower personal income and corporate tax rate to be competitive with the region to boost spending power of wage earners and encourage investment inflows Revenue impact from package 1 of the tax policy reform is estimated to reach PHP400bn or 2% of GDP by 2019 Package 1 – Personal income tax (PIT) and consumption tax Adjust brackets to correct “income creeping” Reduce PIT max rate to 25% from 32%, except for the highest income earners to maintain progressivity Shift to modified gross system to simplify PIT system Status: Draft Bill submitted by the Department of Finance to the House of Representatives on Sep 26, 2016 Expand VAT base by limiting exemptions to raw food and other necessities (e.g., education, health) Low income consumers and businesses are already protected by the marginal threshold which can be adjusted if needed Use targeted programs to protect the poor and vulnerable Increase excise on all petroleum products and index to inflation Relax strict bank secrecy laws for fraud cases Make tax evasion as a predicate crime to money laundering Other Reforms in the Pipeline Package 2 – Healthy tax Levy tax on sweetened beverages and index to inflation Increase excise on alcohol after the current sin tax measures Package 3 – Corporate income tax (CIT) Reduce CIT rate to 25% from 30% Simplify other corporate income tax provisions to improve compliance Rationalize fiscal incentives to be more transparent, targeted, performance-based, & time-bound sunset provisions to existing incentives Expand the coverage of the Fiscal Incentives Review Board to include all incentive recipients beyond GOCCs Replace the 5% gross income earned tax rate to a reduced CIT rate of 15% Limit VAT zero-rating to direct exporters Give full VAT refund in cash, abolish tax credit certificates Package 4 – Property tax Lower estate and donor’s tax rate as well as rate of transaction taxes on land (DST, transfer tax, registration fees) Rationalize valuation of properties Increase valuation closer to market prices Review valuation every 3 years and adjust accordingly Package 5 – Capital income tax Reduce tax on interest income earned on peso deposit and investment from 20%-10% Harmonize capital income tax rates for dollar deposits and investment, dividends, equity, fixed income rates towards 10% Increase tax on stocks traded in the stock market from 0.5% to 1% on gross selling price Package 6 – Other tax measures as needed Tax on fatty food, luxury items such as automobiles, yachts and jewelry, lottery and casino Mining taxes
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* Excludes Global Peso Notes Sources: Bureau of the Treasury
Law, mandates issuance of T-bonds shall not be shorter than 1year and not longer than 25 years
aggregate budgetary amount of local government units (LGUs) shall not exceed the estimates of income
to tap comparatively cost-effective financing from markets other than USD bonds (e.g. Samurai Bonds, Global Peso bonds, Euro Bonds, Dimsum Bonds) as well as external official development financing
Strategic Guidelines Set for the 2014 2015 2016 2017 2018 Liability Management Program a.Reduce debt service payments (Interest payments/Revenue, %) 18.8 16.8 14.7 17.0-19.5 15.5-18.5 14.3-16.9 12.6-15.5 10.9-14.1 b.Minimize foreign exchange risk by reducing foreign currency denominated debt (as % of total debt stock, excludes Global Peso Notes) 34.3 31.6 32.9 29.0-33.7 28.6-32.6 29.9-32.7 30.5-32.5 29.9-31.8 Minimizing debt maturing in one year (% of total) 9.9 6.2 4.9 Maintaining average maturity of debt portfolio (in years) 10 9.9 10.1 Program Not more than 15% 7-10 years c.Minimize financing risks by: 2013 Actual 2014 Actual 2015 Actual
35
2.7 3.9 3.7 2.6
0.8 0.7 1.4 2.0 1.4 0.3 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Sep 2016 Primary Surplus/GDP
Manageable fiscal deficits Healthy primary balance
Sources: DOF, BTr
NG Primary Surplus (% of GDP) National Government (NG) Revenue, Expenditure and Deficit (% of GDP), General Government Revenue (% of GDP)
14.4 15.6 16.5 15.6 14.0 13.4 14.0 14.5 14.9 15.1 15.8 15.9 17.0 16.7 16.7 16.5 17.7 16.9 16.0 16.8 16.3 15.7 16.8 18.0
21.0 21.0 21.5 22.7 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Sep 2016 NG Revenues/GDP NG Expenditures/GDP NG Deficit/GDP
36
Sustained improvement in revenue collection with National Government revenue-to-GDP of 15.9% in Jan-Sep 2016
1Emerging outlook or projection for the year approved by the DBCC on Jul 5, 2016
n.a. – not available Note: Some values may not sum up to exact figure due to rounding Source: DOF, Budget of Expenditures and Sources of Financing (BESF) 2017 - Department of Budget and Management (DBM)
National Government Fiscal Performance Actual Actual 2016 Outlook1 Jan-Oct 2016 Jan-Oct 2015 YoY Growth (%) Jan-Sep 2016 2015 PHP Bn % of GDP PHP Bn % of GDP PHP Bn % of GDP Total Revenues 1,821.4 1,768.0 3.0 15.9 2,109.0 15.8 2,256.7 15.5 Tax Revenues 1,629.6 1,505.1 8.3 14.2 1,815.5 13.6 2,044.0 14.1 Bureau of Internal Revenues 1,293.2 1,190.6 8.6 11.3 1,433.3 10.8 1,620.0 11.2 Bureau of Customs 321.3 300.7 6.8 2.8 367.5 2.8 409.0 2.8 Non-Tax Revenues 191.8 262.9 (27.0) 1.7 293.3 2.2 210.7 1.5 Bureau of the Treasury 91.1 97.4 (6.5) 0.8 110.0 0.8 n.a. n.a. Privatization 0.6 62.7 (99.1) 0.0 62.8 0.5 2.0 0.0 Expenditure 2,037.4 1,820.6 11.9 18.0 2,230.6 16.8 2,645.6 18.2 Surplus/(Deficit) (216.0) (52.6) 310.9 (2.1) (121.7) (0.9) (388.9) (2.7) Primary Surplus 49.8 219.3 (77.3) 0.3 187.7 1.4 n.a. n.a.
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15.4 14.6 14.9 13.0 35.4 36.9 36.7 31.7 23.6 22.6 24.8 24.4 20.5 20.4 18.8 16.8 14.7 27.0 29.2 31.1 29.7 23.3 21.4 19.6 19.3 17.9 17.6 17.2 16.2 13.9 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Oct 2015 Jan-Oct 2016 Jan-Oct IP/Rev Jan-Oct IP/Exp Interest Payments/Revenue Interest Payments/Expenditure 49 81 58 155 143 187 99 61 148 131 107 51 51 52 141 138 100 36 145 32 84 97 24 20 110 215 302 301 313 343 173 290 166 199 128 156 73 50 17 78 273 234 89 28 225 32 217 143 Jun 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041-2056 Domestic External
Interest payments / NG revenue (%) and Interest payments / NG expenditure (%) No bunching of maturities; amortization is spread out over the long-term Steady decline in the Republic’s interest service burden Source: BTr
As of End Jun 2016 (PHP bn)
38 68.5 61.4 53.9 54.7 54.8 52.4 51 51.5 49.2 45.4 44.7 43.1 59.2 51.6 44.2 44.1 44.3 42.2 41.4 40.6 39.2 36.4 36.3 35.4
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 National Gov't Debt General Gov't Debt
Sustained decline in debt/GDP ratio Ample domestic liquidity allows ROP to source majority of its financing needs from domestic market minimizing FX risks Long-dated debt profile reduces refinancing risk
Unless otherwise stated, graphs pertain to National Government (NG) debt Sources: BTr, DOF
NG debt /GDP and GG Debt /GDP (%) Total debt breakdown (%) Domestic debt breakdown (%) External debt breakdown (%)
52 56 56 59 57 56 58 58 64 66 67 65 64 48 44 44 41 43 44 42 42 36 34 33 35 36 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 end- Sep 2016 External Domestic 29 30 19 10 8 9 7 7 8 44 41 26 20 14 12 10 10 8 27 29 54 70 78 79 82 83 84 2003 2005 2010 2011 2012 2013 2014 2015 end-Sep 2016 Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr
10 4
90 96 100 100 100 100 100 100 100 2003 2005 2010 2011 2012 2013 2014 2015 end-Sep 2016 Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr
* End Sept 2016 **End June 2016 * **
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Source: Bloomberg L.P. (Data as of 21 November 2016)
5Y sovereign CDS levels (basis points)
102.372 Slovenia 96.532 Thailand 124.359 Peru
192.387 Mexico 181.514 Indonesia 50 100 150 200 250 300 350 400
Philippines (Baa2/BBB/BBB-) Slovenia (Baa3/A/A-) Peru (A3/BBB+/BBB+) Thailand (Baa1/BBB+/BBB+) Mexico (A3/BBB+/BBB+) Malaysia (A3/A-/A-) Indonesia (Baa3/BB+/BBB-) Colombia (Baa2/BBB/BBB)
131.888 Philippines
172.106 Malaysia 204.338 Colombia (Moody’s/S&P/Fitch)
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Source: Bureau of the Treasury; Bloomberg L.P.
Highlights of Transaction Order book Oversubscription 1st Asian issuer to launch a transaction in 2012 Lowest ever coupon (4.20%) achieved by an Asian sovereign for a bond greater than the 10-year tenor Lowest ever coupon (5.0%) achieved for the ROP in the 25- year tenor
8.3x Jan 2012
Largest global tender offer ever done by a sovereign in Asia ex-Japan Deal swapped higher-cost FCY- denominated debt with lower-cost LCY- denominated debt with longer tenors Resulted in NPV savings of
14mn
7.8x Nov 2012
1st one-day accelerated “Switch” Tender Offer executed by an Asian sovereign Received aggregate
USD 2.6bn in notional value and accepted USD 870mn notional with a purchase price
9.0x Jan 2014
1st benchmark USD transaction announced in 2015 Lowest coupon ever achieved by the ROP for a USD issue of any tenor Lowest coupon (3.95%) ever achieved in the 25Y/30Y tenor by an Asian sovereign
9.2x Jan 2015
Domestic debt swap will result in PHP2.4bn savings on interest expense in the first year Minimum coupon of 3.625% for 10Y and 4.625% for 25Y
3.9x Sep 2015
1st trade coming out of EM Asia in 2016 Concurrent execution of
accelerated switch tender
Lowest- coupon by ROP at 3.7% for a 25-year debt
6.7x Feb 2016
Innovative liability management exercises have been consistently met with strong investor interest
41 2013 2014 2015 2016*
Number of Issuers
4 5 4 3
Total Amount (PHP bn)
61.0 14.5 5.2 55.6
2013 2014 2015 2016*
Number of Issuers
9 19 11 9
Average Issue Size (PHP bn)
9.3 10.1 9.8 8.0
Total Amount (PHP bn)
83.5 191.9 107.4 71.7
Strong confidence witnessed from ROP’s benchmark bond issuances have paved the way for the successful capital raising efforts of domestic corporate entities, who are able to increasingly tap both local and international capital markets, to meet their funding needs
IPOs, 2013- 2016
IPOs well-received despite ongoing global volatilities
New Bond Listings, 2013-2016
Funding of corporates through the market remains robust
*as of November 2016
Expansion plans of firms increasingly financed by capital market Issuer Expansion Projects South Luzon Tollway Corp
8990 Holdings Inc.
constructing houses for the masses Aboitiz Equity Ventures, Inc. Issued in Aug 2015 this is the largest corporate bond issuance (PHP24bn) in 2015. The issuance is for planned acquisitions and further investments e.g., take active part in infrastructure sector Filinvest Land, Inc.
through bidding SM Prime Holdings, Inc.
huge growth potentials SMC Global Power Holdings Corp
Greenfield power plants in Limay, Bataan and Malita, Davao. Shelf registration program boosts corporate bond issuance. Taking advantage of the program to date are SM Prime Holdings Inc., Ayala Corp., SMC Global Power Holdings Corp., DMCI Project Developers Inc., Ayala Land Inc. The SEC has been active in promoting efficiency-related measures such this shelf registration program, seen as a step in improving the quality of business regulation. Of the total PHP 137bn fixed rate and deferred coupon paying bonds for the period January-July 2016, PHP121bn were registered under this system.
*as of November 2016
Issuer names still in the pipeline includes Ayala Land, Inc., Double Dragon and GT Capital Shakey’s (a popular pizza chain) IPO has been approved by PSE for listing
43
Source: BSP
BOP surplus in 2015 was USD2.6bn, a reversal from the BOP deficit recorded in 2014 of USD2.9bn. In 2016, BOP is projected to remain in surplus of USD2.0bn. BOP position as of end-Oct 2016 is USD1.5bn ROP’s current account continues to be in surplus at USD778mn at end-June 2016, supported by robust remittances from
2015 current account posted a surplus of USD8.4bn, equivalent to 2.9% of GDP
Note: Beginning 2005, the BOP is based on IMF’s BPM6
The Philippines posted 13 consecutive years of current account surplus from 2003-2015 Balance of payments (USD mn)
2,410 3,769 8,556 89 6,421 15,243 11,400 9,236 5,085
2,616 1,684 634 2005 2006 2007 2008 2009 2010 2011 2012 r/ 2013 r/ 2014 r/ 2015 r/ 1H 2015 1H 2016 Net Unclassified Items Financial Account Capital Account Current Account Overall BOP Position
44
Sustained growth of remittances over the years Overseas Filipinos' cash remittances (USD bn) Tourism receipts provide key support to the current account International visitor receipts (USD bn) and arrivals (mn)
*Exchange Rate: USD1=PHP44.4 for 2014; USD1=PHP45.5 for 2015 ; [Jan-Aug 2015: USD1=PHP44.836 and Jan-Aug 2016: USD1=PHP46.895; 2016 projection based on DOT statements] Sources: BSP, Department of Tourism, IBPAP Notes: OF Remittances projection for 2016 computed based on actual 2015 data and MB approved 2016 growth projections
BPO – a strong driver of employment and revenues BPO employment (‘000s) and revenues (USD bn)
8.6 10.7 12.8 14.5 16.4 17.3 18.8 20.1 21.4 23.0 24.6 25.6 26.8 19.1 20.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016P Jan-Sep 2015 Jan-Sep 2016
+4.8% +4.0% growth in 2015
3.4 4.5 6.1 7.1 8.9 11 13.2 15.8 18.0 20.5 22.9 38.9 236 298 371 424 527 640 777 858 958 1,044 1,146 1,800
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E2022P Revenues Employment 3.5 3.9 4.3 4.7 4.8 5.4 6.0 3.6 4.0 2.5 3.0 3.8 4.4 4.8* 5.0* 6.5* 3.4 3.5 2010 2011 2012 2013 2014 2015 2016P Jan-Aug 2015 Jan-Aug 2016 Arrivals Receipts
+12.6% growth in arrivals Business Process Outsourcing (BPO) and increasingly tourism sector act as additional, strong economic engines, helping ensure resiliency of ROP’s external payments position against external stresses
+13.9% revenue Growth in 2015
45
12.8% 25.0% 19.4% 13.2% 13.7% 5.6% 8.2% 7.2% 6.3% 7.4% 7.20% 4.60%
0% 5% 10% 15% 20% 25% 30%
5 10 15 20 25 30 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Overseas worker's remittance YoY growth YoY growth Overseas worker’s remittance (USDbn)
Falling Oil Prices Rise of Isis
Asia 15% Americas 44% Oceania 2% Europe 16% Middle East 23% Others 0%
2015
USD 25.8 bn
Sources: BSP for remittances data
YoY net cash remittances growth averaged 10.9% for 2003- 2015, highlighting the consistency and strength of remittance growth in ROP over the past decades Remittances come from diversified sources, the largest coming from Americas (44%) Middle East contributes only 23% towards total remittances; Asia increasingly a source Based on historical evidence and current outlook, ongoing tensions in the Middle East are unlikely to significantly impact remittances to ROP Low
prices have not shown any visible impact
remittance thus far
Even during periods of conflict in the Middle East, ROP experienced positive remittance growth
Gross Loans/Deposits Ratio (%)
Diversified sources of remittances
Domestic Credit to Private Sector (% of GDP, 2014)*
Iraq War Shia Insurgency in Yemen Cedar Revolution Israeli- Lebanon Conflict Arab Spring
Asia 12% Americas 56% Oceania 1% Europe 16% Middle East 15% Others 0%
2008
USD 16.4 bn
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13.10 12.90 12.15 12.05 7.75 7.72 6.93 Indonesia Rupiah Malaysian Ringgit Korean Won Japanese Yen Philippine Peso Chinese Renminbi Thai Baht
ROP enjoys a healthy level of international reserves of USD85.1bn as of Oct 2016, sufficient to cover 9.9 months of total imports Adequate reserves help guard against external shocks and underscores the ability of ROP to pay back any foreign currency denominated debt The Philippines is now a net external creditor nation to the IMF. Furthermore, the Philippines is a fully participating member of the Chiang Mai Initiative Multilateralization (a USD240bn swap facility of which ROP has a committed contribution of USD9.1bn; ROP may borrow up to 2.5 times its contribution), enhancing the strength of ROP’s external and FX positions BSP and Bank of Japan also recently entered into a peso-yen swap facility under a cross-border liquidity arrangement Reserve buffer provides protection against external payments shocks… FX reserves (USD bn) and months of import cover … while helping smoothen volatility in the foreign exchange market by enabling the necessary adjustments in a continued volatile global environment Implied Volatility (YOY %, as of November 21, 2016)
18.5 23.0 33.8 37.6 44.2 62.4 75.3 83.8 83.2 79.5 80.7 85.1 4.6 5.1 6.7 6.4 9.2 10.4 11.6 11.5 11.6 9.9 10.3 9.9 2 4 6 8 10 12 14 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Oct-16
FX reserves Import cover
Sustained decline in external debt-to-GDP ratio underscores the health of external finances External debt (USD bn) and external debt/GDP (%)
61.6 61.4 66.5 65.2 64.7 73.6 75.6 80.0 78.5 77.7 77.5 77.7 59.7 50.2 44.5 37.6 38.4 36.9 33.7 32.0 28.9 27.3 26.5 26.2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q2 2016 External Debt External Debt Ratio
Source: BSP, Bloomberg
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To further diversify its export market, ROP plans to improve access in both domestic and international markets and maximize gains in FTAs :
(JPEPA), push for ratification of Philippines and the Europe Free Trade Association (EFTA) Free Trade Agreement (PH-EFTA FTA) In December 2014, it gained stronger foothold in Europe with the approved application of the Philippines for the EU-GSP+. The Philippines is the first ASEAN country to join the GSP+. This initiative covers 6,274 products, all of which are subject to zero duty.
In April 2016, ROP and EFTA states Iceland, Liechtenstein, Norway and Switzerland signed a FTA. The PH-EFTA FTA has a comprehensive coverage, including trade in goods (industrial and agricultural goods, fish and other marine products), rules of origin, trade facilitation, trade in services, investment, competition, protection of intellectual property rights, government procurement and sustainable development. The direct effect of Brexit on the Philippines is seen as minimal - merchandise exports and imports between the UK and ROP is small, accounting for only 0.9% and 0.5% of the total in 2010-2015, respectively ROP is expected to benefit from existing trade agreements: ASEAN Free Trade Agreement (AFTA), ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), ASEAN-China Free Trade Agreement (ACFTA), ASEAN-India Free Trade Agreement (AIFTA), ASEAN-Japan Comprehensive Economic Partnership Agreement (AJCEPA), ASEAN-Korea Free Trade Agreement (AKFTA) APEC Trade Repository, a single online reference point on APEC economies' trade and tariff mechanisms with the objective of further promoting APEC's work
The Philippines will now implement the Trade Facilitation Agreement (WTO-TFA) as it complied with its Category A Notification commitments that covered areas of customs administration The country's export industry benefits from a revitalized manufacturing sector and its continued linkage with the agriculture sector Updated Philippine Export Development Plan approved in February 2016 sets the targets and strategies for the growth of the exports industry
Source: PSA. DTI, NEDA. For more details on the PEDP please refer to this link - http://www.dti.gov.ph/emb/images/PEDP_2015-2017_Executive%20Summary%20_28as_of_09_Mar2016_29.pdf; on EU GSP+ please refer to this link - http://www.dti.gov.ph/emb/index.php/emb-focus-2/eu-gsp
ROP’s diversified export markets act as buffer for softening global demand Exports by destination (USD bn)
8.5 8.4 7.9 6.6 5.9 5.9 6.6 6.7 7.2 5.7 5.5 2.9 5.7 6.1 6.2 7.0 8.0 6.4 7.3 7.7 6.2 7.8 8.9 9.9 12.0 13.9 12.4 8.6 8.2 6.8 7.6 7.1 7.4 8.3 8.7 8.8 4.8 4.5 3.4 4.2 4.4 9.8 8.8 9.2 8.5 15.6 14.8 11.2 19.6 15.6 12.9 13.9 15.5 15.3 2007 2008 2009 2010 2011 2012 2013 2014 2015
EU China Japan USA ASEAN Others
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Note: Banking system statistics refers to universal and commercial banks data Source: BSP
Asset quality of the banking system remains extremely strong with an NPL ratio of only 1.6%
Gross loans (PHP bn) and NPL ratios (%) of U/KBs
Prudent NPL coverage ratios will ensure that the banking system is well-prepared for any unforeseen shocks
NPL coverage ratio (%) of U/KBs
135.6 6,144.62 1.6 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 Loans outstanding NPL ratio 15.4 16.1
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jun-16
Solo basis Consolidated basis BSP Regulatory Requirement: 10% International Standard: 8%
… is supported by strong balance sheets – with capitalization levels well above international norms
Capital adequacy ratio (%) of U/KBs
2016 Q3: PHP101.7bn
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Sustainable profitability of banking sector…
Net profit of U/KBs (PHP bn)
50
Limited exposures of banks mitigate the system’s potential risk from contingent liabilities
Sources: BSP; *World Bank Strong deposit base and low leverage support banking sector funding
Gross Loans/Deposits Ratio (%) Philippine Banking System
Potential contingent liabilities of the banking sector is smaller than neighbors given size of the sector
Domestic Credit to Private Sector (% of GDP, 2015)*
151.3 155.3 140.6 125.2 39.1 41.9 Thailand China Korea Malaysia Indonesia Philippines
73.3 72.4 69.3 71 69.7 68.1 64.5 70 73.5 64.4 68.4 70.7 71.23
Steady decline in non-performing real estate loans despite higher real estate exposure
Real estate exposure (PHP bn) and Non-performing real estate loans ratio (%)
Residential Real Property Price Index to help better assess trends in housing prices (%, year-on-year)
814 843 900 940 1007 1035 1116 1159 1221 1273 1359 1432 1516 1554 1623
3.7 3.6 3.3 3.2 2.8 2.8 2.6 2.6 2.5 2.6 2.3 2.2 2.1 2.1 2.0 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2012 2013 2014 2015 2016 Real estate exposure Non-performing real estate loans ratio
12.8 4.3 5.1 9.2 11.3 17.9 8.6 6.3 9.7 2.7 8.3 1.8 5.9 9.4 18.4
2 4 6 8 10 12 14 16 18 20 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Overall National Capital Region (NCR) Areas outside NCR
51
Source: BSP; IMF
guidelines which now covers loans to developers of socialized and low-cost housing, and to individuals, and credit supported by non-risk collaterals of Home Guarantee Corp. Moreover, banks are also required to report their investments in real estate securities
new prudential guideline, banks must meet the requirement of 10 percent capital adequacy ratio (CAR) of qualifying capital while its subsidiary thrift banks will have to maintain a common equity tier 1 (CET1) level of at least six percent of qualifying capital. These two specific thresholds reinforces the macro- prudential policy that banks must have sufficient capital to absorb any possible shock on its credit exposures
minimum standards
loan applications to provide a tool in assessing the real estate and credit market conditions in the country Stepping up surveillance of real estate sector Sound regulatory framework for banks
III capital requirements
various credit exposures (including real estate) on banks’ balance sheets. Based on latest stress test, the banking system can withstand significant decline in real estate prices. Banks would have enough capital to meet the minimum regulatory requirement.
and consumer protection standards (e.g., institutionalize disclosure and transparency, financial awareness and education) Stronger policy coordination to ensure early identification and mitigation
signals
the Financial Stability Coordination Council, with purview
financial crisis management, non-bank sources of credit, capital flows management, capital market reforms, and corporate leverage
53 Sources: PSA, BSP, Bloomberg 1/ Inflation target range for 2016-2018 2/ Assumption adopted by the DBCC on July 5, 2016 3/ MB approved on 26 May 2016; OF remiitances computed based on MB approved growth a/ Based on Balance of Payments and International Investment Position Manual, 6th Ed. (BPM6) b/ without revaluation r/ revised; NA Not Applicable
2015 Actual 2016 2017 2018 2019 2020 2021 2022 Projections2/ Real GDP Growth (%) 5.8 6.0-7.0 6.5-7.5 7.0-8.0 7.0-8.0 7.0-8.0 7.0-8.0 7.0-8.0 Dubai Crude Oil (USD/bbl) 50.9 35-50 40-55 45-60 50-65 50-65 50-65 50-65 Inflation (%, average)1/ 1.4 2.0-4.0 2.0-4.0 2.0-4.0 364 Days T-bill Rate (%) 2.08 2.0-4.0 2.5-4.0 2.5-4.0 2.5-4.0 2.5-4.0 2.5-4.0 2.5-4.0 LIBOR, 6 mos (%) 0.5 0.8-1.8 1.0-2.0 1.5-2.5 1.5-2.5 1.5-2.5 1.5-2.5 1.5-2.5 Exchange Rate (PHP/USD) 45.5 45-48 45-48 45-48 45-48 45-48 45-48 45-48 Balance of Payments (USD, bn) 2.6 2.0 3/ Current Account (USD, bn) 8.4 5.83/ OF Cash Remittances (USD, bn) 25.8 26.83/ Merchandise Exports a/(% growth)
3.0 6.0 8.0 10.0 10.0 11.0 11.0 Merchandise Imports a/ (% growth)
7.0 10.0 11.0 12.0 12.0 13.0 13.0 Gross International Reserves (USD, bn) 80.7 82.73/b/
The Philippine economy is now on a higher growth trajectory with increasing contribution from the manufacturing sector, infrastructure investment, and robust services sector
54 Source: NEDA
Supply Side
Demand Side
consumer confidence, low inflation, low interest rates
(i.e., conditional cash transfer (CCT), K to 12, health, etc.)
construction
55
Vigilant and well-positioned against the downside risks to growth
Source: NEDA, DOF
Liberation Front (MNLF) While at same time watchful of opportunities Domestic External
56
Source: DBM – BESF 2017 and DBM Presentation to Congress on Aug 22, 2016; *National Expenditure Program
Focus on Social Services to empower human capital development 2017 Proposed Budget by Sector, PHP bn and % Share Infrastructure and Other Capital Outlays gets a big allocation 2017 Proposed Budget by Expense Class, PHP bn and % Share
2017 Proposed Budget
rural development, and develop lagging regions
is expected to be passed before end-2016 Highlights of the 2017 Proposed budget:
program
Department 2017 NEP* 2016 GAA Share of Total Budget (%) (PHP billion) 2017 2016 Social Services 1,344.8 1,119.8 40.1 37.3 Economic Services 924.0 834.0 27.6 27.8 General Public Services 581.8 498.0 17.4 16.6 Debt Burden 351.6 419.3 10.5 14.0 Defense 147.8 130.7 4.4 4.4 Total 3,350.0 3,001.8 100.0 100.0 2016 General Appropriations Act
Personnel Services PHP997.0bn, 29.8% Maintenance Expenditures PHP534.5bn, 16.0% Debt Burden PHP351.6bn, 10.5% Allocation to LGUs* PHP554.9bn, 16.6% Support to GOCCs PHP131.5bn, 3.9% Infrastructure and
PHP780.6bn, 23.3%
PHP3,350bn
*Includes other transfers to LGUs
57
Department 2017 NEP* 2016 GAA Growth (%) PHP billion % Share PHP billion % Share Education 567.6 16.9 433.4 14.4 31.0 Public Works and Highways 458.6 13.7 397.1 13.2 15.5 Interior and Local Gov’t. 150.1 4.5 125.4 4.2 19.7 Health 144.2 4.3 125.0 4.2 15.4 National Defense 134.5 4.0 117.7 3.9 14.3 Social Welfare and Dev’t. 129.9 3.9 110.9 3.7 17.1 Transportation 55.5 1.7 44.3 1.5 25.2 Agriculture 45.3 1.4 48.9 1.6 (7.5) Environment & Natural Resources 29.4 0.9 22.3 0.7 31.9 Finance 23.0 0.7 20.2 0.7 13.6 Total Budget 3,350.0 3,001.8 11.6
Proposed Infrastructure Outlays Budget, PHP Billion
Particulars 2017 2016 2015 Infrastructure Outlays 860.7 756.4 575.7 Percent of GDP (%) 5.4 5.1 4.3 Growth Rate (%) 13.8 31.4 66.3
Road Networks 328.2 298.1 223.5 Flood Control Systems 75.8 69.0 48.3 Seaport Systems 2.7 1.8 2.7 Airport Systems 5.7 9.6 12.3 School Buildings 124.6 91.3 72.5 Hospitals and Health Centers 10.0 19.2 9.5 Irrigation Systems 26.0 23.6 26.5 Other Infrastructure Assets 224.5 170.4 131.4 Particulars 2017 2016 2015 Education 649.6 501.8 373.6 Growth rate (%) 29.4 34.3 14.4 Basic Education 571.5 435.4 311.1 Growth rate (%) 31.3% 40.0% 13.0% Department of Education 567.56 433.38 309.90 Department of Science and Technology 3.9 2.0 1.2 Tertiary Education 75.1 61.6 57.0 Growth rate (%) 22.0 8.0 24.0 State Universities and Colleges 58.8 49.7 47.7 Commission on Higher Education 13.4 9.7 7.0 Department of Science and Technology 3.0 2.3 2.2 Technical-Vocational Education Technical Education and Skills Dev’t. Authority 6.9 6.9 5.6 Growth rate (%) 0.1 22.7 5.3
Proposed Education Budget, PHP Billion Higher allotment for infrastructure and social development agencies Budget of Top Departments, 2017 vs. 2016
development
PHP328.2bn
infrastructure budget
work force through education will be boosted with provision for basic and tertiary education growing by 31.3% and 22.0%, respectively
Source: DBM – DBM Presentation to Congress on Aug 22, 2016
58
Particulars 2017 2016 2015 Health 151.5 132.7 105.0 Growth rate (%) 14.1 26.5 23.5
Department of Health 94.1 81.1 64.1 Growth rate (%) 16.0 26.5 37.8
Preventive and Promotive Health Programs 24.6 19.5 15.5 Health Facilities Enhancement Program 21.9 26.9 13.4 Responsible Parenthood Program 4.3 2.3 3.3 Philippine Health Insurance Corp. National Health Insurance Program 50.2 43.9 36.3 Growth rate (%) 16.0 26.5 37.8
Proposed Social Protection Budget, PHP bn
Particulars 2017 2016 2015 Social Protection 169.6 159.6 128.6 Growth rate (%) 6.3 24.1 0.5 Welfare and Social Protection Programs Department of Social Welfare and Development 129.9 110.9 110.1 Growth rate (%) 17.1 0.7 27.8 Conditional Cash Transfer 78.7 62.7 54.8 Social Pension for Indigent Senior Citizens 17.9 8.7 5.7 Kalahi-CIDDS NCDDP 10.7 11.0 14.7 Sustainable Livelihood Program 9.6 9.6 4.6 Supplementary Feeding Program 3.4 4.3 2.8 Labor and Employment Department of Labor and Employment 13.5 11.9 7.7 Growth rate (%) 13.4 54.1 3.9 Social Housing 21.7 32.4 6.0 Growth rate (%)
444.1
National Housing Authority 12.6 30.5 4.2 Relocation (DOTr) 7.4 National Home Mortgage Finance Corporation 1.5 1.0 1.0 Social Housing Finance Corporation 0.3 0.9 0.8 Energization of Households 4.5 4.4 4.8 Growth rate (%) 3.1
Department of Energy 2.7 1.9 2.8 National Electrification Administration 1.8 2.5 2.0
Proposed Health Budget, PHP bn
Employment will be utilized primarily for the implementation of livelihood programs, Special Program for Employment of Students, Rural and Emergency Employment Program and Job Start Program
investing to ensure a healthy population with budget for health sector growing by 14.1% or PHP151.5bn
Source: DBM – DBM Presentation to Congress on Aug 22, 2016
59
Source: Budget of Expenditures and Sources of Financing (BESF) 2017 - Department of Budget and Management (DBM) Outlook Growth (%) Projection Growth (%) Projection Growth (%) Projection Growth (%)
Revenues 2256.7 7.0 2481.5 10.0 2990.1 20.5 3326.5 11.3 % of GDP 15.5 15.6 17.0 17.2 Tax Revenues 2044.0 12.6 2313.0 13.2 2821.3 22.0 3155.5 11.8 % of GDP 14.1 14.5 16.1 16.3 BIR 1620.0 13.0 1829.2 12.9 2189.7 19.7 2435.9 11.2 BOC 409.0 11.3 467.9 14.4 614.8 31.4 701.9 14.2 Non-Tax Revenues 210.7
166.5
166.8 0.2 169.0 1.3 % of GDP 1.5 1.0 0.9 0.9 Privatization 2.0
2.0 0.0 2.0 0.0 2.0 0.0 % of GDP 0.0 0.0 0.0 0.0 Disbursements 2645.6 18.6 2959.7 11.9 3517.1 18.8 3907.3 11.1 % of GDP 18.2 18.6 20.0 20.2 Current Operating Expenditures 1973.1 10.5 2208.5 11.9 2424.2 9.8 2672.7 10.3 % of GDP 13.6 13.9 13.8 13.8
327.7 5.9 334.9 2.2 349.5 4.4 385.8 10.4 % Share of Total Disbursements 12.4 11.3 9.9 9.9 Capital Outlays 655.7 50.4 734.4 12.0 1076.1 46.5 1217.8 13.2 % of GDP 4.5 4.6 6.1 6.3 Net Lending 16.8 73.2 16.8 0.0 16.8 0.0 16.8 0.0 % of GDP 0.1 0.1 0.1 0.1 Deficit
…
…
…
… % of GDP
Financing Mix (%) External 23.0 20.0 20.0 20.0 Domestic 77.0 80.0 80.0 80.0 Consolidated Public Sector Financial Position
% of GDP
Nominal GDP 14528.9 15937.4 17564.7 19358.0 PHP Billion 2016 2017 2018 2019
60
finance the PHP478.1bn deficit settle PHP89.3bn maturing debt obligations contribute PHP45bn to the Bond Sinking Fund; and maintain cushion of cash in the Treasury
partner
check to grow the economy are key to meeting debt targets
42.7 40.9 39.1 37.5 37 35.9 35.4 2016 2017 2018 2019 2020 2021 2022
Projected NG Debt Sustained decline in debt/GDP ratio National Government Debt /GDP (%)
61
Q3 GDP growth beat expectations, rising to 7.1% y-o-y from 7.0% in Q2 led by still strong investment spending. This underscores our view that the quality of growth is improving. Given that year-to-date GDP growth has averaged 7%, we are raising our 2016 GDP growth forecast to 6.9% from 6.7%. Despite the noise from President Duterte’s controversial rhetoric, we expect this government to make more progress on infrastructure spending than its predecessor and boost reforms, particularly by cutting red tape and implementing comprehensive fiscal changes (see Asia Special Report - Philippines: Beyond words, 20 October 2016). The continued strength in domestic demand will provide significant buffers against downside risks from external factors, including the impact of President- elect Trump’s proposed policies. - Nomura, August 2016 Early indications are that domestic economic activity should remain robust, supported not only by the government’s continued efforts to increase infrastructure spending, but also from broader strength in income and sentiment. On that basis, our forecast for real GDP growth to stay solidly above 6% is driven by domestic demand, which we expect to continue growing above 8% (following double-digit growth this year). Q3 GDP data showed that growth momentum remains strong. The basic dynamic of growth enjoying a significant lift from investment spending and robust consumer spending also looks likely to continue. Indeed, we believe the large investments in infrastructure have helped to raise trend growth in the Philippines, and we now expect the economy to grow by 6.8% in both 2016 and 2017, before moderating to 6.5% in 2018. – Barclays, November 2016 Growth and investment dynamics across Emerging Markets has become more complicated in recent weeks due to uncertainty in developed markets, but we believe the Philippine growth story is relatively
fiscal expansion and steady remittances growth, respectively, should fuel growth through 2018 (estimate).– HSBC, November 2016 The Philippine economy expanded a firmer-than-expected 7.1% over a year ago (oya) in 3Q16 (J.P. Morgan: 6.6%oya; Consensus: 6.7%oya). In sequential terms, growth was up 4.8%q/q, saar last
regional trend in recent years, with growth outperforming the region. The 3Q16 GDP print affirms that relative strength, leading us to revise
Domestic demand, in particular fixed investment, drove the expansion in 3Q16. - JP Morgan, November 2016 We have not seen significant changes in macroeconomic policies in the country and we haven’t seen domestic policies turning more negative for foreign investors. Overall, despite (his) rhetoric, if he continues to pursue economic policy among these lines, we could actually see improvements for economic support for the rating.– S&P, November 2016 There is indeed upside risk to our current full-year GDP forecast given the very strong performance in the third quarter” - Moody’s, November 2016. The outlook for the Philippine economy remains favorable despite external headwinds…The Philippine economy has performed well in recent years with rising potential growth and strong macroeconomic fundamentals and is broadly in line with potential while the outlook for inflations is well within the target band. – IMF, November 2016
63
President Rodrigo Roa Duterte was born on March 28, 1945 in Maasin, Southern Leyte to Vicente Duterte and Soledad Roa who were both civil servants. His mother was a public school teacher while his father was a government worker. Duterte traces his roots to the Visayas. He spent his early years in Danao, Cebu, the hometown of his father. But his lineage has also direct ties from Mindanao as his mother hails from Cabadbaran, Agusan del Norte while his paternal grandmother was a Maranao. In 1949, when Duterte was four years old, his family resettled in the then-undivided Davao where his father Vicente later entered the political arena and was elected governor of the province and served from 1959 to 1965. Duterte graduated in 1968 with a Bachelor of Arts degree in Political Science at the Lyceum of the Philippines University and obtained a law degree from San Beda College of Law in 1972. He passed the bar exam that same year. He served as special counsel and later on became a city prosecutor at the City Prosecutor’s Office in Davao City from 1977 until 1986, when he was appointed as OIC Vice Mayor of Davao City. He ran and successfully won the mayoralty post in 1988. Since then, Duterte has not lost an election. He is among the longest-serving mayors in the Philippines and has been Mayor of Davao City for seven terms, totalling more than 22 years. He has also served as vice- mayor and as congressman of the city’s first congressional district. On May 9, 2016, Duterte won a landslide victory as the Philippine’s 16th President. He was officially proclaimed by a joint session of the Philippine Congress on May 30, 2016. He is the first Mindanaoan President and the first local chief executive to get elected straight to the Office of the President.
64
Agency Appointee Brief Profile Department of Finance Carlos Dominguez Former BOD of RCBC Capital Corp., Agriculture Secretary under Pres. Corazon Aquino, President of Philippine Airlines, Chairman of Planters Bank Bureau of Internal Revenue Cesar Dulay Lawyer, former Commissioner of the Integrated Bar of the Philippines Bureau of Customs Nicanor Faeldon Former Marine Captain National Economic and Development Authority
University of the Philippines Economics Professor Emeritus; former ADB Lead Economist Department of Budget Management
Former Budget Secretary under Pres. Joseph Estrada; Professor at the University of the Philippines School of Economics Department of Trade and Industry Ramon Lopez Former Vice President of RFM Corporation, Executive Director of Go Negosyo, a non-stock, non-profit organization that seeks to promote entrepreneurship in the country Department of Energy Alfonso Cusi Former Chief of Manila International Airport Authority and Civil Aviation Authority of the Philippines Department of Transportation Arthur Tugade Former President and CEO of Clark Development Corporation (an economic zone north of Manila and formerly a US Military Air Base) Department of Public Works and Highways Mark Villar Former Congressman, Lone District of Las Piñas City, Metro Manila; was re-elected Congressman for the 17th Congress Department of Agriculture Emmanuel Piñol Former Governor and Vice Governor of North Cotabato, Mindanao, credited for bringing down poverty incidence in his province to 25.6% in 2009 from 41.6% in 2000 Department of Tourism Wanda Corazon Teo Former President of the National Association of Independent Travel Agencies, the biggest travel association in the Philippines Department of Information and Communications Technology Rodolfo Salalima Served as senior vice president for corporate and regulatory affairs of Globe Telecom; Asia Pacific representative and vice chairman of the International Telecommunication Union (ITU) Council Working Group for the Amendment
66
Strengthening the Investor Community 15 Years and Beyond The effective implementation of the Government’s economic program and its success depends on regular two-way dialogue between economic policy makers and the investment community. The Investor Relations Office (IRO) was established in July 2001 to strengthen the country’s relations with investors and other stakeholders by promoting active channels of information flow and dialogue between economic policy makers and investors. Based in the Philippine central bank, the Bangko Sentral ng Pilipinas (BSP), the IRO has a dedicated staff comprised of trained economists and communication specialists who work with colleagues in the BSP and the economic agencies to implement a wide-ranging program of investor relations activities. As the Government has implemented its economic reform program over the last fifteen years, the IRO’s program of investor outreach has helped to ensure that investor decisions benefit from a comprehensive understanding of the progress in reforms and what they mean for the economic fundamentals of the Philippines. In turn, the Government’s economic reform program has made the economy relatively more resilient amid the global financial and economic crisis. With stable macroeconomic fundamentals, the Philippines remains as one of the most viable economies for investments in the emerging market. The IRO is proud to have played a role in communicating the successes of the Government’s reform program in the last fifteen years and is committed to continuing its efforts to promote the Philippine economy. Serving Philippine and International Stakeholders The IRO provides services to a wide range of stakeholders – the Government’s economic agencies, financial institutions, credit rating agencies, bilateral and multilateral organizations, domestic and foreign investors, the diplomatic corps, business people, the media and the general public. All services to its stakeholders are underpinned by a set of fundamental principles: transparency, accessibility, timeliness, consistency and feedback. The IRO adopts a multi-pronged approach to serving its stakeholders through:
candid and constructive dialogue between policy-makers and investors
Promoting excellence in investor relations. Enhancing sovereign value
67
The IRO undertakes a range of initiatives to build awareness among domestic and international investment audiences around the Government’s economic reform program, promote specific investment opportunities in the Philippines and facilitate information exchange and dialogue between key economic policy decision-makers in the Government and domestic/international investors. These initiatives include:
reform to members of the international financial community
implementation process
government’s economic policies
Contact Information For further information about the Investor Relations Office, or about the Philippine economy, please contact: Editha L. Martin Investor Relations Office Bangko Sentral ng Pilipinas
Malate Manila, Philippines 1004 Tel: (632) 708-7487 / (632) 303-1581 Email: emartin@bsp.gov.ph Fax: (632) 708-7489 Website: www.iro.ph
Promoting the Philippine economy at home and abroad
Finance Secretary Carlos Dominguez Information and Communications Technology Secretary Rodolfo Salalima Tourism Secretary Wanda Teo Energy Secretary Alfonso Cusi Public Works and Highways Secretary Mark Villar Agriculture Secretary Emmanuel Piñol Transportation Secretary Arthur Tugade Trade and Industry Secretary Ramon Lopez Budget and Management Secretary Benjamin Diokno Economic Planning Secretary Ernesto Pernia Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr.
December 2016