Republic of the Philippines Investor Presentation October 2017 - - PowerPoint PPT Presentation

Republic of the Philippines

Investor Presentation October 2017

2

Table of Contents

• Strengthening Credit Profile……………………….....................................................................3
• Favorable Macroeconomic Trends.........................................................................................5
• Healthy External Position…..................................................................................................12
• Sound and Stable Financial System……………......................................................................18
• Sound and Strengthening Government Finances.................................................................20
• Infrastructure Development…………....................................................................................29
• Investor Relations Office Brochure………………………………………………………………………32

Strengthening Credit Profile

4

Sustained Strengthening of the Philippines’ Credit Profile

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-/positive Baa2/stable BBB/stable

Real GDP Growth Rate (%) 7.1 6.1 6.1 6.9 6.4 (Jan-Jun) GDP Per Capita** (USD), PPP Concept 6,546 6,952 7,333 7,886 8,302 (Annualized) GNI Per Capita** (USD), PPP Concept 7,953 8,425 8,870 9,408 9,943 (Annualized) Inflation Rate (2006 = 100) (%) 3.0 4.1 1.4 1.8 3.1 (Jan-Sep) National Government Interest Payments (as % of Revenues) 18.8 16.8 14.7 13.9 13.9 (Jan-Aug) Fiscal Balance (as % of GDP)

• 1.4
• 0.6
• 0.9
• 2.4
• 2.1 (Jan-Jun)

Tax Revenue (as % of GDP) 13.3 13.6 13.6 13.7 14.2 (Jan-Jun) General Government Debt (as % of GDP) 39.2 36.4 36.2 34.6 NA Gross International Reserves (USD billion) 83.2 79.5 80.7 80.7 81.7 (end-Aug) ‒ Import Cover (months) 11.6 9.9 9.9 8.9 8.6 (end-Aug) Overseas Filipinos’ Cash Remittances (USD billion) 23.0 24.6 25.6 26.9p/ 16.1 (Jan-Jul) Foreign Direct Investments (USD billion) 3.7 5.7 5.6r/ 8.0r/ 3.6 (Jan-Jun) Current Account (as % of GDP) 4.2 3.8 2.5r/

• 0.3r/
• 0.2 (Jan-Jun)

External Debt (as % of GDP) 28.9 27.3 26.5 24.5r/ 23.5 (Jan-Jun)

* ROP achieved investment grade status in 2013, followed by series of upgrades from S&P, Fitch and Moody’s ** At current prices p/ preliminary r/ revised NA not available Source: BSP’s Selected Economic and Financial Indicators, DOF, BTr

Favorable Macroeconomic Trends

6

Philippines is Expected to Remain as One of the Fastest Growing Economies in Asia

GDP growth of selected Asian economies

Rating: S&P/Moody’s/Fitch Source: PSA; International Monetary Fund (IMF) WEO October 2017; Bloomberg L.P.; BSP SPEI for Q1-Q2 2017 GDP Growth Rates

6.8 6.9 6.7 6.2 5.0 4.2 3.2 6.1 6.4 6.9 5.1 5.0 5.6 3.3 5.7 6.5 6.9 6.4 5.0 5.8 3.7 6.7 6.6 6.8 6.3 5.2 5.4 3.7 7.4 6.7 6.5 6.3 5.3 4.8 3.5

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0

India (BBB-/Baa3/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 Q1 2017 Q2 2017 2017Proj 2018Proj

7 2.5 3.3 4.0 4.4 4.8 5.0 4.0 0.3 0.3 0.7 0.8 0.9 1.4 0.5 0.4 0.7 3.0 4.0 5.7 6.9 2.7

• 0.3

0.2

• 1.3
• 3.1
• 4.5
• 6.6
• 0.6

1990-1999 2000-2009 2010-2016 2015 2016 H1 2016 H1 2017 Consumption Government Investment Net Exports

2.8 4.5 6.3 6.1 6.9 7.0 6.4

0.2 0.4 0.1 0.0

• 0.1
• 0.3

0.5 0.7 1.2 2.4 2.2 2.8 2.8 2.3 1.8 2.8 3.8 3.9 4.2 4.5 3.7

1990-1999 2000-2009 2010-2016 2015 2016 H1 2016 H1 2017 Agriculture Industry Services

2.8 4.5 6.3 6.1 6.9 7.0 6.4

Economic Rebalancing Towards a More Broad-Based Growth

Capital formation remains strong

Gross capital formation (PHP bn, constant prices)

… and is an increasingly key driver of growth

GDP breakdown by expenditure (%)

Consumption and services as major drivers of growth

GDP breakdown by component

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

Source: PSA Note: Numbers may not add up due to rounding

2011 2012 2013 2014 2015 2016 H1 2016 H1 2017 Construction Durable Equipment Others +2.8%

• 4.3%

+27.9% +4.2% 1,553 1,490 1,165 1,217 1,838 +18.4% +23.7% 2,275

69.3 69.3 68.1 67.7 10.3 10.5 11.6 11.3 24.2 28.0 27.5 28.3

• 3.8
• 7.8
• 7.2
• 7.4

Household Expenditure Government Spending Capital Formation Net Exports 2016 2015 1,091.5 1,197.3 +9.7% H1 2016 H1 2017

8

1.1 2.0 3.2 3.7 5.7 5.6 8.0 3.6

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

2010 2011 2012 2013 2014 2015 2016 Jan-Jun 2017

• ROP is in the top 15 investment destinations of

choice by multinationals for 2017-2019 based

• n UNCTAD’s World Investment Report 2017.
• 2017 Investment Climate Statements of the US

State Department’s Bureau of 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 Manufacturing 37% Finance and Insurance 13% Arts, Enternainment and Recreation 11% Water Supply, Sewerage, and Waste Management 14% Real Estate 9% Wholesale and Retail Trade 6% Mining and Quarrying 4% Construction 2% Others 4% Average Growth of FDI, 2012-2016 (%)*

Increasing FDIs in manufacturing

Average Percent Share by Industry, 2012-2016

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)

78.7 97.1 33.8 11.5 7.7 6.1

• 16.3
• 8.1
• 0.5

27.8 TH TW PH VN IN SG ID CH MY KR

9

Economy Performed Well in 2016; Growth Momentum Expected to Continue in the Medium-term

Source: BSP Staff estimates

9.5 6.4 4.2 3.7

1 2 3 4 5 6 7 8 9 10 1989-1992 1993-2001 2002-2009 2010-2017Q2 0.0 0.5 2.0 2.1 0.0 0.5 1.0 1.5 2.0 2.5 1989-1992 1993-2001 2002-2009 2010-2017Q2

Incremental Capital-Output Ratio Total Factor Productivity

10

5.5 2.9 8.3 4.2 3.8 4.6 3.2 3.0 4.1 1.4 1.8 3.1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan-Sep '17 Inflation Target Band Headline CPI

3.7 3.1 2.4 2.2 2.2 2.2 2.0 1.9 1.6 1.5 1.4 3.1 3.2 2.1 1.0 1.8 1.4 0.8 2.9 1.6 1.7 1.5 Iceland Kazakhstan Panama Peru Thailand Spain Mexico Uruguay Philippines Colombia Poland

CPI volatility GDP volatility

Sustained Low Inflation Environment

Source: BSP; PSA

Inflation remains manageable demonstrating monetary policy credibility

Headline CPI (yoy, %)

Inflation condition supportive of growth

GDP, CPI volatility (20Y Standard Deviation, 2001-2020F) Source: IMF World Economic Outlook, April 2017

11 Sources: PSA, BSP, Bloomberg 1/ Inflation target range for 2017-2018 2/ Assumption approved by the MB May 18, 2017 3/ Assumption adopted by the DBCC June 9, 2016 a/ Based on Balance of Payments and International Investment Position Manual, 6th Ed. (BPM6) NA: Not Available p/: preliminary

ROP Expects Continued Robust Growth in the Medium-Term

2015 Actual 2016 Actual 2017 2018 Projections/3 Real GDP Growth (%) 6.1r/ 6.9r/ 6.5-7.5 7.0-8.0 Dubai Crude Oil (USD/bbl) 50.9 41.3 40-55 45-60 Inflation (%, average)1/ 1.4 1.8 2.0-4.0 2.0-4.0 Exchange Rate (PHP/USD) 45.5 47.5 48-50 48-51 Balance of Payments (USD, bn) 2.6

• 0.4
• 0.52/

NA Current Account (USD, bn) 7.7

• 1.0r/
• 0.62/

NA OF Cash Remittances (USD, bn) 25.6 26.9 28.02/ NA Merchandise Exports (% growth) Per BPM6 Per PSA

• 13.3
• 5.3
• 1.1r/
• 2.4r/

5.02/ 7.03/ 7.0 9.0 Merchandise Imports (% growth) Per BPM6 Per PSA

• 1.0

8.7 17.7r/ 18.3r/ 10.02/ 11.03/ 10.0 11.0 Gross International Reserves (USD, bn) 80.7 80.7 80.52/ NA

The Philippine economy is now growing on higher growth plane with increasing contribution from the manufacturing sector along with robust infrastructure investment, and solid services sector

Healthy External Position

13

5.0 5.0 6.3 6.9 8.3 10.0 10.6 Thai Baht Chinese Renminbi Philippine Peso Malaysian Ringgit Indonesia Rupiah Japanese Yen Korean Won

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 September 29, 2017)

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

61.6 61.4 66.5 65.2 64.7 73.6 75.6 80.0 78.5 77.7 77.5 74.8 72.5 59.7 50.2 44.5 37.6 38.4 36.9 33.7 32.0 28.9 27.3 26.5 24.5 23.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 end-Q2 2017 External Debt External Debt Ratio

18.5 23.0 33.8 37.6 44.2 62.4 75.3 83.8 83.2 79.5 80.7 80.7 81.7 4.6 5.1 6.7 6.4 9.2 10.4 11.6 11.5 11.6 9.9 9.9 8.9 8.6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Aug 2017

FX reserves Import cover

14

12.8 14.5 16.4 17.3 18.8 20.1 21.4 23.0 24.6 25.6 26.9 15.3 16.1

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan-Jul 2016 Jan-Jul 2017 +5.0% YOY growth

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

Structural and ‘Sticky’ Current Account Flows

Sources: BSP, IBPAP

BPO – a strong driver of employment and revenues

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

+11.7% revenue growth in 2016

Sustained growth of remittances over the years

Overseas Filipinos' cash remittances (USD bn) +5.0% growth in 2016

Rising tourism receipts provide key support to the current account

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

3.5 3.9 4.3 4.7 4.8 5.4 6.0 6.5 2.5 3.0 3.8 4.4 4.8 5.0 4.8 2010 2011 2012 2013 2014 2015 2016 2017P Arrivals Receipts

+11.3% growth in arrivals in 2016

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

15 Source: BSP, PSA

Current Account Developments Consistent with Economic Expansion

• Philippine economy’s expansion remains at an accelerated pace resulting in high rate of growth of goods imports
• Over time, as investments enhance the economy’s potential capacity and support needed infrastructure development, goods

exports are expected to increase, eventually alleviating the trade gap

(4.5) (1.4) (1.2) 3.2 11.8 29.0 15.9 15.0 20.7 10.3 (30.0) (20.0) (10.0)

• 10.0

20.0 30.0 40.0 50.0

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Other imports Consumer non-durables Consumer durables (cars, appliances, etc.) Other raw mats. & intermediate goods Mat/Acc. for mftr. of elec. eqpt. Chemicals Iron & steel Mineral fuels & lubricant Capital goods Total Imports Growth

Current Account

Current Account components, Q1 2005-Q22017 (USD bn)

Drivers of Goods Imports Growth, Q1 2005-Q2 2017

In percentage points

• 2000

2000 4000 6000 8000 10000 12000 14000

• 100000
• 80000
• 60000
• 40000
• 20000

20000 40000 60000 80000 100000 2005 2007 2009 2011 2013 2015 Jan-Jun 2017

Goods Exports (lhs) Goods Imports (lhs) BPO receipts (lhs) OF remittances (lhs) Current Account Balance (rhs)

16

0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016r 2017r Overall Trading Partners Advance Trading Partners Developing Trading Partners

Flexible and competitive peso

Peso per USD Rate, NEER (1980=100) and REER (1980=100)

Strong fundamentals and adequate reserves lend support to Peso

Source: BSP

Aug-2017

Jan-2005

91.96 63.08 108.06 82.44 51.98

77.89

Year-on-year movements show depreciation of other regional currencies

Year-on-year appreciation (+)/ Depreciation (-) of Asian Currencies vs. USD (%), 03 Oct 2017 vs. 03 Oct 2016 3.28 2.97 1.43 0.08 0.00 0.00

• 2.69
• 4.16
• 5.62
• 10.35
• 12.0
• 10.0
• 8.0
• 6.0
• 4.0
• 2.0

0.0 2.0 4.0

Thai Baht New Taiwan Dollar Indian Rupee Singaporean Dollar South Korean Won Chinese Yuan Malaysian Ringgit Indonesian Rupiah Philippine Peso Japanese Yen Note: Based on last done deal transaction (closing price)

17

Peso to Remain Driven by Fundamentals

• Recent depreciation of the peso remains fundamental-driven, reflecting robust economic growth on the back of strong imports,

increasing investments abroad and debt prepayment of residents

• The peso is expected to be broadly stable supported by structural foreign exchange inflows from overseas remittances, BPO

revenues, tourism receipts, sustained FDIs, as well as the country’s robust external payments position

Source: BSP

Sound and Stable Financial System

19

15.0

15.8

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Mar 2017

Solo basis Consolidated basis

13,591 14,248 10,507 11,093

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 Jul-17

Assets (in PHP bn) Deposits (in PHP bn)

Sound Banking System Effectively Funds Productive Sectors

Solid Asset Growth

Total Asset and Deposit Levels (PHP bn)

Improved Quality of Loan Portfolio

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

Strong capitalization well above international norms

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

7,612 8,010 1.9 2.0 1 2 3 4 5 6 7 8 9 10

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 2005 2007 2009 2011 2013 2015 Jul-2017

Loans outstanding (in PHP bn, LHS) NPL, Gross ratio

Sustained Profitability

Net Profit and ROE

154.3 156.9 10.5 9.8

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 Jun-17

Annualized Net Profit (in PHP bn, LHS) ROE (in %, RHS) BSP Regulatory Requirement: 10% International Standard: 8%

+14.7% YOY growth in deposits

Sound and Strengthening Government Finances

21

Reforms in tax administration contributing to stronger revenue effort in 1H2017

Sustainable Sound Fiscal Position

Note: Some values may not sum up to exact figure due to rounding

1 Medium Term Fiscal program, Development Budget Coordination Committee (DBCC) approved on June 9, 2017 2 Budget of Expenditures and Sources of Financing FY 2018 submitted to Congress on July 24, 2017

n.a. – not available Source: DOF, Budget of Expenditures and Sources of Financing (BESF) 2018 - Department of Budget and Management (DBM)

National Government Fiscal Performance Actual FY2017 Adjusted 1 FY2018 2 Jan-Jul 2017 Jan-Jul 2016 Jan-Jul 2017 Jan-Jun 2017 FY2016 PHP bn YoY Growth (%) % of GDP PHP bn % of GDP PHP bn % of GDP PHP bn % of GDP Total Revenues 1,371.0 1,271.2 7.8 15.6 2,196.0 15.2 2,426.9 15.3 2,840.5 16.3 Tax Revenues 1,243.6 1,132.9 9.8 14.2 1,980.4 13.7 2,258.3 14.2 2,671.7 15.3 Bureau of Internal Revenues 986.1 900.9 9.5 11.3 1,567.2 10.8 1,782.8 n.a. 2,005.0 n.a. Bureau of Customs 245.3 221.5 10.7 2.8 396.4 2.7 459.6 n.a. 637.1 n.a. Non-Tax Revenues 127.4 138.3 (7.9) 1.4 215.4 1.5 166.5 1.0 166.8 1.0 Bureau of the Treasury 61.2 72.8 (15.9) 0.7 101.7 0.7 n.a. n.a. n.a. n.a. Privatization 0.3 0.5 (48.8) 0.0 0.7 0.0 2.0 0.0 2.0 0.0 Expenditure 1,576.0 1,442.2 9.3 17.7 2,549.3 17.6 2,909.0 18.3 3,364.1 19.3 Surplus/(Deficit) (205.0) (171.0) 19.9 (2.1) (353.4) (2.4) (482.1) (3.0) 523.6 (3.0) Primary Surplus/(Deficit) (8.8) 22.7 138.6 0.0 (49.0) (0.3) n.a. n.a. n.a. n.a

22

Sustained Sound Fiscal Position

Healthy fiscal position despite acceleration of government spending

NG Primary Balance (% of GDP) National Government (NG) Revenue, Expenditure and Deficit (% of GDP), General Government Revenue (% of GDP) NG Debt and GG Debt as % of GDP

*as of end-Sep 2016 Sources: DOF, BTr

Steady decline in debt/GDP ratio Manageable Fiscal Deficits

68.5 61.4 53.9 54.7 54.8 52.4 51 51.5 49.2 45.4 44.7 42.1 42.5 59.2 51.6 44.2 44.1 44.3 42.2 41.4 40.6 39.2 36.4 36.3 34.6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 End-Jun 2017

National Gov't Debt General Gov't Debt

2.7 3.9 3.7 2.6

• 0.2
• 0.2

0.8 0.7 1.4 2.0 1.4

• 0.3

0.0

• 1
• 0.5

0.5 1 1.5 2 2.5 3 3.5 4 4.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan-Jun 2017

Primary Balance/GDP 14.4 15.6 16.5 15.6 14.0 13.4 14.0 14.5 14.9 15.1 15.8 15.2 15.6 17.0 16.7 16.7 16.5 17.7 16.9 16.0 16.8 16.3 15.7 16.8 17.6 17.7

• 2.6
• 1.0
• 0.2
• 0.9
• 3.7
• 3.5
• 2.0
• 2.3
• 1.4
• 0.6
• 0.9
• 2.4
• 2.1

19.8 19.9 20.6 21.3 21.9

• 5

5 10 15 20 25 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan-Jun 2017 NG Revenues/GDP NG Expenditures/GDP NG Deficit/GDP

• Gen. Gov. Revenues/GDP

23

Administrative measures to complement proposed legislative fiscal reforms to ensure healthy fiscal position. Revenue impact from administrative measures is estimated to reach PHP102.2bn by 2019

Ensuring Long-Term Fiscal Sustainability

Sources: Department of Finance (DOF), Bureau of the Treasury (BTr)

Rigorous tax administration continues to yield positive results

NG Revenue (% of GDP), BIR and BOC Revenue (PHP bn)

Tax effort is back on a higher trajectory

NG Tax Revenue (% of GDP)

750.3 822.6 924.1 1057.9 1216.7 1334.8 1443.3 1567.2 843.0 986.1 220.3 259.2 265.1 289.9 304.9 369.3 367.5 396.4 210.3 245.3 14.0 13.4 14.0 14.5 14.9 15.1 15.8 15.2 15.6 12.0 12.5 13.0 13.5 14.0 14.5 15.0 15.5 16.0 200 400 600 800 1000 1200 1400 1600 1800 2009 2010 2011 2012 2013 2014 2015 2016 Jan-Jun 2017 Jan-July 2017 BIR Revenues BOC Revenues Revenue-to-GDP

13.6 12.2 12.1 12.4 12.9 13.3 13.6 13.6 13.7 14.2 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan-Jun 2017

24

Personnel Services PHP990.5bn, 29.6% Maintenance Expenditures PHP537.9bn, 16.1% Debt Burden PHP351.6bn, 10.5% Allocation to LGUs* PHP558.6bn, 16.7% Support to GOCCs PHP138.2bn, 4.1% Infrastructure and other Capital Outlays1 PHP773.3bn, 23.1%

PHP3,350bn

2017 and 2018 Budget: “A Budget for Real Change”

Source: DBM

1 Excludes subsidy to GOCCs, LGU Infra Transfer intended for infra projects

Focus on Social Services to empower human capital development

2018 Proposed Budget and 2017 GAA by Sector, PHP bn and % Share

Infrastructure and Other Capital Outlays get a big allocation

2017 National Budget by Expense Class, PHP bn and % Share

2017 General Appropriations Act

• PHP3.35tn budget for 2017 is higher by 11.6% than the PHP3.002tn budget for 2016. It is equivalent to 21% of GDP
• Strictly compliant with the Supreme Court decision on the Disbursement Acceleration Program (DAP) and the Priority Development Assistance Fund (PDAF)

Measures to address underspending and increase absorptive capacity of agencies

• 24 hours/7 days a week construction work for major public infrastructure projects in urban areas
• Strengthen project monitoring by geo-tagging projects
• Streamline and accelerate the approval process of major public infrastructure projects
• Simplify the Implementing Rules and Regulations (IRRs) of the Government Procurement Reform Act
• Roll out Program Expenditure Classification(PREXC) to restructure agency budget by grouping all recurring projects under key strategies set at agency level or major

final outputs to clearly monitor public funds

• Proposed Budget Reform Bill to institutionalize budget data disclosure, civil society participation in budgeting and all the requirements of a modern budget system

2018 Proposed National Budget

• PHP3.8tn proposed budget for 2018 is 12.4% higher than 2017’s budget and is equivalent to 21.6% of GDP
• Government agencies implementing investments in education and infrastructure development will get the biggest allocations at estimated amounts of PHP691.1bn

and PHP717.1bn, respectively

• Following early approval by the House of Representatives, the Senate Committee on Ways and Means has issued its report on the 2018 budget; the budget is due to

be deliberated by the Senate on second reading Department 2018 Proposed Budget 2017 GAA Share to Total Budget (%) Social Services

1,450.5 1,351.5 38.5 40.3 Economic Services 1,153.4 922.9 30.6 27.5 General Public Services 636.5 575.4 16.6 17.2 Debt Burden 370.8 351.6 9.8 10.5 Defense 155.7 148.7 4.1 4.4 Total 3,767.0 3,350.0 100 100

Note: Rounding off may not add up to total *Includes other transfers to LGUs

25

2017 and 2018 Budget: “A Budget for Real Change”

Source: DBM *Adjusted level of infrastructure outlays based on Budget of Expenditure and Sources of Financing (BESF) 2018 and includes other infrastructure lodged in other agencies

1Infrastructure expenditure of the National Government, inclusive of infrastructure subsidies to Government Corporations and infra transfers to Local Government Units

Spending priorities on infrastructure and human capital development

Spending Priorities 2018 Proposed Budget 2017 GAA (PHP bn) Share of Total Budget (%) 2018 2017 Infrastructure

• /w: Department of Public Works and Highways

(DPWH) 643.3 467.7 17.1 14.0 Department of Transportation (DOTr) 73.8 55.7 2.0 1.7 Education

• /w: Department of Education (DepEd)

613.1 568.4 16.3 17.0 State Universities and Colleges 64.6 61.4 1.7 1.8 Commission on Higher Education 13.5 19.6 0.4 0.6 Technical Education & Skills Dev’t. Authority 7.0 6.8 0.2 0.2 Healthcare

• /w: Department of Health (DOH)

107.2 98.4 2.8 2.9 Social Protection Services

• /w: Department of Social Welfare and Dev’t.

138.0 128.4 3.7 3.8 Select Public Infrastructure Items 2017 Adjusted (PHP bn) 2018 Proposed (PHP bn) Road Networks 327.6 424.9 Flood Control Systems 82.0 133.4 Irrigation Systems 27.5 28.7 Seaport Systems 2.6 2.8 Airport Systems 6.8 10.1 Railways 22.1 26.0

• Total infrastructure spending is

programmed to reach PHP858.1bn*1 and PHP1,097.5bn in 2017 and 2018, respectively

• Infrastructure development in key

regional areas is expected to bring these communities to the mainstream

• f growth and to maximize

connectivity of sustainable urban and rural communities

26

Strong bias for domestic sources of financing to minimize FX risks

National Government Financing 2015 - 2018

Source: Budget of Expenditures and Sources of Financing (BESF) FY 2018 , Bureau of the Treasury, Department of Budget and Management

Strategic Financing Program Particulars (in millions PHP) Actual 2015 Actual 2016 Program 2017 Emerging 2017 Program 2018 NET FINANCING 242,851 330,939 584,780 572,088 821,274 External (Net) 64,782

• 24,113

43,170 43,161 144,346 External (Gross) 189,538 149,523 182,770 182,770 176,269 Less: Amortization 124,756 173,636 136,900 139,609 61,923 Domestic (Net) 178,069 355,052 541,610 528,927 706,928 Domestic (Gross) 420,072 357,497 544,969 532,286 711,958 Treasury Bills

• 17,303

23,501 54,969 51,285 71,958 Fixed Rate T Bonds 437,375 333,996 490,000 481,001 640,000 Less: Net Amortization 242,003 2,445 3,359 3,359 5,030 Gross Borrowing 609,610 507,020 727,739 715,056 888,227 Total Amortization 366,759 176,081 145,009 142,968 66,953 Financing Mix (Domestic : External) 69:31 71:29 80:20 74:26 80:20

27

10 4 90 96 100 100 100 100 100 100 100 100 2003 2005 2010 2011 2012 2013 2014 2015 2016 End-Jun 2017 Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr 30 19 10 8 9 7 7 5 8 41 26 20 14 12 10 10 6 14 29 54 70 78 79 82 83 90 79 2005 2010 2011 2012 2013 2014 2015 2016 End-Jun 2017 Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr

36.7 31.7 23.6 22.6 24.8 24.4 20.5 20.4 18.8 16.8 14.7 13.9 14.7 13.9 31.1 29.7 23.3 21.4 19.6 19.3 17.9 17.6 17.2 16.2 13.9 11.9 13.4 12.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan-Aug 2016 Jan-Aug 2017

Interest Payments/Revenue Interest Payments/Expenditure

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

Fiscal Deficit is Increasingly being Funded from Domestic Sources

Steady decline in the Republic’s interest service burden

Interest payments / NG revenue (%) and Interest payments / NG expenditure (%)

52 56 56 59 57 56 58 58 64 66 67 65 65 65 48 44 44 41 43 44 42 42 36 34 33 35 35 35 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 End- Jun 2017 External Domestic

28

Priority Legislative Measures

• The Comprehensive Tax Reform Package (CTRP) aims for a simpler, more equitable and efficient tax system with a goal of lowering the

tax rate and at the same time broadening the tax base, resulting to net positive gains in government revenues

• Lower personal income and corporate tax rate to be competitive with the region to boost spending power of wage earners and

encourage more investments

• Update: House Bill No. 5636 for Package 1 of CTRP or the Tax Reform for Acceleration and Inclusion Act (TRAIN) was approved by the

House of Representatives on May 31, 2017; Senate Bill No. 1592 or TRAIN is now pending in Senate for second reading Package 1: Tax Reform for Acceleration and Inclusion Act, House Bill 5636 Revenue impact of HB 5636 with complementary measures 2018 – PHP133.8bn 2019 – PHP233.6bn 2020 – PHP272.9bn 2021 – PHP253.0bn 2022 – PHP269.9bn Salient features:

• Lowering of Personal income tax (PIT) rates except for those belonging in the highest income brackets

but indexed to cumulative Consumer Price Index (CPI) every three years;

• A flat rate of 6% for the estate and donor’s taxes;
• Broadening the tax base by removing special laws on VAT exemptions but retaining exemptions for senior

citizens and persons with disabilities;

• Staggered “3-2-1” excise tax increase for petroleum products from 2018 to 2020 but with no indexation to

inflation, and liquefied petroleum gas (LPG) used as feedstock to be exempted from the hike;

• A five-bracket excise tax structure for automobiles with a two-year phase-in period for the tax increases;
• Excise tax of PHP10 per liter on sugar sweetened beverages;
• Earmarking of the proceeds from the fuel excise tax increase for social protection programs
• Tax administration reforms such as the fuel marking and monitoring system to curb oil smuggling, the use
• f electronic receipts, and the mandatory connection of the point-of-sale (POS) system of all

establishments to the BIR, and the relaxation of bank secrecy laws for investigating and combating tax fraud

• Complementary measures are motor vehicle user’s charge and proposed estate tax amnesty

Other Tax Reforms in the Pipeline:  Corporate income tax (CIT) - reduce CIT rate to 25% from 30% and rationalize fiscal incentives to be more transparent, targeted, performance-based, and time-bound sunset provisions to existing incentives  Capital income tax - harmonize capital income tax rates for dollar deposits and investment, dividends, equity, fixed income  Property tax –harmonize tax on land valuation  Health, environment and luxury tax – introduce new tax and amend current tax

Fairer, Simpler and More Efficient Tax System

Proposed tax reform packages to broaden the tax base, generate revenues and fund investments

Infrastructure Development

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Spending Big on Public Infrastructure to Improve Competitiveness

Notes: The simulation was based on the 2006 IO semi- closed global model; Impacts are maximum average per year; GVA and household income are nominal values; and PHP 8.2-9.0 tn is based

• n

the government’s commitment as released to the public at http://www.dbm.gov.ph/?page_id=16102

Years 2017P 2018P 2019P 2020P 2021P 2022P Infrastructure Spending (in PHP bn) 858.1* 1,101.0 1,295.5 1,456.6 1,584.0 1,840.2 As % of GDP 5.4%* 6.3% 6.8% 6.9% 6.9% 7.3%

• The government plans to ramp up infrastructure investments to reach PHP8-9tn (or USD160bn to USD170bn) in the next 5 years
• Infrastructure investment is projected to reach 7.3% of GDP by 2022
• A quarter of the 2017 national budget or PHP858.1bn*, equivalent to 5.4%* of GDP has been allocated to jump start the infrastructure buildup

Estimated Impact of Public Infrastructure Spending Year Additional GVA (% of GDP) Additional Employment (Number of Persons) 2017 0.3 106,824 2018 2.6 823,696 2019 3.5 1,115,999 2020 3.9 1,228,964 2021 4.4 1,399,463 2022 5.4 1,705,021 Annual Average 3.4 1,063,328 Top 10 Industries/Sectors that will likely benefit from the accelerated infrastructure spending

In terms of Effect on Gross Value Added

• Construction
• Household Sector
• Wholesale and retail trade
• Food manufactures
• Crude oil, natural gas and condensate
• Basic metal industries
• Petroleum and other fuel products
• Chemical and chemical products
• Non-metallic mineral products
• Electricity

In terms of Jobs Created

• Construction
• Wholesale and retail trade
• Wood, bamboo, cane and rattan articles
• Forestry
• Fabricated metal products
• Stone quarrying, clay and sandpits
• Land transport
• Non-metallic mineral products
• Gold mining
• Renting and other business activities

Source: NEDA

Infrastructure Spending Targets for 2017-2022** Massive Infrastructure Investment

Note: Medium Term Fiscal Program FY 2017-2022 (June 9, 2017) *Adjusted level of infrastructure outlays based on Budget of Expenditure and Sources of Financing (BESF) 2018. Refers to the infrastructure expenditure of the National Government inclusive of infrastructure subsidies to Government Corporations and infrastructure transfers to Local Government Units **Refers to the infrastructure expenditure of the National Government inclusive of infrastructure subsidies to Government Corporations and infrastructure transfers to Local Government Units

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Spending Big on Public Infrastructure

Rapid administrative response for infrastructure development High impact projects envisioned to increase the economy’s productive capacity, create jobs, increase incomes, and strengthen the investment climate make up the boldest and most ambitious infrastructure development plan for the Philippines worth at least USD79.7bn*

*Includes 75 Infrastructure Flagship Projects and other infrastructure projects listed in the Build Build Build Portal; Excludes DOTr’s Maritime Safety Capability Project; 24 projects without estimated cost yet Source links: NEDA Board Approved Projects (Duterte Administration), http://www.neda.gov.ph/wp-content/uploads/2017/07/ICC-NB-Approved-Projects-as-of-17Jul2017-Duterte-Admin.pdf; Infrastructure Flagship Projects, http://www.neda.gov.ph/wp-content/uploads/2017/07/Infrastructure-Flagship-Projects-as-of-June-27-2017.pdf; http://www.build.gov.ph/Home/Project#; NEDA ODA Pipeline of Programs and Projects as of June 30, 2017

18 airport projects USD4,641.0mn 13 railway projects USD49,273.6mn 6 mass transit projects USD1,771.5mn 7 seaport/fish port projects USD1,239.9mn 45 major projects on roads and bridges USD14,478.0mn 8 flood control project USD2,224.4mn 12 irrigation/ water resource projects USD1,568.8mn 7 projects for new cities USD4,481.6mn 5 Other projects USD60.3mn The NEDA Board, which is chaired by the President, has approved 30 infrastructure programs and projects as of September 2017*

Investor Relations Office

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Investor Relations Office

Strengthening the Investor Community 16 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 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 sixteen 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:

• Dissemination of key economic and financial information about economic policy
• bjectives and performance
• Seeking market feedback on current and proposed policy measures
• Providing feedback to economic policy-makers about investor sentiment
• Facilitating

candid and constructive dialogue between policy-makers and investors

Promoting excellence in investor relations. Enhancing sovereign value

34

Investor Relations Office

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:

• Regular Economic Briefings to update the business community, media and industry organizations on the country’s economic performance
• Investor Roadshows to bring the Government’s resilient economic performance record, commitment to sound economic management and responsible

reform to members of the international financial community

• Media Briefings to raise awareness of the Government’s progress in economic reforms and plans for ongoing reforms
• Government Policy Roadshows to increase the business community’s understanding of government policy measures to generate support for the policy

implementation process

• Investor Teleconferences to provide timely updates on key economic performance indicators
• E-mail service to keep investors and other investors abreast of data releases on a regular basis
• An English Language website, www.iro.ph, to provide a wide range of easily accessible information about the Philippines’ economic performance and the

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

• A. Mabini St. cor. P. Ocampo St.

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 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 Nestor Espenilla, Jr.

Republic of the Philippines

Investor Presentation October 2017