Meeting with Canon Institute of Global Studies19 February 2019

Tokyo, Japan

Breaking the Cycle

DIWA C. GUINIGUNDODeputy Governor

2

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-10000

-5000

0

5000

10000

15000

19

50

19

52

19

54

19

56

19

58

19

60

19

62

19

64

19

66

19

68

19

70

19

72

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74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

Real GDP Growth(1950-2018)

GDP (In PhP Bn; lhs)

Real GDP growth rate (in Percent; rhs)

Breaking the boom-bust cycle

The Philippine economy has sustained 80 consecutive quarters of positive growth, breaking theboom-bust cycle

For 2012-2018, the domestic economy has posted an average GDP growth of 6.5 percentannually, against a challenging domestic and global economic landscape

1990-1998:3.9%

1999-2011:4.5%

2012-2017:6.6%

1980-1989Average g.r.:

2.0%

3Source: Philippine Statistics Authority (PSA)

Sustained expansion has been broad-based

3.3 4.0 4.8 4.0 3.80.7

2.9

5.7

2.5 40.7

0.9

0.81.4

-1.2-4.5

-0.6-2.9

-5

0

5

10

15

2000-2009 2010-2017 2016 2017 2018

Private ConsumptionInvestmentGovernment ConsumptionNet Exports

Contribution to GDP Growth: Demand Sidein percentage points

0.4 0.1 -0.1 0.3 0.1

1.2 2.4 2.8 2.5 2.3

2.8

3.84.2 3.9

3.8

-1

0

1

2

3

4

5

6

7

8

2000-2009 2010-2017 2016 2017 2018

Agriculture, Fishery, and Forestry Industry Services

Contributions to GDP Growth: Supply Sidein percentage points

3.3 3.6

1.40.6

1.5

0.7

2.8

4.3

1.9

2.2

0.3

0.6

0.3

0.4

0.4

0

1

2

3

4

5

6

7

8

2000-2009 2010-2017 2016 2017 2018

Construction

Durable Equipment

Others

Components of Gross Capital FormationContribution to GDP growth in percentage points

0.1 0.1 0.0 0.0 0.0

0.8

1.7 1.62.0

1.1

0.2

0.5 0.80.3

1.0

0.20.3

0.10.2

-1

0

1

2

3

2000-2009 2010-2017 2016 2017 2018

Mining & QuarryingManufacturingConstructionUtilities

Industry Sub-SectorsContribution to GDP growth in percentage points

Reaping dividends from broadening growth drivers

4

Sources:International Monetary Fund (IMF) World Economic Outlook, October 2017 and IMF Regional Economic Outlook: APD, October 2018

World Bank (WB) Global Economic Prospects, January 2019Asian Development Bank (ADB) Asian Development Outlook Supplement, July 2018

PH economy expected to remain one of the fastest-growing economies in the region and in theworld in 2019.

IMF, WB, and ADB project PH economy to grow between 6.5-6.9 percent in 2019, broadly in linewith the NG’s growth targets

PH to sustain economic boom

6.2

6.6

6.7

6.5

0.0 2.0 4.0 6.0 8.0

IMF

ADB

WB

20

18

(Act

ual

)2

01

9

ASEAN-5 : Growth Projections 2019

ASEAN-5

Indonesia

Thailand

Malaysia

Vietnam

Philippines

7.10.5 (Q32018) 3.3 (Q32018)

5.2 (Q32018)

5

More than 25 years of purposeful policy and structural reforms promote high, inclusiveand sustainable growth

Future-proofing PH’s growth through structural reforms

Selected Structural/Policy Reforms in the Philippine Economy (1993-present)

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 of the oil industry; Passage of the Philippine E-Commerce Act; Liberalization of the power sector; Introduction of Tariff Reform Program (TRP) III; Accession to the World Trade Organization (WTO)

2002 Adoption by BSP of Inflation Targeting Framework

2003-2009Launch 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

2011-2015Adoption 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

2018Tax 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)

Other Structural Reforms in the

Pipeline for2019-onwards

Amendments to the Bangko Sentral ng Pilipinas Charter (For President’s signature)Replacing Quantitative Restrictions (QR) on Rice with Tariffs (For President’s signature)Corporate Income Tax and Incentives Reform Act (TRAIN Package 2)Amendments to Bank Secrecy LawsExemption of Small Scale Miners from Payment of Income and Excise Tax on Sale of Gold to BSP

6

Multiple credit rating upgrades of the Philippines since 2010:

A show of faith in PH’s prospects globally

Philippine Credit Rating

BBBRe-affirmed BBB rating

with stable outlook17 July 2018

BBBRe-affirmed BBB rating and

upgraded outlook to “positive”26 April 2018

Baa2Re-affirmed Baa2 rating

with stable outlook20 July 2018

BBB Re-affirmed BBB rating with stable outlook 18 December 2017

BBB+Re-affirmed BBB+ rating

with stable outlook 26 April 2018

From “junk” grade to “investment” grade since 2010

7

Philippines 1st in resilience among selected emerging markets

Source: Center for Global Development, 2015

8

Strengthened institutions to support reform momentum

Results of entrenched reforms are positively recognized by

various independent third-party assessors

148th to 124th

+24

2011 to 2019

World Bank

Ease of Doing

Business

134th to 99th

+35

2010 to 2018

Transparency

International

Corruption

Perception Index

115th to 70th

+45

2011 to 2019

Heritage Foundation

Index of Economic

Freedom

28th to 40th*

+12

2011 to 2017

World Bank

Control of Corruption

WGI

66th to 50th

+16

2013 to 2017

World Economic Forum

Human Capital Index

CCC to BB

+2

2010 to 2018

EIU

Political Risk

Country Risk Report

44th to 56th*

+12

2011 to 2017

World Bank

Regulatory Quality

WGI

48 to 67 **

+16

2012 to 2017

International Budget

Partnership

Open Budget Survey

*Percentile rank, ** Score out of 100Source: Various third-party annual ranking reports

85th to 56th*

+29

2011 to 2018

World Economic Forum

Global Competitiveness

Ranking

9

Source: Staff estimates as of 25 January 2019

Source: PSA

Employment Share by Class of Workers Employment Share by Educational Attainment

Unlocking higher growth potential

Expanding further PH’s productive capacity to allow it to keep up with robust demand

Incremental Capital-Output Ratio Total Factor Productivity

10

Unlocking higher growth potential

11

Monetary action plus NG non-monetary measures to help manage inflationary pressures

Recent inflation outturns driven by supply-side factors

Sources: BSP, PSA, IMF, and ADB

Growth and inflation forecasts Market rates have adjusted to BSP policy hikes

Inflation momentum slows down further

2018 2019

ROP Official Targets

Real GDP, % (October 2018) 6.5-6.9 7.0-8.0

Inflation, % 2.0-4.0 2.0-4.0

BSP Forecast, % (2012-based)* - 3.1

IMF (October 2018)

Real GDP, % 6.5 6.6

Inflation, % 4.9 3.9

ADB (December 2018)

Real GDP, % 6.4 6.7

Inflation, % 5.3 4.0

*7 February 2019 MB Meeting

-0.7

-0.5

-0.3

-0.1

0.1

0.3

0.5

0.7

0.9

1.1

Oct

-17

No

v-1

7

De

c-1

7

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

De

c-1

8

Jan

-19

BSP

PSA

Seasonally-adjusted Headline Inflation (%), 2012=100

12

Source: BSP

Source: BSP

Inflation expected to revert to within target in 2019 and 2020

Inflation (%) 13 Dec 2018 MB Meeting

7 Feb 2019MB Meeting

2019 3.2 3.1

2020 3.0 3.0

1.0

2.0

3.0

4.0

5.0

6.0

Jan-

17

Feb-

17

Mar

-17

Apr

-17

May

-17

Jun-

17

Jul-1

7

Aug

-17

Sep-

17

Oct

-17

Nov

-17

Dec

-17

Jan-

18

Feb-

18

Mar

-18

Apr

-18

May

-18

Jun-

18

Jul-1

8

Aug

-18

Sep-

18

Oct

-18

Nov

-18

Dec

-18

Jan-

19

BSP Private Sector Economists' SurveyMean forecast for full year, in percent

2019: 3.8

2020: 3.62021: 3.7

Jan. 2016 to Feb. 2018: 2006=100Mar. 2018 to Jan. 2019: 2012=100

Based on the forecasts provided by 25 respondents.

Inflation Forecasts (in %, 2012-based)

Forecasters 2019 2020

AP Consensus (January 2019)

3.9 3.5

Oxford Economics Country Economic Forecast

(January 2019)4.0 4.0

Asian Development Bank Asian Development Outlook

(December 2018)4.0 n. a.

Sources: AP Consensus, Oxford Economis and ADB

13

Supportive liquidity and credit conditions

Source: BSP

Credit growth consistent with expanding economic activity

13

Solid demand for loans across key economic sectors

SectorsShare to Total Loans

(Net of RRP)

Contribution to Loan Growth

(Net of RRP)

Financial and Insurance Activities 9.5 2.6

Electricity, Gas, Steam and Airconditioning Supply; and, Water Supply,

Sewerage and Waste Management12.2 1.6

Real Estate Activities 16.8 1.9

Agriculture, Forestry and Fishing 2.3 0.4Wholesale and Retail Trade, Repair of Motor Vehicles and Motorcycles;

Transportation and Storage; and Information and Communication20.9 3.2

Manufacturing 12.8 1.7

Other sectors 17.6 3.1

Households 7.9 1.1

Total 100.0 -

Growth of Universal and Commercial Bank Loans (December 2018) - 15.6

1. Financial Intermediation = Financial and Insurance Activities

3. Real Estate, Renting and Business Activities = Real Estate Activities

4. Agriculture, Hunting & Forestry = Agriculture, Forestry and Fishing

2. Electricity, Gas and Water = Electricity, Gas, Steam and Airconditioning Supply; and, Water Supply, Sewerage and Waste Management and Remediation Activities

5. Trade, Transportation, Storage and Communication = Wholesale and Retail trade, Repair of Motor Vehicles and Motorcycles; Transportation and Storage; and, Information

and Communication

Notes: The reclassification of industries starting in the June 2015 data is based on the 2009 PSIC. Changes in the names of the industries are as follows:

14

PH banks remain effective intermediators of loanable funds

Source: BSP

Quality of assets and loan portfolios sustainimprovement.

Philippine banks remain adequatelycapitalized providing buffers to mitigateshocks.

0

2

4

6

8

10

12

14

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

No

v '18

Non-Performing Loans (Gross) and Non-Performing Assets Ratios of UKBs (in percent)

GNPL Ratio NPA Ratio

End-Nov 2018:GNPL ratio: 1.3 %

NPA ratio: 1.3 %

5

10

15

20

25

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Sept '1

8

Capital Adequacy Ratio of UKBs (in percent)

CAR (consolidated basis)

CAR (solo basis)

End Sept- 2018:CAR (solo): 15.2 %

CAR (consolidated): 15.8 %

15

4.0 3.7 2.7

6.05.7 6.2

-1

0

1

2

3

4

5

6

7

8

9

10

11

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Jan-Nov2017

Jan-Nov2018Equity and investment fund shares Debt

22.1

16.4

28.1

26.1

0

5

10

15

20

25

30

BPO revenues Remittances

*2017 and Jan-Sep BPO data based and BOP Concept

73.1 76.4

23.3 2…0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0 External debt (US$ bn) and external debt/GDP (%)

External Debt External Debt Ratio

Source: BSP

Sustained structural flows from remittances and BPOs

79.282.1

7.0

7.2

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0.0

20.0

40.0

60.0

80.0

100.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-19

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)

Improved Debt Profile

Adequate buffers against global headwinds

Resilient Foreign Direct InvestmentsNon-residents' direct investments, by instrument

(USD bn, net)

16

Manageable external payments position another buffer against external headwinds

Source: BSP

Strong growth in goods imports led to narrowing of current account;impact tempered by sustained receipts from traditional sources

-2.9

2.0

-1.9

-6

-4

-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

-27.0

5.5

7.1

1.6

-2.9

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

-5.0

-3.0

-1.0

1.0

3.0

5.0

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Q1

20

18

Q2

20

18

Q3

20

18

Tho

usa

nd

s

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)

17

Source: IMF WEO Database, October 2018

Current account dynamics reflect efforts to support expansion of PH’s potential capacity

-5

0

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)

18

Peso trend consistent with macro fundamentals

Source: Bloomberg

Current peso movement reflects a confluence of factors from both external anddomestic environment.

19

The Mega-Currents

Uncertainty over pace of US Fed policy normalization

Infrastructure gaps

Rising protectionist policies

Global economic slowdown

Disruptive technology

20

Robust monetary, financial, and external sectors are expected to continueto lend support to economic growth over the near and medium term

Philippine economy poised to sustain its growth momentum

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 2019 2018 2019

GDP Growth (%, 2000=100) 6.9 6.7 6.2 n/a. 6.5 – 6.9 a/ 7.0 – 8.0 a/

Fiscal Balance (% of GDP) -2.4 -2.2 -3.0 (Jan-Sep) n/a -3.0 a/ -3.2 a/

Headline Inflation (% forecasts, 2012=100)

1.3 2.9 5.24.4

(Jan)4.8-5.2 a/ 3.0 – 4.0 a/

Goods Exports, per BPM6 concept (% growth rate)

-1.1 21.4 -0.9 (Jan-Sep) n/a 1.0 a/ 6.0 a/

Goods Imports, per BPM6 concept (% growth rate)

17.7 18.013.2 (Jan-

Sep)n/a 10.0 a/ 9.0 a/

OF Remittances b/

Amount (USD bn)Growth Rate (%)

26.95.0

28.14.3

(Jan-Nov)26.13.1

n/a 28.9 c/

3.0 c/

29.8 c/

3.0 c/

Balance of Payments (USD bn) -0.4 -0.9 -2.3 n/a -5.5 c/ -3.5 c/

Gross International Reserves (USD bn)

80.7 81.6 78.5 82.1 (Jan) 76.0 c/ 77.0 c/

21

Key take-aways

The Philippine economy has sustained 80 consecutive quarters ofpositive growth, breaking the boom-bust cycle of the past.

The Philippine economy is expected to remain one of the fastest-growing economies in the region and in the world in 2019-2020.

Sustained commitment to pursue NG’s infrastructure and reformagenda will support high, inclusive and sustainable growth

The Philippine economy has built domestic sources of resilience to helpcushion against external and domestic challenges.

The BSP remains watchful and vigilant, ready to address any potentialthreats to its monetary and financial stability objectives.

Breaking the Cycle

DIWA C. GUINIGUNDODeputy Governor

Meeting with Canon Institute of Global Studies19 February 2019

Tokyo, Japan