The Republic of the Philippines Resilient Against All Odds December - - PowerPoint PPT Presentation

December 2013

Resilient Against All Odds

The Republic of the Philippines

This document does not constitute or form part of and should not be construed as an offer to sell or issue or the solicitation of an offer to buy or acquire securities of the Republic of the Philippines (the “Republic”) or as an inducement to enter into investment activity. No part of this document, 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 document is not financial, legal, tax or other product advice. This document has been prepared by the Republic based on information available to them for use at a non-deal road show presentation by the Republic for selected recipients for information purposes only and does not constitute a recommendation regarding any securities of the Republic. The information has not been independently verified. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information

• r the opinions contained herein. None of the Republic or any of its advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever

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• pinion, reasonable. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual economic results, financial

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Outline

I. Update – Typhoon Yolanda and Impact on the Philippines ........................4

• II. Investment Grade Philippines – Sovereign Credit Highlights ……………..6
• III. Powerful Reform Momentum – Gains in Governance and

Supportive Political Backdrop ………………………………………………….26

I. Update – Typhoon Yolanda and Impact on the Philippines

Landfall on 11/8/2013 Sustained winds of 270kph (168mph) with gusts up to 312kph (194mph) State of National Calamity declared by the President. Local governments units of Samar, Leyte, Cebu, Iloilo, Capiz, Aklan & Palawan have also declared state of calamity in their respective areas Estimated damage over PHP 27.8 billion (USD 634.4m) to date* PHP 15.6bn (USD 354.5m) to infrastructure PHP 12.3bn (USD 279.9m) to agriculture PHP 631.0m (USD 14.4m) worth of relief assistance has been provided to affected families*

Impact and Response to Super Typhoon Yolanda (Haiyan)

Assessment of the damage and funding the recovery

5

Power has been restored in 33% of municipalities and the Government targets to restore power in all municipalities before Christmas All air and sea ports affected are open for commercial flights and sea vessels except Tacloban airport All national roads in affected areas have been cleared and are now passable The government is implementing cash for work program which employs Yolanda victims for clearing and cleaning operations, and reconstruction of schools and government buildings DPWH has started to construct bunkhouses in Tacloban City and Palo, Leyte as temporary shelter for disaster victims

Super Typhoon Yolanda: Immediate Response

5,598 reported dead* 1,759 persons missing* 26,136 injured* 1,095 evacuation centers sheltering 48,239 families (219,158 people)* The government has imposed price controls on basic goods and commodities in the affected areas and is in charge of the use of funds for rescue, recovery, relief, and rehabilitation efforts

ROP Response: Progress in Impacted Areas Funding the Recovery

Sources: Bangko Sentral ng Pilipinas (BSP), National Economic and Development Authority (NEDA), and National Disaster Risk Reduction and Management Council (NDRRMC) * Figures as of November 29, 2013, 6:00 a.m. Exchange rate used is USD1=PHP43.884

Foreign nations and international organizations have pledged USD 414.6 million (PHP 18.2bn) in cash and kind.* Status of donations can be viewed in www.gov.ph under the Foreign Aid Transparency Hub (FAiTH) ROP has ample fiscal space to spend for relief efforts. Actual expenditure for Jan-Sep 2013 was 5.0% below program;

• verall fiscal deficit for Jan-Sep 2013 was PHP 101.2bn, well

within the program of PHP 144.5bn for the same period and PHP 238.0bn for 2013 Under the proposed 2014 budget, PHP 55.5 billion (USD 1.26bn) will be earmarked for reconstruction of affected areas

• II. Investment Grade Philippines – Sovereign Credit

Highlights

2005 vs. Latest 2005 Latest Change Sovereign Credit Ratings Fitch Ratings BB BBB- (Mar 2013) Standard and Poor’s BB- BBB- (May 2013) Moody’s Investors Service B1 Baa3 (Oct 2013) GDP Growth Rate 4.8 7.4 (Jan-Sep 2013) GDP Per Capita1 (USD), PPP concept 3,061 4,381 (2012) GNI Per Capita1 (USD), PPP concept 3,855 5,770 (2012) National Government Interest (% of Revenue) 36.7 20.4 (Jan-Sep 2013) Fiscal Balance (% of GDP) (2.6) (1.2) (Jan-Sep 2013) General Government Debt (% of GDP) 59.2 38.5 (end-Mar 2013) Gross International Reserves (USD bn) 18.5 83.6 (end-Oct 2013) Import Cover (months) 3.8 11.9 (end-Oct 2013) OF Remittances (USD bn) 10.7 18.2 (end-Sep 2013) External Debt Service Burden (% of CAR) 12.6 7.6 (Jan-Aug 2013) Current Account (% of GDP) 1.9 4.2 (Jan-Jun 2013)

Sources: BSP, NEDA, Department of Finance (DOF) 1/ At current prices

ROP Achieves Investment Grade from Fitch, S&P and Moody's

Improved credit metrics over the past 7 years

7

6.8 7.7 7.67.0 1 2 3 4 5 6 7 8 Singapore Taiwan Korea India Thailand Malaysia Vietnam Indonesia Philippines China FY 2012 Q1 2013 Q2 2013 Q3 2013

Sources: National Statistical Coordination Board (NSCB)

The Philippines is one of the fastest growing and most dynamic economies in Asia Real GDP Growth (%)

Robust Economic Outperformance in Asia

ROP’s economy has grown faster than most peers

8

2012 Q1-Q3 2012 Q1-Q3 2013

GDP Growth (constant, base year = 2000) 6.8% 6.7% 7.4%

By Industrial Origin Share to GDP

Growth Share Growth

Share to GDP

Growth

Rate to GDP Rate Rate Agri, Fishery, Forestry and Hunting 11.1 2.8 10.7 2.0 10.1 1.1 Industry 32.0 6.8 31.8 6.1 32.5 9.8 Of which: Manufacturing 22.1 5.4 21.8 5.4 22.3 9.8 Services 56.9 7.6 57.5 8.0 57.4 7.3 By Expenditure Household Final Consumption 70.4 6.6 69.0 6.7 67.8 5.6 Government Final Consumption 10.3 12.2 11.1 13.0 11.6 12.3 Capital Formation 18.5

• 3.2

16.9

• 8.5

19.6 24.4 Of which: Fixed Capital 20.3 10.4 19.9 17.2 21.1 14.0

• f which: Public Construction

1.8 29.8 1.7 37.0 2.1 31.8 Private Construction 6.4 11.5 6.1 3.7 4.3 11.5 Exports 48.4 8.9 52.6 8.9 48.3

• 1.4

Imports 47.6 5.3 49.5 4.5 48.0 4.4

443.1 299.5 506.5 657.3 672.3 281.3 384.5 100 200 300 400 500 600 700 800

• Broad-based growth highlights overall health of the economy

Sources: NSCB, Department of Trade and Industry (DTI) *Philippines, Indonesia, Malaysia, Thailand, Vietnam

Decade of rapid and sustained economic growth is set to continue

Strong and Consistent Growth

• The Philippines is one of the fastest growing nations in Asia, GDP

growth in the first nine months of 2013 is 7.4%

• Philippine growth is increasingly broad based with particular strength

coming from services and the resurgence of the industry sector led by construction and manufacturing

• Government’s focus on attracting investment and facilitating

infrastructure development coupled with the nation’s favourable demographics will help propel economic growth in the long term

Real GDP Growth (% yoy)

9

Continued increase in foreign investment inflows into the Philippines BOI-PEZA Approved Investments (PHP bn)

• Investors are beginning to take note of improving investment climate

and governance in the ROP

• Infrastructure development is accelerating with private and public

construction increasing 16.3% in the first nine months of 2013

• Budgetary allocation for public infrastructure increased by 17.7% in

2013

• ROP posted the highest FDI growth rate of 54% in ASEAN* in 2012

Note: Figures are at constant 2000 prices

5.0 6.7 4.8 5.2 6.6 4.2 1.1 7.6 3.9 6.6 6.7 7.4 1 2 3 4 5 6 7 8

• 2003 - 2012

Average: 5.2% +36.7% yoy

2015 2010 2010 2005 2005 1995 1990 1985 1980 1980 1965 2050 2050 2045 2040 2040 2030 2025 2020 2015 2015 1995 1950 1970 1990 2010 2030 2050 2070 Philippines India Malaysia Vietnam Indonesia Thailand China Korea Singapore Hong Kong Japan

• The median age in the Philippines is only 22.2 years, well below other “young” countries in Asia, such as Malaysia (25), India (25.1), Indonesia

(27.8) and Vietnam (28.2)

• According to United Nations’ population projections, in 2015 the Philippines will enter its Demographic Window, when the proportion of the

population that is of working age is particularly prominent

• The Philippines is the last major Asian economy to benefit from this demographic dividend, which is typically associated with accelerated

economic growth

• Extended periods of high GDP growth in Asia’s fastest-growing economies have coincided with countries entering their Demographic Windows.

On average, growth over the 10-year period following the beginning of the Demographic Window has been 7.3%

Sources: UN World Population to 2030, UN World Population Prospects (2010 Revision) IMF World Economic Outlook 1/ Defined as the period when population under 15 years old drops below 30% and population over 65 years old is less than 15%.

Youngest population in Asia supports a strong medium-term economic growth outlook Philippines has the youngest population in Asia Demographic Windows1 in Asia Poised for strong future GDP growth

• Avg. GDP Growth for First 10-years in Dem. Window (%)*

10.3 9.0 8.2 8.1 7.8 7.4 7.0 6.2 5.4 3.3 2 4 6 8 10 12

China Korea India Japan Singapore Hong Kong Vietnam Indonesia Malaysia Thailand

10

Demographics to Support Continued Fast Growth

Reaping the demographic dividend will help medium-term growth

*For nations that have not yet been in their demographic windows for 10 years, the figure is an average of their growth rate for the time in the window

Less Vulnerable to External Trade Shocks

Diversified export markets and ROP is well-positioned to benefit from US and Japan recovery

ROP’s export markets are well diversified with Europe and China accounting for only a small portion of total exports Exports by Destination (USD bn)

• The Republic, while remaining less trade dependent than most countries in Asia, has diversified its exports markets and is therefore less exposed to

the lower consumption and slower growth experienced in much of Europe and a slowing China

• In addition to being less trade dependent, exports to both China and Europe account for only a small portion of total exports for the ROP, further

insulating the economy from growth uncertainties emanating from those two regions

• Despite marginal decline of exports to Europe in 2012, ROP’s total volumes of exports have actually increased, highlighting the nation’s

strong resiliency

• ROP is well-positioned to benefit from economic recoveries in the U.S. and Japan, the Philippines’ major exports markets

Source: National Statistics Office (NSO)

11

8.5 8.4 7.9 6.6 5.9 5.9 4.6 4.7 5.7 5.5 2.9 5.7 6.1 6.2 4.8 4.8 7.3 7.7 6.2 7.8 8.9 9.8 7.7 8.2 8.6 8.2 6.8 7.6 7.1 7.4 5.8 5.5 20.4 19.3 14.6 23.8 20.0 22.7 17.2 16.8 10 20 30 40 50 60 2007 2008 2009 2010 2011 2012 Jan-Sep 2012 Jan-Sep 2013 Others United States Japan China Europe

Ability to Meet Debt Obligations

2 3 4 1 Automatic Appropriation for Public Debt Service Sound Debt Management Strategy Strengthening Fiscal Framework Bond Sinking Fund

• The Republic’s ability to meet its debt obligations has been

strengthened even further due to improving macroeconomic fundamentals − Sound debt management strategy has reduced rollover risks and increased debt carrying capacity − Improving fiscal metrics make this ability ever stronger − Unlike many peers, the ROP is not encumbered by large structural subsidies, providing additional fiscal flexibility − Government financing is shifting towards being domestically funded and denominated in Peso

• The national government’s willingness to service its debt
• bligations is enshrined in the legal system

− Bond Sinking Fund which necessitates consistent cash allocations to ensure that debt servicing ability remains intact – Presidential Decree 1177 or the Budget Reform Decree of 1977 which provides for the automatic appropriation of principal and interest payments on public debt

Rapidly Strengthening Public Finances and Debt Dynamics

Strong framework in place to guarantee ability to meet debt obligations

12

On track to meet 2013 deficit target

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

Improved Fiscal Metrics

Creating a sustainable fiscal revenue and spending path

(in Billion Pesos) Jan-Sep 2013 Actual Jan-Sep 2012 Actual % Growth 2012 v. 2013 2013 % of GDP Total Revenues 1,266.6 1,118.9 13.2 15.3 Tax Revenues 1,134.1 996.8 13.8 13.7 Bureau of Internal Revenues 898.0 772.5 16.2 10.8 Bureau of Customs 224.6 213.7 5.1 2.7 Non-Tax Revenues 132.4 122.1 8.4 1.6 Bureau of the Treasury 68.1 65.1 4.6 .8 Privatization .3 .5 (40.0) Expenditure 1,367.8 1,222.9 11.8 16.5 Surplus/(Deficit) (101.2) (103.9 ) (2.6) (1.2) Primary Surplus 156.9 141.3 11.0 1.9

13

14

Fiscal Consolidation On Track

Fiscal performance further solidifies under the Aquino Administration

2013 Deficit-to-GDP is expected to be lower than program Fiscal Performance (PHP bn) and Deficit/GDP (%)

1,137 1,203 1,123 1,208 1,360 1,535 1,267 1,149 1,271 1,422 1,522 1,558 1,778 1368

0.2 0.9 3.7 3.5 2.0 2.3 1.2

1 2 3 4 5 300 600 900 1,200 1,500 1,800 2007 2008 2009 2010 2011 2012 Jan-Sep 2013 Revenues (LHS) Expenditures (LHS) Deficit/GDP (RHS) Aquino Administration Takes Office June 2010

Improving revenue buoyancy due to rapid revenue growth 12-Month Rolling Revenue Growth (%)

17.2% 5.9% 8.9%

• 20%
• 10%

0% 10% 20% 30% Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Bureau of Internal Revenue Bureau of Customs Other Offices

Sources: DOF

10 4 90 96 100 100 100 100 20 40 60 80 100 2003 2005 2010 2011 2012 Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr

Increasing reliance on domestic financing sources

Sources: DBCC (as of Feb 2013), BTr *Pertains to National Government debt

Share of external debt to national government debt has been gradually declining over the years Debt Breakdown (% of total)* Domestic debt mix has become longer dated Domestic Debt Breakdown (% of total)* External debt is all long-dated with maturity profiles exceeding 10 years External Debt Breakdown (% of total)*

ROP Funding Becoming Increasingly Domestic

Jan-Sep 2013

15

Financing increasingly completed domestically, enhancing ROP’s debt sustainability Financing by Domestic and Foreign Sources (% of total)*

56 66 65 84 94 86 44 34 35 16 6 14 20 40 60 80 100 2009 2010 2011 2012 Jan-Sep 2013 2013 Program Foreign Domestic 51 52 56 56 59 57 56 58 58 64 65 49 48 44 44 41 43 44 42 42 36 35 20 40 60 80 100 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jan- Sep 2013 External Domestic 32 25 19 10 8 9 34 31 26 20 14 11 35 44 54 70 78 80 20 40 60 80 100 2008 2009 2010 2011 2012 Jan-Sep 2013 Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr

Sources: BTr, DOF, Standard & Poors

16

Sustained declines in ROP’s government debt ratios Debt- to-GDP Ratio (%)

54.8 52.4 50.9 51.5 48.9 49.5 44.3 43.5 41.4 40.6 38.5 30 40 50 60 2009 2010 2011 2012 Q1 2013 Q2 2013 National Gov't Debt General Gov't Debt 35.4 36.9 36.7 31.7 23.6 22.6 24.8 24.4 20.5 20.4 5 10 15 20 25 30 35 40 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Increased ability to service debt Interest Payments/Revenue (%)

Strengthening Government Finances

Declining debt ratios and interest payments support ROP’s credit

• Government finances in the Philippines continue to strengthen with sustained and rapid declines in government debt ratios

ROP’s general government debt ratio of 38.5% as of Q1 2013 is below S&P’s BBB category median of 41%

• The Republic’s effective debt management strategy resulted in increased ability to service debt as the portion of revenue that

goes to interest payments has drastically declined over the years from a high of 36.9% in 2004 to 20.4% at end Q32013.

Key Fiscal Reforms Bureau of Internal Revenue’s Administrative Reforms

Run After Tax Evaders (RATE) Program Re-engineering of business processes Electronic Tax Information Systems (eTIS) Project Organizational and Management Development Program/Rationalization Plan (RATPLAN)

Bureau of Customs’ Administrative Reforms

• Run After The Smugglers (RATS) Program
• Cleansing of the List of Accredited Importers and Consignees by the Interim Customs

Accreditation and Registration unit (ICARE)

• Integrate National Single Window (NSW) with Electronic to Mobile System (E2M)
• Intensive utilization of the Post Entry Audit Group (PEAG)
• Strengthening the Valuation Reference Information System

Sources: DOF, BIR and BOC

17

Fiscal Incentives Rationalization Review of the Fiscal Regime of the Mining Sector Tax Incentives Management and Transparency Act The Customs Modernization and Tariff Bill

Legislative Agenda

Fiscal Reforms and Programs for 2013 and Beyond

Focus to ensure that positive momentum in government finances will continue

• Gen. Public

Service 17.3% Defense 4.5% Social Service 34.9% Economic Service 25.4% Debt Burden 18.0%

2013 Empowerment Budget for Inclusive Development

The PHP 2.006 trillion 2013 budget prioritizes investments on Social Services

By Sector By Expense Class

Greater and deeper commitment to empowering the people as nation-builders through transparent, accountable and participatory governance 2013 Adjusted Budget (%)

18

• Record 2013 PHP 2,006 billion “Empowerment Budget” is 10.5% larger than the 2012 “Results-Focused Budget” of PHP 1,816 billion. The budget

includes increased spending on public services that provide jobs, education, health care, housing and empowering each Filipino to participate in economic activity

• Social services sector received the biggest share of the budget at PHP 699.4 billion, growing by 14.0% from 2012
• Greater openness and deeper public engagement transpired in crafting the budget by involving members of civil society, people’s groups, and

communities representing the country’s most marginalized and impoverished

Sources: Office of the President

Personal Services 31.9% Maintenance & Other Expenditures 17.2% Other Current Operating Expenditures 12.4% Capital Outlays 20.5% Debt Burden 18.0%

0% 2% 4% 6% 8% 10% 12% 14% Headline Inflation Lower Bound of Target Upper Bound of Target 0% 2% 4% 6% 8% 10% 12% 14% 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 M3 (LHS) Bank lending rates (RHS) Reverse repurchase rate (RHS)

Sound and Stable Inflation Environment

Monetary policy settings remain supportive of robust and non-inflationary growth

Sources: BSP

19

Firm control over inflation has proven the effectiveness and credibility of monetary policy Headline Inflation (%) Ample liqidity and low interest-rate environment supportive of healthy economic growth Money Supply and Interest Rates (PHP bn, %)

September 2013: PHP 6,202.6bn Jan-September 2013: 5.81% September 2013: 3.50%

Jan - Oct 2013 – 2.8% October 2013 – 2.9% 2002 2003 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Global inflationary cycle

38 39 40 41 42 43 44 45 46 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13

Peso Performance Supports Macroeconomic Stability

Effective monetary policy contributes to low PHP volatility

20

Sources: Bloomberg as of 24 November 2013

PHP 43.86

• 19.4%
• 15.0%
• 7.0%
• 5.2%
• 4.0%

2.4%

• 20%
• 15%
• 10%
• 5%

0% 5% IDR INR PHP MYR THB CNY

PHP performance remains broadly in line with other regional currencies 2013 YTD Change vs USD PHP has stabilized since potential QE tapering was first announced in May 2013 USD/PHP Exchange Rate

3,818

2.7

0% 2% 4% 6% 8% 10% 12% 14% 16% 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 2004 2005 2006 2007 2008 2009 2010 2011 2012 Aug-13 Loans Outstanding (LHS) (PHP bn) NPL Ratio (RHS) (%)

Prudent NPL coverage ratios will ensure that the banking system is well–prepared for any unforeseen shocks NPL Coverage Ratio (%) Banks continue to fortify their balance sheets with increased capitalization, well above international norms Capital Adequacy Ratio (%)

• The Philippines’ banking system remains healthy
• The banking system continues to improve its asset quality, with the

universal and commercial banks’ NPL ratio at 2.7% as of Aug 2013

• Bank balance sheet continues to strengthen through increased

capitalization and high loan-loss reserves

• Banks remain funded predominately through domestic deposits and

not through wholesale channels, reducing liquidity and funding risk and minimizing potential contagion from the lingering uncertainty in the Euro-zone

Sources: BSP *Banking system statistics refers to Universal and commercial banks data

Healthy Banking System a Key IG Credential

ROP exhibits an exceptionally healthy and resilient banking system

Asset quality of the banking system remains extremely strong with an NPL ratio of only 2.7% Gross Loans (PHP bn) and NPL Ratios (%)

21

18% 19%

5% 7% 9% 11% 13% 15% 17% 19%

2004 2005 2006 2007 2008 2009 2010 2011 2012 1Q2013

CAR, solo CAR, consolidated

BSP Regulatory Requirement: 10% International Standard: 8%

129% 40% 60% 80% 100% 120% 140% 160% 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sep-13

Banking System Poses Minimal Risk

Relatively smaller banking system limits potential contingent liabilities

Potential contingent liabilities of the banking sector is smaller than peers given relatively smaller size Domestic Credit to Private Sector (% of GDP)1 Strong deposit base supports banking sector funding Gross Loans-to-Deposits Ratio (%)

• Banking sector remains well-funded through domestic deposits – prudent and conservative underwriting standards and credit have kept system

loans-to-deposit ratio low at 68.7% as of June 2013

• Reduces the probability of banks seeking emergency funding from the sovereign in times of stress
• Minimal risk of credit-fueled asset bubbles that threaten many other Asian nations with high growth rates
• Banking system assets remain small relative to the total size of the economy compared to major peers - even in the extremely unlikely scenario

that a banking system crisis were to occur, potential government contingent liabilities for the ROP would still be lower than peers

Sources: BSP, World Bank

1Based on 2012 World Bank data

22

73.3 72.4 69.3 70.9 69.7 68.1 64.5 70.0 73.5 68.7 60 62 64 66 68 70 72 74 76 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jun-13

147.6 131.6 118.2 148.0 33.4 34.9 50 100 150 200 Thailand China Malaysia Korea Philippines Indonesia

Sources: BSP, NSCB

Robust External Profile Despite External Challenges

Structurally strong balance of payments bolsters external finances

The Philippines enjoys a structurally positive BOP Balance of Payments (USD m)

• ROP’s current account continues to be in surplus supported by robust remittances from overseas Filipino workers (“OFWs”), substantial

Business Process Outsourcing (“BPO”) revenues and increasing tourism receipts

• BOP surplus sustained at USD 3.8bn as of end-Oct 2013
• While exports remain relatively subdued due to the global economic environment, the Philippines nonetheless posted a 7.6% yoy growth of total

exports in 2012, highlighting the relative resiliency of exports despite global uncertainty

• In 2012, FDI grew 54% to USD 2.8bn from USD 1.8bn in 2011, the sharpest rise among ASEAN countries
• 202

810 115

• 280

2,410 3,769 8,557 89 6,421 14,308

• 5,000

5,000 10,000 15,000 20,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Capital and Financial Accounts Current Account Net Unclassified Items Balance of Payments BOP Statistics beginning in 2011 are based on IMF’s BPM6 BOP Statistics for 2001 to 2010 are based on IMF’s BPM5

23

11,400 9,236 1,316 2,577 2011 2012 1H 2012 1H 2013 p/

2.5

3.0 3.8 1.2 1.3 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 2010 2011 2012 Q1 2012 Q1 2013

Structural Consistent Current Account Surpluses

Strong support provided by remittances, tourism, and BPO

Sources: BSP, Department of Tourism, Information Technology and Business Processing Association of the Philippines

24

Strong and stable rise in remittances over the years Overseas Filipinos’ Cash Remittances (USD bn) Tourism is a growing source for national growth International Visitor Receipts (USD bn) BPO – a strong driver of employment and revenues BPO Employment (‘000s) and Revenues (USD bn)

• The Republic’s balance of payments is supported by a structural

current account surplus due to robust OF emittances as well as rapidly expanding tourism and BPO sectors

8.6 10.7 12.8 14.5 16.4 17.3 18.8 20.1 21.4 15.6 16.5 5 10 15 20 25

2004 2005 2006 2007 2008 2009 2010 2011 2012 Jan-Sep 2012 Jan-Sep 2013

+5.8% yoy 1.5 2.4 3.2 4.8 6.1 7.1 8.9 11.0 13.4 2 4 6 8 10 12 14 16 100 200 300 400 500 600 700 800 900 2004 2005 2006 2007 2008 2009 2010 2011 2012 Employment ('000) (LHS) Revenues (USD bn) (RHS)

Sources: BSP Note: October GIR preliminary

International reserves provide strong buffers to any BOP problems

Adequate International Reserves and Declining Debt Ratios

25

ROP is effectively protected against any balance of payment shocks through adequate international reserves FX Reserves (USD Bn) and Months of Import Cover

• ROP currently enjoys a healthy level of international reserves of USD 83.6bn as of end-October 2013, enough to cover 11.9 months of total imports
• The Republic’s foreign exchange reserves now exceeds gross external debt
• Strong reserve buildup is a prudent measure to 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, a relatively rare occurrence for a nation at the Philippines level of development
• Furthermore, the Philippines is a fully participating member of the Chiang Mai Initiative and the BSP has in addition negotiated several large bilateral

foreign currency swap agreements with China, Korea, and Japan, enhancing the strength of ROP’s external and FX positions

External debt-to-GDP ratio has significantly declined, underscoring the health of external finances External Debt (USD Bn) and External Debt / GDP (%)

17.1 16.2 18.5 23.0 33.8 37.6 44.2 62.4 75.3 83.8 83.6

4.0x 3.6x 3.8x 4.2x 5.8x 6.0x 8.7x 9.5x 12.1x 11.9x 11.9x

– 2x 4x 6x 8x 10x 12x 14x 16x 18x 20x 10 20 30 40 50 60 70 80 90 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Oct-13 FX Reserves (LHS) # Months of Import Cover (RHS) 55 54 54 55 54 55 60 60 60 61 60.2 52.7 44.1 37.1 31.3 32.6 30.1 27.0 24.1 21.8 10 20 30 40 50 60 70 50 52 54 56 58 60 62 2004 2005 2006 2007 2008 2009 2010 2011 2012 Aug-13 External Debt (USD bn) (LHS) External Debt/GDP (RHS)

III. Powerful Reform Momentum – Gains in Governance and Supportive Political Backdrop

Real progress being made in helping the poor Net Satisfaction with the National Administration on Helping the Poor (%) Administration has a strong national mandate and viewed as sincere in fighting graft and corruption Net Satisfaction with the National Administration on Eradicating Graft and Corruption (%)

C.AQUINO RAMOS ESTRADA ARROYO B.AQUINO

Widespread Support for the Aquino Administration

Strong mandate by the public to improve governance

Record satisfaction rankings for the Aquino Administration provide popular backing for reforms Net Satisfaction with General Performance of the National Administration (%)

27

Sources: 2013 SWS Survey Review (23 September 2013), Social Weather Station National Surveys Net figures (% Satisfied minus % Dissatisfied) correctly rounded.

• 60
• 40
• 20

20 40 60 80 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

+66

Delivery of Public Services Improved Legislation and Policy Review Transparency

Disclosure of Official Acts Public Access to Information Punitive Measures Anti-Corruption Efforts Performance Management Preventive Measures Improving Public ReSources Management

Citizen Engagement

Participation in Governance Partnership & Constituency Building Establishing Results- Oriented Management Enhancing Frontline & Regulator Processes

Good Governance and Anti-Corruption

Accountability Corruption Curbed Business Environment Enhance Enforcement of Laws Digitization and Innovation Advocacy and Communication

Good Governance and Anti-Corruption remain front and center

Improving Governance Framework

Continued focus on Good Governance and Anti-Corruption is already reaping results, with more to come

Sources: DBM

28

ROP has shown improvements in governance and competitiveness indicators

• Zero Based Budgeting to

improve expenditure management

• Pocket Open Skies to

support tourism potential

• Peace Agreement to

unleash Mindanao’s potential

• Sin Tax Law to further

strengthen the fiscal position

• Reproductive Health Act

to improve family health planning

• Judicial Reform to

enhance the regulatory environment and ensure level playing field

Strong political will to pursue and implement difficult reforms

Results are Significant - Good Governance is Winning Out

The reforms that the Republic has been implementing in past years are already bearing fruit as confirmed by improved rankings

• f the country from third party assessors

29

Third Party Report Latest Previous Change

World Bank’s 2014 Ease of Doing Business Report 108 /189 133/185

+25

Transparency International 2012 Corruption Perception Index 105/179 129/183

+24

World Bank 2013 Worldwide Governance Indicators’ Regulatory Quality* 52 45

+7

IMD 2013 World Competitiveness Report 38/60 43/59

+5

Heritage Foundation 2013 Economic Freedom Index 97/177 107/179

+10

Thomson Reuters/INSEAD Asia Business Sentiment Survey** (Q3 2013 vs Q2 2013) 100 94

+6

Grant Thornton 2013 Global Dynamism Index 21/60 46/50

+25

* Percentile Ranking * * % of Respondents with positive outlook on the Philippines

Global Competitiveness Rankings 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014

Overall Rank

85 10 75 10 65 6 59

Institutions 125 8 117 23 94 17 79 Infrastructure 104

• 1

105 7 98 2 96 Macroeconomic Environment 68 14 54 18 36

• 4

40 Health and Primary Education 90

• 2

92

• 6

98 2 96 Higher Education and Training 73 2 71 7 64

• 3

67 Goods Market Efficiency 97 9 88 2 86 4 82 Labor Market Efficiency 111

• 2

113 10 103 3 100 Financial Market Development 75 4 71 13 58 10 48 Technological Readiness 95 12 83 4 79 2 77 Market Size 37 1 36 1 35 2 33 Business Sophistication 60 3 57 8 49

• 49

Innovation 111 3 108 14 94 25 69

• The Philippines has improved by 26

spots in the WEF Global Competitiveness Rankings over the past four years, making it one of the most improved countries in the world during this period

• Sub-rankings in Institutions and

Innovation have in particular improved dramatically, improving 46 and 42 positions, respectively, over the past 3 years

• Improving governance and the

economy have been key areas

• f focus for the Aquino

Administration

• Proof that ROP is making real

progress in improving governance and institutions

• Strong improvement in

Innovation implies a bright future for the Philippines and higher value-added services

SIgnificant improvements for the Republic in the World Economic Forum Global Competitiveness Rankings

30

Sources: World Economic Forum Global Competitiveness Rankings

A Structurally More Competitive Nation

Consistent improvements in competitiveness

1997: Privatization of water services 1997: Privatization of water services 2002: Adoption by BSP of Inflation Targeting Framework; Passage of the Special Purpose Vehicle Act 2002: Adoption by BSP of Inflation Targeting Framework; Passage of the Special Purpose Vehicle Act 2001: Liberalization of the Power sector (EPIRA) 2001: Liberalization of the Power sector (EPIRA) 2000: Passage of the Philippine E-Commerce Act 2000: Passage of the Philippine E-Commerce Act 2007: Full implementation

• f risk-based bank

supervision 2007: Full implementation

• f risk-based bank

supervision 2006: Establishment of the Wholesale Electricity Spot Market (WESM) 2006: Establishment of the Wholesale Electricity Spot Market (WESM) 2003: Passage of the Government Procurement Reform Act 2003: Passage of the Government Procurement Reform Act 2004: Passage of the Securitization Act; Adoption of Basel II 2004: Passage of the Securitization Act; Adoption of Basel II 1998: Deregulation of the

• il industry and adoption of

consolidated bank supervision 1998: Deregulation of the

• il industry and adoption of

consolidated bank supervision 2005: Passage of the Expanded Value-Added Tax (VAT) 2005: Passage of the Expanded Value-Added Tax (VAT) 1994-95: Liberalization of entry of foreign banks and the telecommunications industry 1994-95: Liberalization of entry of foreign banks and the telecommunications industry

31 1990s 2000 - 2009

1993: Creation of the Bangko Sentral ng Pilipinas 1993: Creation of the Bangko Sentral ng Pilipinas 2009: Privatization of the National Transmission Corporation’s (TransCo) and National Power Corporation’s (NPC) assets 2009: Privatization of the National Transmission Corporation’s (TransCo) and National Power Corporation’s (NPC) assets

ROP's Track Record of Reforms

Positive transformation of economy is a result of long history of structural reforms

ROP's Track Record of Recent Reforms

Proven ability to institute critical reforms

Reinvigorated implementation

• f programs against corrupt
• fficials, tax evaders and

smugglers Reinvigorated implementation

• f programs against corrupt
• fficials, tax evaders and

smugglers Set up the Debt Management Office at the Department of Finance Set up the Debt Management Office at the Department of Finance Applied Zero Based Budgeting Approach in preparing the 2011 Budget Applied Zero Based Budgeting Approach in preparing the 2011 Budget Launched PPP Program Launched PPP Program Implementation by the Bureau of Customs (BOC)

• f Electronic to Mobile

System; Enhancement of the agency’s post-entry audit capability Implementation by the Bureau of Customs (BOC)

• f Electronic to Mobile

System; Enhancement of the agency’s post-entry audit capability Issued guidelines on the adoption of Philippine Financial Report Standards (PFRS) 9: Adopted phased- immigration to Basel III Issued guidelines on the adoption of Philippine Financial Report Standards (PFRS) 9: Adopted phased- immigration to Basel III Passage of the Government-Owned-and- Controlled Corporations (GOCCs) Governance Act

• f 2011

Passage of the Government-Owned-and- Controlled Corporations (GOCCs) Governance Act

• f 2011

Bureau of Customs National Single Window Bureau of Customs National Single Window Enhanced Business Name Registration System Enhanced Business Name Registration System Program Budgeting Approach Program Budgeting Approach Nationwide Launch of Philippine Business Registry Facility Nationwide Launch of Philippine Business Registry Facility Launched Food Staples Sufficiency Program Launched Food Staples Sufficiency Program Passage of Amendments to Sin Tax Law; Amendments to the Anti-Money Laundering Act of 2001, and Reproductive Health Law Passage of Amendments to Sin Tax Law; Amendments to the Anti-Money Laundering Act of 2001, and Reproductive Health Law Issued EO 29 on Open Skies Policy Issued EO 29 on Open Skies Policy Issued EO 79 Institutionalizing and Implementing Reforms in the Philippine Mining Sector Providing Policies and Guidelines to Ensure Environmental Protection and Responsible Mining in the Utilization of Mineral Resources Issued EO 79 Institutionalizing and Implementing Reforms in the Philippine Mining Sector Providing Policies and Guidelines to Ensure Environmental Protection and Responsible Mining in the Utilization of Mineral Resources Enacted RA 10574 "An Act Allowing the Infusion of Foreign Equity in the Capital of Rural Banks Enacted RA 10574 "An Act Allowing the Infusion of Foreign Equity in the Capital of Rural Banks Bangsamoro Peace Framework Signed Bangsamoro Peace Framework Signed

2010 2011 2012 2013 32

Pipeline Developmental Reforms and Programs

Accelerating reforms to achieve sustainable and inclusive growth

Amendments to the Build Operate Transfer Law or RA 7718 Amendments to the Build Operate Transfer Law or RA 7718 Amendments to the Anti- Money Laundering Act Amendments to the Anti- Money Laundering Act Amendments to the Bangko Sentral ng Pilipinas Charter Amendments to the Bangko Sentral ng Pilipinas Charter Customs Modernization and Tariff Act (CMTA) Customs Modernization and Tariff Act (CMTA) Full implementation of the Government Integrated Financial Management Information Systems (GIFMIS) in 2013 Full implementation of the Government Integrated Financial Management Information Systems (GIFMIS) in 2013 Site or Location for National Government Infrastructure Projects Site or Location for National Government Infrastructure Projects Removal of Investment Restrictions in Specific Laws cited in the Foreign Investment Negative List (FINL) Removal of Investment Restrictions in Specific Laws cited in the Foreign Investment Negative List (FINL) Amendments to RA8974 or the Act to Facilitate the Acquisition

• f Right-of-Way

Amendments to RA8974 or the Act to Facilitate the Acquisition

• f Right-of-Way

Rationalization of the Mining Fiscal Regime Rationalization of the Mining Fiscal Regime Amendments to the Cabotage Law Amendments to the Cabotage Law Tax Incentives Management and Transparency Act Tax Incentives Management and Transparency Act

33 2013 & Beyond January 2014

Rationalization

• f Fiscal Incentives Law

Rationalization

• f Fiscal Incentives Law

January 2014: Implementation of Basel III January 2014: Implementation of Basel III

December 2013

Resilient Against All Odds

The Republic of the Philippines