Republic of the Philippines Investor Presentation March 2018 - - PowerPoint PPT Presentation

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Republic of the Philippines Investor Presentation March 2018 - - PowerPoint PPT Presentation

Republic of the Philippines Investor Presentation March 2018 Disclaimer By viewing or accessing the information contained herein or participating in the presentation, you acknowledge and agree that (i) the information contained herein is


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Republic of the Philippines

Investor Presentation March 2018

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Disclaimer

By viewing or accessing the information contained herein or participating in the presentation, you acknowledge and agree that (i) the information contained herein is strictly confidential and (ii) the attached information is intended for the recipient of this information only and, except with the prior written consent of the Republic of the Philippines (the “Republic”), shall not be disclosed, reproduced

  • r distributed in any way to anyone else.

This presentation does not constitute or form part of, and should not be construed as, an offer to sell or the solicitation of an offer to buy or subscribe for securities of the Republic or an inducement to enter into investment activity in any jurisdiction in which such offer, solicitation or inducement would be unlawful. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This communication has been prepared by and is the sole responsibility of the Republic, which is the subject of this communication. It has not been reviewed, approved or endorsed by any advisor retained by Republic. This communication is provided for information purposes only. Nothing contained in this presentation has been independently verified or shall be relied upon as a promise or representation as to the past or future performance of the Republic. None of the Republic, any of its officers, representatives, agents, advisors or employees accepts any responsibility for or makes any representation or warranty, express or implied, with respect to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information contained herein. The Republic is under no obligation to update, modify or amend this communication or to otherwise notify the recipient if information, opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. None of the Republic, any of its officers, representatives, agents, advisors or employees shall have any liability whatsoever (including without limitation any liability arising from negligence or otherwise) for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection with the presentation. This presentation contains forward-looking statements, including statements about the beliefs and expectations of Republic. These statements are based on the Republic's current plans, estimates and projections, as well as its expectations of external conditions and events. Forward-looking statements involve inherent risks and uncertainties and speak only as of the date they are made. As a result

  • f these risks, uncertainties and assumptions, undue reliance should not be placed on these forward-looking statements. A number of important factors could cause actual results or outcomes to differ

materially from those expressed in any forward-looking statements. The Republic is not obliged to, and does not intend to, update or revise any forward-looking statements made in this presentation whether as a result of new information, future events or otherwise. This presentation contains data sourced from and the views of independent third parties. In replicating such data in this presentation, none of the Republic, any of its officers, representatives, agents, advisors or employees makes any representation, whether express or implied, as to the accuracy of such data. The replication of any views in this document should not be treated as an indication that the Republic agrees with or concurs with such views. The recipient is strongly advised to seek its own independent advice in relation to any investment, financial, legal, tax, accounting or regulatory issues discussed herein. Analyses and opinions contained herein may be based on assumptions that if altered can change the analyses or opinions expressed. Nothing contained herein shall constitute any representation or warranty as to future performance of any financial instrument, credit, currency, rate or other market or economic measure. Furthermore, past performance is not necessarily indicative of future results. This communication is not for distribution to, or for the use of, individual or private customers (including those as defined by the rules of the UK’s Financial Services Authority (FSA)). This communication is not for publication or distribution, directly or indirectly, in or into the United States or in any other jurisdiction in which such publication or distribution would be prohibited by applicable law. The securities referred to in this communication have not been nor will be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") or any state or local securities laws of the U.S. and may not be offered, sold or delivered in or into the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state or local securities laws of the United States. No public offering is being made in the United States or in any other jurisdiction where such an offering is restricted

  • r prohibited or where such offer would be unlawful. Any offering of securities will be made by means of an offering circular which will contain detailed information about the Republic and its economic

and other information. Neither this communication nor any portion hereof may be sent or transmitted into the U.S. or any jurisdiction where it is unlawful to do so. No money, securities or other consideration is being solicited by this communication or the information contained herein and, if sent in response to this communication or the information contained herein, will not be accepted. Neither this communication nor any information herein nor the fact of its distribution shall form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever.

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Table of Contents

  • Key Terms of the Inaugural Panda Bond….............................................................................4
  • Philippines – China Relations…..............................................................................................6
  • Strengthening Credit Profile……………………….......................................................................9
  • Favorable Macroeconomic Trends.........................................................................................12
  • Strong External Position….....................................................................................................17
  • Sound and Stable Financial System…………….......................................................................20
  • Sound and Strengthening Government Finances..................................................................22
  • Accelerating Infrastructure Development.............................................................................29
  • Annex: Socioeconomic Agenda of the Duterte Administration..............................................32
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Key Terms of the Inaugural Panda Bond

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Key Terms of the Inaugural Panda Bond

Offering Summary Issuer Republic of the Philippines Issue Size RMB 1.46 bn Issuer Rating AAA National Scale by China Lianhe Credit Rating Co., Ltd; Baa2 by Moody’s , BBB by S&P, and BBB by Fitch Issue Date 20th Mar 2018 Book Open Period 9:00am - 16:30pm on 20th Mar 2018 Tenor 3 year Denoms RMB 1 million * 1 million Trading and Custody CIBM Trading; Bond Connect Eligible; PRC Law; Shanghai Clearing House Settlement Date 23rd Mar 2018 Custody Institution Shanghai Clearing House

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Philippines – China Relations

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Trade between the two countries is expected to further flourish

Philippines – China Investment and Trade Relations

Year Total Export Import Balance of Trade 2014 18.3 8.5 9.9 (1.4) 2015 17.7 6.2 11.5 (5.3) 2016 21.9 6.4 15.6 (9.2) 2017 23.7 6.9 16.8 (9.9)

Note: Details may not add up to total due to rounding Source: Philippine Statistics Authority (PSA)

Robust Philippines-China bilateral merchandise trade

(USD bn)

Major investments between China and the Philippines

Filipino Investors in China Chinese Investors in the Philippines

  • San Miguel Group - Beer
  • Liwayway (China) Co., Ltd - snack food
  • Solid Industrial (Shenzhen) Co., Ltd - electronic
  • SM City in China – retail
  • URC China Commercial Co., Ltd – biscuits
  • Philippine Airlines Shanghai Office – airline
  • Metrobank – financials
  • Eton Properties
  • Jollibee/Yong He King
  • Bench Body
  • Shanghai Electric Transfer Engineering(Phil)
  • Dalian Wanyang Heavy Industries Co.,Ltd.
  • New Hope Central Luzon Agriculture Inc
  • HLD Clark Steel Pipe Co. Inc.
  • China State Construction Engineering Corporation
  • Wuhan Fiberhome International Technologies Phils., Inc.
  • National Grid Corporation of the Philippines
  • Sinosteel (Philippines) Co. Ltd. Inc

0.6 10.8 9.2 27.6

0.0 5.0 10.0 15.0 20.0 25.0 30.0 2015 2016 Jan-Nov 2016 Jan-Nov 2017

1,775.8% 199.2% Strong growth of Chinese FDIs

Net equity FDI (USD mn) and y-o-y growth (%) Source: Department of Trade and Industry Source: Bangko Sentral ng Pilipinas (BSP)

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Revitalized ties brings promise of massive development deals

Continued Progress in Expanding Philippine Ties with China

  • President Duterte participated in the Belt and Road Forum in May 2017
  • The PHP8-9tr infrastructure program of the Duterte Administration will remove transport bottlenecks and promote transport connectivity allowing the Philippines to fully

benefit from the BRI

  • The Roll-on/Roll-off (RORO) Modernization Program of the government, designed to improve and promote the inter-island sea transportation will complement the

country’s capability to take advantage of the BRI

  • Chinese financing and expertise are being tapped to accelerate development of infrastructure projects.
  • In Dec 2016, the Phil. Senate ratified the membership of the Philippines to the Asian Infrastructure Investment Bank (AIIB) . DPWH’s USD500mn Metro Manila Flood

Management Project will be co-financed by AIIB and World Bank

  • In 2017, the following projects have been approved by the NEDA Board, which is chaired by President Duterte, for Chinese official development assistance: Chico

River Pump Irrigation (USD55.1mn), New Kaliwa Dam (USD 222.4mn), PNR Long-haul Rail (Calamba-Bicol) (USD3.5bn), Binondo-intramuros Bridge (USD 91.2mn), Estrella-Panteleon Bridge (USD27.3mn) High Level Bilateral Meetings

  • President Rodrigo

Duterte’s state visit to China in Oct 2016 yielded USD24bn worth of aid and investment pledges

  • Chinese Premier Li

Keqiang and President Duterte met in November 2017 during the ASEAN Meeting in Manila Increased Investments from China

  • More than 20

infrastructure projects eyed for Chinese funding Developing Export Partner

  • China has resumed

giving permits to Philippine companies exporting tropical fruits to China Booming Tourist Activity

  • Average number of

visa applications processed by the Philippine Embassy in China is now at 1,400 per day compared to less than 500 visa applications in 2016

  • FY2017 visitor arrivals

from China reached a total of 968K an increase of 43.3%

Strengthening bilateral relations The Belt and Road Initiative (BRI)

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Strengthening Credit Profile

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Duterte Administration: a Reform-Minded Leadership Focused on Delivering Results

 The Philippines ranked No. 1 among the “Best Countries to Invest In” per US News.

Transformative policies anchored on domestic-led growth and continuing structural reforms

 High GDP growth of 6.7% in 2017 and manageable inflation of 3.2% in 2017.

Continued sound macroeconomic management yields strong results Fiscal initiatives strengthen public finances and provide growth impetus Massive infrastructure development Sustained reform momentum

 Established a system that promotes ease of access to and efficient government services.

Source: NEDA Presentation entitled “Infrastructure Boosts Philippine Economy”, PIP 2017-2022 Working Draft

 Invest heavily in infrastructure through “Build Build Build” program.  Firm commitment to fiscal sustainability.  Long history of prudent fiscal management.  Huge increases in the 2018 budget of two major infrastructure agencies.  The Public Investment Program (PIP) 2017-2022 contains the list of priority programs and projects worth over USD150bn to accelerate infrastructure development.  Launched the Capital Markets Development Roadmap.  Structural current account flows from remittances, BPO revenues and revenues from tourism sector.  Further liberalized FX rules.  Sound banking system.  Healthy external payments position.  Early enactment of national budget.  Improving the business environment through streamlined processes.  Simplified Implementing Rules and Regulations (IRRs) of the Government Procurement Reform Act.  2018 National Budget, largest national budget thus far, to sustain robust and inclusive growth.  Total approved investments rose 32.9% to PHP911.3bn in 2017.

FY2017 national government disbursements was up by 10.8% yoy.

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Metric 2013 2014 2015 2016 2017 Credit Ratings

  • Fitch
  • Moody’s
  • S&P

BBB-/stable Baa3/positive BBB-/stable BBB-/stable Baa2/stable BBB/stable BBB-/positive Baa2/stable BBB/stable BBB-/positive Baa2/stable BBB/stable BBB/stable Baa2/stable BBB/stable

Real GDP Growth Rate (%) 7.1 6.1 6.1 6.9 6.7 GDP Per Capita* (USD), PPP Concept 6,546 6,953 7,332 7,810 8,297 GNI Per Capita* (USD), PPP Concept 7,953 8,426 8,869 9,401 9,972 Inflation Rate (2006 = 100) (%) 3.0 4.1 1.4 1.8 3.2 National Government Interest Payments (as % of Revenues) 18.8 16.8 14.7 13.9 12.6 Fiscal Balance (as % of GDP)

  • 1.4
  • 0.6
  • 0.9
  • 2.4
  • 2.2

Tax Revenue (as % of GDP) 13.3 13.6 13.6 13.7 15.7 General Government Debt (as % of GDP) 39.2 36.4 36.2 34.6 36.4 (end-Jun) Gross International Reserves (USD billion) 83.2 79.5 80.7 80.7 81.6 ‒ Import Cover (months) 11.6 9.9 9.9 8.8 8.3 Overseas Filipinos’ Cash Remittances (USD billion) 23.0 24.6 25.6 26.9 28.1 Foreign Direct Investments (USD billion) 3.7 5.7 5.6 8.0 8.7 (Jan-Nov) Current Account (as % of GDP) 4.2 3.8 2.5

  • 0.3

0.0 (Jan-Sep) External Debt (as % of GDP) 28.9 27.3 26.5 24.5 23.4 (Jan-Sep)

Sustained Strengthening of Philippines Credit Profile

* At current prices NA not available Source: BSP’s Selected Economic and Financial Indicators, DOF, BTr

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Favorable Macroeconomic Trends

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7.1 6.9 6.7 6.2 5.0 4.2 3.3 6.4 6.7 6.9 6.8 5.1 5.9 3.9 7.4 6.7 6.6 6.3 5.3 5.0 3.5

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0

India (BBB-/Baa2/BBB-) Philippines (BBB/Baa2/BBB) China (A+/A1/A+) Vietnam (BB-/B1/BB-) Indonesia (BBB-/Baa3/BBB) Malaysia (A-/A3/A-) Thailand (BBB+/Baa1/BBB+)

2016 2017 2018P

Philippines is one of the fastest growing economies in Asia

GDP growth of selected Asian economies

Rating: S&P/Moody’s/Fitch IMF Estimates Source: PSA; International Monetary Fund (IMF); Bloomberg L.P.

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14 2.5 3.3 4.0 4.4 4.8 4.0 0.3 0.3 0.7 0.8 0.9 0.8 0.4 0.7 2.9 4.0 5.7 2.5

  • 0.3

0.2

  • 1.2
  • 3.1
  • 4.5
  • 0.6

1990-1999 2000-2009 2010-2017 2015 2016 2017 Consumption Government Investment Net Exports Statistical Discrepancy

2.8 4.5 6.3 6.1 6.9 6.7

0.2 0.4 0.1 0.0

  • 0.1

0.3 0.7 1.2 2.4 2.2 2.8 2.5 1.8 2.8 3.8 3.9 4.2 3.9 1990-1999 2000-2009 2010-2017 2015 2016 2017 Agriculture Industry Services

69.3 69.3 68.7 10.3 10.5 10.5 24.2 28.0 28.6

  • 3.8
  • 7.8
  • 7.8

Household Expenditure Government Spending Capital Formation Net Exports

Source: PSA National Accounts 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 2016 2017 Construction Durable Equipment Others +2.8%

  • 4.3%

+27.9% +4.2%

Consumption and services as major drivers of growth

GDP breakdown by component 1,553 1,490 1,165 1,217 1,838 +18.4%

Contribution to growth: supply side (%) Contribution to growth: demand (%)

2,275 2016 2015 +9.0% 2017

2.8 4.5 6.3 6.1 6.9 6.7

2,480

Economic Rebalancing Towards a More Broad-Based Growth

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1.1 2.0 3.2 3.7 5.7 5.6 8.0 7.3 8.7

0.0 2.0 4.0 6.0 8.0 10.0

2010 2011 2012 2013 2014 2015 2016 Jan-Nov 2016 Jan-Nov 2017

  • Based on 2018 US News and World Report***,

ROP is considered #1 out of 80 countries to invest in (survey of US business decision makers)

  • ROP is in the top 15 investment destinations of

choice by multinationals for 2017-2019 based on UNCTAD’s World Investment Report 2017.

  • 2017 Investment Climate Statements of the US

State Department’s Bureau

  • f

Economic and Business Affairs cites ROP’s increased attractiveness as FDI destination

Rising Investments Highlight Confidence in Philippine Growth Prospects

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); ***Developed by US News and World Report together with Y&R's BAV Group and The Wharton School of the University of Pennsylvania Average Growth of FDI, 2013-2016 (%)*

Sustained inflows from both foreign and local investors and bright prospects highlight confidence in ROP’s fundamentals

Net Foreign Direct Investment (FDI) Flows* (USD bn)

  • 20.3
  • 7.9

11.2 12.8 17.1 27.4

  • 30
  • 20
  • 10

10 20 30 Indonesia Thailand Vietnam Malaysia India Philippines

542.7 747.1 697.7 754.0 755.9 686.9 686.0 911.3 2010 2011 2012 2013 2014 2015 2016 2017

Investors continue to place their bets on ROP

+32.9% YOY growth

Total Approved Foreign and Filipino Investments (PHP bn)

+20.1% YOY growth

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3.7 3.1 2.5 2.2 2.2 2.3 2.0 1.9 1.5 1.5 1.4 3.1 3.3 2.1 1.0 1.7 1.3 0.9 3.0 1.6 1.7 1.5 Iceland (A3/A/A) Kazakhstan (Baa3/BBB-/BBB) Panama (Baa2/BBB/BBB) Peru (A3/BBB+/BBB+) Thailand (Baa1/BBB+/BBB+) Spain (Baa2/BBB+/BBB+) Mexico (A3/BBB+/BBB+) Uruguay (Baa2/BBB/BBB-) Philippines (Baa2/BBB/BBB) Colombia (Baa2/BBB-/BBB) Poland (A2/BBB+/A-)

CPI volatility GDP volatility

5.5 2.9 8.3 4.2 3.8 4.6 3.2 3.0 4.1 1.4 1.8 3.2 4.2 4.3 3.5 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Jan-Feb 2018 2018F 2019F Inflation Target Band Headline CPI

Sustained Manageable Inflation Environment

Source: BSP; PSA

Inflation remains benign demonstrating monetary policy credibility

Headline CPI (yoy, %), 2006-100

Inflation condition supportive of growth

GDP, CPI volatility (20Y Standard Deviation, 2001-2020F) Source: IMF World Economic Outlook, October 2017 Rating: Moody’s/S&P/Fitch

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Strong External Position

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18 Sources: BSP, IBPAP,NEDA, Department of Tourism

3.5 3.9 4.3 4.7 4.8 5.4 6.0 6.6 7.4 2.5 3.0 3.8 4.4 4.8 5.0 4.8 6.6 2010 2011 2012 2013 2014 2015 2016 2017 2018P Arrivals Receipts 3.4 4.5 6.1 7.1 8.9 11 13.2 15.8 18.0 20.5 22.9 24.5 38.9 236 298 371 424 527 640 777 858 958 1,044 1,146 1,250 1,800 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017P 2022P Revenues Employment

Structural and ‘Sticky’ Current Account Flows

BPO – a strong driver of employment and revenues

BPO employment (‘000s) and revenues (USD bn)

Sustained growth of remittances over the years

Overseas Filipinos' cash remittances (USD bn)

Tourism industry providing key support to the current account

International visitor receipts (USD bn) and arrivals (mn)

+11.0% YOY growth arrivals in 2017

  • 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

12.8 14.5 16.4 17.3 18.8 20.1 21.4 23.0 24.6 25.6 26.9 28.1 29.2 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018P +4.3% YOY growth in 2017

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19 Source: BSP, Bloomberg

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 March 9, 2018)

Sustained decline in external debt-to-GDP ratio underscores the health of external finances

External debt (USD bn) and external debt/GDP (%)

Healthy External Finances Shield the Economy from External Shocks

18.5 23.0 33.8 37.6 44.2 62.4 75.3 83.8 83.2 79.5 80.7 80.7 81.6 80.6 4.6 5.1 6.7 6.4 9.2 10.4 11.6 11.5 11.6 9.9 9.9 8.8 8.3 8.2

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Feb-18

International reserves Import cover 61.6 61.4 66.5 65.2 64.7 73.6 75.6 80.0 78.5 77.7 77.5 74.8 72.4 59.7 50.2 44.5 37.6 38.4 36.9 33.7 32.0 28.9 27.3 26.5 24.5 23.4

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan - Sep 2017 External Debt External Debt Ratio

9.4 8.8 8.6 7.9 6.1 5.8 5.6 Korean Won Japanese Yen Malaysian Ringgit Indonesia Rupiah Philippine Peso Thai Baht Chinese Renminbi

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Sound and Stable Financial System

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15.0 15.7 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sep 2017 Solo basis Consolidated basis 7,612 8,863 1.9 1.7 1 2 3 4 5 6

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Loans outstanding (in PHP bn, LHS) NPL, Gross ratio (in %, RHS) BSP Regulatory Requirement: 10% International Standard: 8% 13,591 15,161 10,507 11,725

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Assets (in PHP bn) Deposits (in PHP bn)

Solid asset growth

Total Asset and Deposit Levels (PHP bn)

Improved quality of loan portfolio

Total Loan Portfolio (PHP bn) and NPL ratio (%)

Strong capitalization well above international norms

Capital adequacy ratio (%) of U/KBs * Source: BSP Note: Except otherwise indicated, statistics refers to Philippine Banking System * UK/Bs – Universal and Commercial Bank

Sustained profitability

Net Profit and ROE

154.3 167.7 10.5 10.2

2 4 6 8 10 12 14 20 40 60 80 100 120 140 160 180

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Annualized Net Profit (in PHP bn, LHS) ROE (in %, RHS)

+11.6% YOY growth in deposits (Dec 2017)

Sound banking system effectively funds productive sectors

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Sound and Strengthening Government Finances

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Double-digit revenue growth due to intensified implementation of administrative reforms

Note: Some values may not sum up to exact figure due to rounding Source: Bureau of the Treasury (BTr) and Department of Budget and Management (DBM)

National Government Fiscal Performance Actual Jan-Dec 2017 Jan-Dec 2017 2018 Program PHP bn YoY Growth (%) % of GDP PHP bn Total Revenues 2,473.1 12.6 15.7 2,788.9

15.9% of GDP 12.8% YoY Growth

Tax Revenues 2,250.7 13.6 14.2 2,620.1 Bureau of Internal Revenues 1,772.3 13.1 11.2 2,025.4 Bureau of Customs 458.2 15.6 2.9 577.9 Non-Tax Revenues 222.4 3.2 1.4 166.8 Bureau of the Treasury 99.9 (1.8) 0.6 55.8 Privatization 0.8 26.3 0.0 2.0 Expenditure 2,823.8 10.8 17.9 3,312.6

18.9% of GDP 17.3% YoY Growth

Surplus/(Deficit) (350.6) (0.8) (2.2) (523.7)

(3.0) % of GDP

Primary Surplus/(Deficit) (40.1) (18.1) (0.3)

Sound Fiscal Position Creating Fiscal Space for Productive Public Investments

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68.5 61.4 53.9 54.7 54.8 52.4 51 51.5 49.2 45.4 44.7 42.1 42.1 59.2 51.6 44.2 44.2 44.3 43.5 41.4 40.6 39.3 36.4 36.2 34.6 36.4* 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 National Gov't Debt General Gov't Debt

Sustained decline in debt/GDP ratio

NG Debt and GG Debt (% of GDP)

*as of end-June 2017 Sources: DOF, BTr

Long History of Prudent Fiscal Management Supports Growth Momentum

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Focus on Social Services to empower human capital development

2018 and 2017 National Budget by Sector, PHP bn and % Share

Infrastructure and Other Capital Outlays get a big allocation

2018 National Budget by Expense Class, PHP bn and % Share

Huge increases in the budget of two major infrastructure agencies

*Includes Philippine Health Insurance Corporation Source: DBM

Department 2018 GAA (PHPbn) 2017 GAA (PHPbn) Share to Total Budget (%) 2018 2017 Social Services 1,425.7 1,351.5 38.8 40.3 Economic Services 1,153.6 922.9 30.6 27.5 General Public Services 655.4 575.4 17.4 17.2 Debt Burden 370.8 351.6 9.9 10.5 Defense 161.5 148.7 4.3 4.4 Total 3,767.0 3,350.0 100 100

Note: Rounding off may not add up to total

Agency 2018 GAA (PHPbn) 2017 GAA (PHPbn) Growth Rate (%) (2018 vs. 2017 ) DPWH 650.9 467.7 39.2 DOTr 68.1 55.7 22.3

Accelerating human capital development

Agency 2018 GAA (PHPbn) Programs/Projects DepEd 580.6 Implementation of K-to-12 Program, creation of teaching and non-teaching positions SUCs 65.2 Operations and improvements of public education institutions CHED 50.5 Scholarships, grants, and subsidies for higher education TESDA 7.7 Training of competitive and technically-proficient students who are employable DOH* 170.4 Health for All Agenda: Doctors to the Barrios, construction of treatment and rehabilitation centers in provinces, improvement

  • f existing health facilities, free services to the poor in

government hospitals DSWD 141.9 Conditional Cash Transfer Program, social pension for indigent senior citizens, supplementary feeding program

Fiscal Policy Focused on Closing the Infrastructure Gap and Enhancing Human Capital

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The borrowing strategy incorporates debt management objectives in meeting the financing program

National Government Financing 2015 – 2018

Source: Bureau of the Treasury

Strategic Financing Program Particulars (in millions PHP) Actual 2015 Actual 2016 Actual 2017 Program 2017 Program 2018 NET FINANCING 242,851 330,939 758,929 584,780 634,863 External (Net) 64,782

  • 24,113

27,569 43,170 116,735 External (Gross) 189,538 149,523 168,103 182,770 179,720 Less: Amortization 124,756 173,636 140,534 139,600 62,985 Domestic (Net) 178,069 355,052 731,360 541,610 518,128 Domestic (Gross) 420,072 357,497 733,569 544,969 523,158 Treasury Bills

  • 17,303

23,501 26,433 54,969

  • Fixed Rate T Bonds

437,375 333,996 707,136 490,000

  • Less: Net Amortization

242,003 2,445 2,209 3,359 5,030

Gross Borrowing 609,610 507,020 901,672 727,739 702,878 Total Amortization 366,759 176,081 142,743 142,959 68,015

Financing Mix (Domestic : External) 69:31 71:29 81:19 75:25 74:26

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52 56 56 59 57 56 58 58 64 66 67 65 65 67 48 44 44 41 43 44 42 42 36 34 33 35 35 33 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 External Domestic 30 19 10 8 9 7 7 7 7 41 26 20 14 12 10 10 10 18 29 54 70 78 79 82 83 84 75 2005 2010 2011 2012 2013 2014 2015 2016 2017 Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr

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 indicated, graphs pertain to National Government (NG) debt Source: Bureau of the Treasury, BSP

Total debt breakdown (%) Domestic debt breakdown (%) External debt breakdown (%)

10 4 90 96 99.1 100 100 100 100 100 100 100 2003 2005 2010 2011 2012 2013 2014 2015 2016 2017 Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr

* End Jun 2017

Steady decline in the Republic’s interest service burden

Interest payments / NG revenue (%) and Interest payments / NG expenditure (%) 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 13.9 12.6 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 11.9 11.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Interest Payments/Revenue Interest Payments/Expenditure

Fiscal Deficit is Increasingly being Funded from Domestic Sources

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SLIDE 28

28

Game Changing Tax Reform Supports Expansionary Fiscal Policy

Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN)

  • Package 1A of the Comprehensive Tax Reform Package, or TRAIN (RA No. 10963) was implemented on 1 Jan 2018
  • Seeks to correct structural weaknesses in the current tax system to make it simpler, fairer, and more efficient and to generate

stable revenue stream to upgrade infrastructure and reduce poverty. It includes mitigating measures designed to redistribute some of the gains to the poor

  • 99% of the country’s population is expected to benefit from income tax cuts and tax exemption
  • 30% of revenues earmarked for social protection programs, eg. cash transfers for the poorest 10mn households and social welfare card
  • 70% of the incremental revenues to develop the country’s infrastructure

Salient Features of Package 1

  • Lowered personal income tax (PIT) - PIT exemptions for the first

PHP250th taxable income and significant PIT cuts for other tax brackets

  • Simplified estate and donor’s tax to 6% flat rate
  • Increased excise tax on automobiles
  • Increased excise tax on petroleum products
  • Introduced excise tax on sugar-sweetened beverages using

caloric and non-caloric sweeteners, and high fructose corn syrup

  • Introduced cosmetic excise tax of 5%
  • Increased excise tax on tobacco products
  • Simplified and reduced exemptions on Value-Added Tax (VAT)

system Revenue Impact Package 1B: PHP39bn for 2018 Package 1A and 1B: PHP129bn for 2018 Package 2: revenue neutral Package 2 Plus: PHP60bn and to grow 10% every year Package 3: revenue neutral Package 4: revenue neutral Other Reforms on the Pipeline

  • Package 1B (one-third of Package 1) involves provisions on estate and general tax amnesty, adjustments in the Motor Vehicle Users Charge,

amendments to the bank secrecy law and automatic exchange of information. Reduce estate tax to 6% for properties up to 1mn hectares. Congress committed to pass Package 1B by Q1 2018

  • Package 2 involves Corporate taxation and fiscal incentives
  • Lower Corporate Income Tax (CIT) rate to 25% from 30% while rationalizing fiscal incentives to make it performance-based, targeted, time-bound

and transparent. Submitted to the House of Representatives in Jan 2018

  • Package 2 Plus involves increasing taxes on mining and coal and a revisit of alcohol and tobacco taxes
  • Package 3 involves property taxation to rationalize capital gains on properties and other property taxes and fees
  • Package 4 involves financial and capital income taxation which will align different transaction rates of financial instruments

TRAIN is a sound continuation of decades of reforms and a testament of solid support for the President’s reform agenda Year Amount (PHPbn) Package 1A 2018 90 2019 144 2020 188 2021 187 2022 179 Total 788

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SLIDE 29

Accelerating Infrastructure Development

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30

Public Investment Program (PIP) 2017-2022

Biggest, Boldest and Most Ambitious Infrastructure Program

Source: DBM Medium Term Fiscal Program as approved during the 170th DBCC Meeting on June 9, 2017 and 171st DBCC Meeting on December 22, 2017, DBM Presentation dated March 9, 2018 at the Philippine Economic Briefing in Davao (for updated 2017 and 2018 infrastructure spending program on an obligation basis), NEDA Presentation entitled “Infrastructure Boosts Philippine Economy” dated January 23, 2018; *PIP 2017-2022 Working Draft dated July 25, 2017; **9 projects without estimated cost yet; ***Purely private investments, corporate funds of GOCCs and internally generated funds of GFIs; Note: Exchange Rate Used is Midpoint of USD49-52 for 2018 DBCC Exchange Rate Assumption, December 22, 2017

Higher investment in infrastructure is expected to usher in the Golden Age of Infrastructure

  • The country’s development partners are actively extending assistance to

fund the Build Build Build Program  Expanded and newly cemented relations emerging as major contributors to the game changing infrastructure plan of the government

4,490

projects under the PIP 2017-2022* (USD150bn+)

75

Infrastructure Flagship Projects (USD45.3bn)** Financing the Priority Infrastructure Projects 2017-2022 Mode of Implementation

  • No. of Projects

Investment Requirements (USD bn) NG 4,095 95.5 ODA 68 19.9 PPP 39 25.3 Others*** 227 12.4 To be Determined 61 0.1 TOTAL 4,490 153.2

Infrastructure Spending Program (% of GDP)

4.2 5.1 5.4 5.8 5.9 6.1

5.4 6.1 6.8 6.9 6.9 7.3 2017 2018 2019 2020 2021 2022 Cash basis Obligation basis

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31

Completed and Operational 4 Under Construction 8

Under Pre- construction 4

16 1 2 4 7

Awarded USD6.1bn Under Procurement USD10mn For Evaluation & Approval Under Development Under Review By Implementing Agencies USD1.3bn

Robust Pipeline of Critical Infrastructure Projects

75 Flagship Projects High-impact Infrastructure Projects

  • f which 23 projects worth over USD20bn

have been approved by the NEDA Board

Source: DBM, NEDA Presentation entitled “Infrastructure Boosts Philippine Economy” dated January 23, 2018; PPP Center Status

  • f PPP Projects as of March 7, 2018; *Amount does not include cost of 11 projects without estimate yet

Acronyms: National Economic and Development Authority (NEDA),Department of Public Works and Highways (DPWH), Department of Transportation (DOTr), National Irrigation Administration (NIA), Department of Agriculture (DA), Bases Conversion and Development Authority (BCDA), Department of Energy (DOE), Metropolitan Waterworks and Sewerage System (MWSS), Cebu Port Authority (CPA), Autonomous Region in Muslim Mindanao (ARMM) Note: Exchange Rate Used is Midpoint of USD49-52 of DBCC Exchange Rate Assumption for 2018, December 22, 2017

Agency Type of Project

  • No. of

Projects Amount (USD mn) DPWH Roads, Bridges and Flood control 31 17,386.2 DOTr Airport, Rail, Mass Transit & Ports 14 22,357.9 NIA Water 8 1,140.8 DA Ports 3 298.7 BCDA New Cities, Mass Transit, Rail & Airport 5 3,536.3 DOE Energy 2 14.8 MWSS, CPA, ARMM Water, Ports, Roads 3 595.1 Sub-Total 66 45,329.7 Cost to be Determined DPWH Roads, Bridges and Flood control 5 TBD BCDA New Cities 1 TBD DOTr Airport, Rail, Mass Transit & Ports 1 TBD DOE Energy 2 TBD Sub-Total 9 TBD 69.5km Malolos-Clark Railway Project /PNR North 2 (USD4,186.6mn) 25km Metro Manila Subway Project (USD7,068.5mn) 72km PNR South Commuter Line Tutuban-Los Baños (USD2,457.4mn) 581km PNR Long-haul from Los Baños to Bicol, Sorsogon, Batangas (USD3,471.3mn) Improving Growth Corridors in Mindanao Road Sector Project (USD419.7mn) 102.3km Mindanao Railway: Tagum-Davao City-Digos Segment (USD698.2mn) Select NEDA Board Approved Flagship Infrastructure Projects

Status of PPP projects

30

projects

USD7.4bn*

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SLIDE 32

Annex: Socioeconomic Agenda of the Duterte Administration

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33

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

10-Point Socioeconomic Agenda of the Duterte Administration

ACCELERATE INFRASTRUCTURE SPENDING INSTITUTE PROGRESSIVE TAX REFORM INCREASE COMPETITIVENESS & EASE

OF DOING BUSINESS

CONTINUE SUCCESSFUL MACROECONOMIC POLICIES PROMOTE RURAL DEVELOPMENT IMPROVE SOCIAL PROTECTION PROGRAMS INVEST IN HUMAN CAPITAL PROMOTE SCIENCE, TECHNOLOGY & ARTS ENSURE SECURITY OF LAND TENURE & ADDRESS

BOTTLENECKS IN LAND

MANAGEMENT STRENGTHEN IMPLEMENTATION OF RESPONSIBLE PARENTHOOD & RH LAW

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Philippine Development Plan Framework for Long Term Growth

Source: NEDA

  • The Philippine Development Plan (PDP) 2017-2022 serves as policy anchor to realize the national

long-term visions of inclusive growth, a high-trust society, and a globally-competitive knowledge economy.

  • The PDP is anchored on Ambisyon Natin 2040 - which is the collective vision of the Filipino people
  • ver the next 25 years
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SLIDE 35

Republic of the Philippines

Investor Presentation March 2018