Republic of the Philippines The Philippine Economy: Cautious - - PowerPoint PPT Presentation
Republic of the Philippines The Philippine Economy: Cautious Optimism 22 February 2019 Deputy Governor Diwa C. Guinigundo Bangko Sentral ng Pilipinas 1 Outline I. The Operating Environment: Three Key Challenges II. The Philippine Case: A
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Deputy Governor Diwa C. Guinigundo Bangko Sentral ng Pilipinas
The Philippine Economy: Cautious Optimism
22 February 2019
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Eurozone 1.6%
( 0.3) China 6.2%
(unchanged)
Japan 1.1% ( 0.2) US
2.5%
(unchanged)
IMF 2019 Growth Projections, as of January-2019
(Difference from October 2018 WEO Update projections ,in percentage points)
Source: IMF. World Economic Outlook, October 2018 with updates in January 2019.
World 3.5% (0.2) India 7.5% ( 0.1)
ASEAN 5 5.1% (0.1)
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Great Divergence
Rise of protectionist policies US and China Trade Tension Brexit
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“An Era where new technologies merge and blur the lines of the digital, financial and physical worlds, impacting all disciplines, economies and societies…”
Klaus Schwab
Founder and Executive Chairman World Economic Forum
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(2018, 2000=100)
GDP Growth
(January 2019, 2012=100)
Headline Inflation
(Jan-Sep 2018, % of GDP)
Fiscal Balance
(UBs and KBs, Sep 2018)
(2018, % Growth)
(end-Sep 2018, % of GDP)
(2018)
Overseas Filipino Cash Remittances
(end-Jan 2019; 7.2 months import cover)
Gross Reserves
Sources: BSP, PSA
Capital Adequacy Ratio Domestic Liquidity External Debt
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3.1 4.4 2.9 3.6 5.0 6.7 4.8 5.2 6.6 4.2 1.1 7.6 3.7 6.7 7.1 6.1 6.1 6.9 6.7 6.2 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Real GDP Growth (%) Average: 6.4% (2014-2018)
Positive economic growth for 20 consecutive years
Supply-side drivers: Industry and Services Demand-side driver: Consumption and Investment
Source: Philippine Statistics Authority (PSA)
1 2 3 4 5 6 7 8 2011 2012 2013 2014 2015 2016 2017 2018
Industry Sector Service Sector Agri., Forestry, & Fishing GDP Growth Percentage Point
Contributions to GDP Growth Production Side
2 4 6 8 10 12 14 2011 2012 2013 2014 2015 2016 2017 2018
Household Consumption Government Consumption Capital Formation Net Exports GDP Growth Percentage Point
Contributions to GDP Growth Expenditure Side 8
Source: Latest BSP staff estimates Source: PSA
Employment Share by Class of Workers Employment Share by Educational Attainment
Incremental Capital-Output Ratio Total Factor Productivity
9.5 6.4 4.2 3.9 2 4 6 8 10 1989 - 1992 1993 - 2001 2002 - 2009 2010 - 2018 0.0 0.5 2.0 2.0 1 1 2 2 3 1989 - 1992 1993 - 2001 2002 - 2009 2010 - 2018
51.1 52.2 52.4 53.3 54.5 55.2 57.2 58.4 57.8 59.3 61.8 62.5 63.8 12.3 12.1 12.2 12.0 11.5 11.6 11.0 10.3 10.7 9.9 8.0 6.0 5.6 32.3 31.5 31.3 30.6 30.1 29.6 28.3 28.0 28.2 27.7 26.9 27.8 26.9 4.4 4.3 4.2 4.1 3.9 3.6 3.6 3.3 3.2 3.1 3.3 3.7 3.6 10 20 30 40 50 60 70 80 90 100 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Employer in Own Family Self-Employed Unpaid Worker Wage and Salary Workers
2.0 2.0 1.9 1.8 1.8 1.7 1.8 1.6 1.5 1.5 1.4 1.5 1.5 33.4 32.8 32.4 31.6 30.5 30.1 29.7 28.9 27.9 27.3 27.0 26.6 25.9
38.1 38.4 38.8 38.9 39.4 39.8 39.9 40.3 40.9 41.1 41.6 41.4 42.1 4.2 4.5 4.8 4.7 4.9 4.7 4.3 26.5 26.8 26.9 27.7 28.4 28.5 24.4 24.7 24.9 25.4 25.1 25.8 26.2 20 40 60 80 100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Q1-Q3
College Post Secondary High School Elementary (w/ SPED) No Grade Completed
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Inflation (%) 13 Dec 2018 MB Meeting 7 Feb 2019 MB Meeting 2019 3.2 3.1 2020 3.0 3.0
Source: BSP
Jan 2019 4.4 pct
2 4 6 8 10 12
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Headline Inflation year-on-year in percent
Source: PSA and BSP
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Source: BSP
Quality of assets and loan portfolios sustain improvement. Philippine banks remain adequately capitalized providing buffers to mitigate shocks.
2 4 6 8 10 12 14 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Dec '18
Non-Performing Loans (Gross) and Non- Performing Assets Ratios of UKBs (in percent)
GNPL Ratio NPA Ratio End-Dec 2018: GNPL ratio: 1.3 % NPA ratio: 1.2 % 5 10 15 20 25 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sept '18
Capital Adequacy Ratio of UKBs (in percent)
CAR (consolidated basis) CAR (solo basis) BSP standard (10%) BIS standard (8%) End Sept- 2018: CAR (solo): 15.2 % CAR (consolidated): 15.8 %
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73.1 76.4
23.3 23.5 10 20 30 40 50 60 70 80 90
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 end-sep '18
External Debt External Debt Ratio
22.1 16.4
28.1 28.9
5 10 15 20 25 30 35
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
BPO revenues Remittances
Source: BSP
*2017 and 1H 2018 BPO data based on BOP concept
Sustained structural flows from remittances and BPOs
81.6 79.2 7.7 7.0
2 4 6 8 10 12 14 20 40 60 80 100 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
FX reserves Import cover (RHS) FX reserves (USD bn) and months of import cover
Ample cushion from external headwinds
Overseas Filipinos' cash remittances and BPO revenues (USD bn)
4.0 3.7 2.7 6.0 5.7 6.2
1 2 3 4 5 6 7 8 9 10 11 2005200620072008200920102011201220132014201520162017 Jan- Nov 2017 Jan- Nov 2018
Equity and investment fund shares Debt
Improved debt profile Resilient foreign direct investments
Non-residents' direct investments, by instrument (USD bn, net)
Sources of Optimism: Adequate Buffers Against Global Headwinds
*2017 and Jan-Sep 2018 BPO data based on BOP Concept
External debt (US$ bn) and external debt/GDP (%)
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Source: BSP
Narrowing of current account reflects rising capital goods imports impact tempered by sustained receipts from traditional sources
2.0
2 4 6 8 10 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1 2018 Q2 2018 Q3 2018
Components of Balance of Payments - Quarterly (in US$ billion)
Capital & Fin'l Account Current Account Balance of Payments
13.5
5.5
7.1 1.6
10 20 30 40
1 3 5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1 2018 Q2 2018 Q3 2018
Goods Exports (RHS) Goods Imports (RHS) BPO Receipts (RHS) OF Cash Remittances (RHS) Travel receipts (RHS) Current Account Balance (LHS)
Components of the Current Account – Quarterly (in US$ billion)
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Source: IMF WEO Database, October 2018
5 10 15 20 25 30
Savings and Investments in the Philippines 2000-2017
CA Balance (as % of GDP) S-I Gap (as % of GDP) Total investment (as % of GDP) Gross national savings (as % of GDP)
CA balance also driven by rising private and public investments
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Source: Bloomberg
and domestic environment.
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p/ preliminary Sources: DOF, BTr
Appropriate monetary policy stance
Source: BSP
Ample fiscal space
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Selected Structural/Policy Reforms in the Philippine Economy (199
1993 Creation of the Bangko Sentral ng Pilipinas 1994 - 2001 Harmonization of the BSP’s Business Expectations Survey (BES) with International Practices; Liberalization of foreign bank entry and the telecommunications industry; Privatization of water services (MWSS); Deregulation
Tariff Reform Program (TRP) III; Accession to the World Trade Organization (WTO) 2002 Adoption by BSP of Inflation Targeting Framework 2003-2009 Launch of the BSP’s Consumer Expectations Survey (CES); Passage of the Securitization Act; Adoption of Basel II; Passage of E-VAT; Establishment of the Wholesale Electricity Spot Market (WESM); Full implementation of risk-based bank supervision; Privatization of the National Transmission Corp. and National Power Corporation 2011-2015 Adoption of phased-in migration to Basel III; Liberalization of entry of foreign banks in the Philippines; Implementation of macroprudential measures on real estate exposure; Passage of the Philippine Competition Act 2016-2017 Adoption by BSP of Interest Rate Corridor (IRC) Framework; Credit Card Industry Regulation Law; Amendment to Foreign Investment Restrictions; Economic and Financial Literacy Act; Freedom of Information; Further Liberalization of FX regulations; Implementation of Interest Rate Corridor; Financial Inclusion Steering Committee; Implementing Rules and Regulations of the Philippine Competition Act; Designated Casinos as Covered Persons under the Anti-Money Laundering Act 2018 Tax Reform for Acceleration and Inclusion (TRAIN) Law Package 1; Ease of Doing Business Act, National ID System; Amendment to the Foreign Investment Negative List (FINL) 2019 Amendments to the Bangko Sentral ng Pilipinas Charter Replacing Quantitative Restrictions (QR) on Rice with Tariffs Other Structural Reforms in the Pipeline for 2019-onwards Corporate Income Tax and Incentives Reform Act (TRAIN Package 2) Amendments to Bank Secrecy Laws Exemption of Small Scale Miners from Payment of Income and Excise Tax on Sale of Gold to BSP
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surveillance
policies
cooperation and coordination
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lend support to economic growth over the near and medium term
a/ Approved by the DBCC on 16 October 2018. b/ Cash remittances coursed through banks. c/ Approved by the Monetary Board on 6 December 2019.
*Inflation forecasts as part of macroassumptions for the national budget. r – revised; n.a. – not available
Indicators Actual Projections 2016 2017 2018 2018 2019 GDP Growth (%, 2000=100) 6.9 6.7 6.2 6.5 – 6.9 a/ 7.0 – 8.0 a/ Fiscal Balance (% of GDP)
Headline Inflation (% forecasts, 2012=100) 1.3 2.9 5.2 4.8-5.2 a/ 3.0 – 4.0 a/ Goods Exports, per BPM6 concept (% growth rate)
21.4
1.0 a/ 6.0 a/ Goods Imports, per BPM6 concept (% growth rate) 17.7 18.0 13.2 (Jan- Sep) 10.0 a/ 9.0 a/ OF Remittances b/ Amount (USD bn) Growth Rate (%) 26.9 5.0 28.1 4.3 28.9 3.1 28.9 c/ 3.0 c/ 29.8 c/ 3.0 c/ Balance of Payments (USD bn)
Gross International Reserves (USD bn) 80.7 81.6 78.5 76.0 c/ 77.0 c/
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pessimistic: due to escalation of downside risks to economy.
growth fundamentals are robust as a result of broad transformation in its drivers: the economy’s growth is underpinned by a solid structural narrative and supported by strong fundamentals.
mission: to promote and maintain price stability and a strong financial system conducive to a balanced and sustainable growth of the economy.
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Deputy Governor Diwa C. Guinigundo Bangko Sentral ng Pilipinas
The Philippine Economy: Cautious Optimism
22 February 2019