Economic Experience of Philippines (Sec B) FINAL

7/28/2019 Economic Experience of Philippines (Sec B) FINAL

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Welcome to ourpresentation


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We are presenting on


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Presented for

Farhana Rahman 16-004

Farha Farzana 16-006

Md. Rasel M iah 16-068

Sadia Kamal 16-070

Marufa Akter 16-132Rajon Saha 16-158

Dr. M. Masud Rahman

Professor

Department of Finance

University of Dhaka

Presented By


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Farhana Rahman 16-00

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Highlights of the PhilippinesPerformance

positive rate of growth since , despite a low investmerate.Economic Growth

The incidence of poverty is high but but the most serproblem is severe inequality.Poverty

The service sector accounts for 53.7% but more thanthird of the labor force depends on agricultureEconomic Structure

The fiscal reform program shows signs of progress brevenue yield is still lowFiscal and Monetary Policy

There are notable weaknesses in the banking sector stock market capitalization is strongFinancial Sector

Infrastructure quality is generally poorEconomic Infrastructure

Unemployment is high but decliningEmployment and Workforce


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Overview of Economy andResponsible Polices for Situatio

Compared with other economies in East Asia, the Philippines economicgrowth record has been disappointing.

Meanwhile, the Philippines is also a laggard in East Asia in terms ofpoverty alleviation.

Mainstream economists attribute this situation largely to economicprotectionism and the import-substitution policy that were followed after

World War II up to the 1970s.

The Philippines is therefore in a relatively unique position wherein awhole range of policies where implemented without much success due

to long term structural and institutional problem

Table 1: Annual Average Growth Rate of Real Per Capita GDP, 1950-2006 (in %)

PeriodHongkong,

ChinaIndonesia Korea Malaysia

Philippine

sSingapore

Taipei,

China

1951-1960 9.2 4.0 5.1 3.6 3.3 5.4 7.6

1961-1970 7.1 2.0 5.8 3.4 1.8 7.4 9.6

1971-1980 6.8 5.3 5.4 5.3 3.1 7.1 9.3 1981-1990 5.4 4.3 7.7 3.2 -0.6 5 8.2

1991-2000 3.0 2.9 5.2 4.6 .9 4.7 5.5

2001-2006 4.o 3.3 4.2 4.7 2.7 3.2 3.4

Average

growth rate

for 56 years

5.9 3.6 5.6 3.8 1.9 5.5 7.3

Source: Asian Development Bank (2007)

Table 2: Poverty and Inequality in East Asia

Population in Poverty

(in percent)

Proportion of Population

Below $1 (PPP) a Day (%)

PRC 2.50 10.80

Indonesia 16.70 7.70

Malaysia 5.10 0.00

Philippines 30.00 13.20

Thailand 9.80 0.00

Viet Nam 19.50 8.40

Source: Asian Development Bank Key Indicators, 2007


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Development Policy before 1986

In the 1950s, the countrys developmepolicy was centered around an

industrialization strategy based on impsubstitution.

Associated with the import substitutiostrategy was a fixed or managed excharate regime, which periodically collaps

from the weight of countercyclical fiscalmonetary policies.


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Farzana Farha 16-006

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In 1986, the Philippine economy emerged from the martial law

serious imbalances.

consolidated public sector deficit-6%

external debt was close to 100% of GNP

Real GDP recorded 2 consecutive years of neg

growth at7%

unemployment was high and poverty was perv

The central bank was saddled with massive liab

Development Policy after 1986


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Key policies of

theadministrationssince 1986 were

mostlydocumented In

the Medium-TermPhilippine

DevelopmentPlans.

tariffreduction

tradeliberalization

accthe

tax reform

creation of anindependentcentral bank

with inflation

privaof gov

ow

corpo

power sectorrestructuringand reform

declaration ofpoverty

reduction


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o a nanc a an Economic Crisis

The Philippine economy slowed down considerably in 2008.

GDP growth rate fell to 3.8%, compared to 7.1 % in 2007.

The slowdown was a result of the surge in inflation triggered by the sharp ri

food and fuel prices and to a lesser extent the US recession.

Inflation jumped to 9.3% after averaging only 2.8 percent in 2007.

The global crisis left an impact over the asset prices, financial sector, real seand various other aspects.


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Solution to Global Crisis

A fiscal package known as the Economic

Resiliency Plan (ERP) was taken up to

respond to the global crisis. The ERP was

geared towards stimulating the economy

through-

a mix of government spending

tax cuts and

public-private partnership projects.


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Md. Rasel Miah 16-068

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Economic Indicator AnalysisGrowth Assessment

Following the Philippinespolitical independence in 1946, in

the 1950s the country embarked

on an industrialization drive.

Between 1950 and 2010, the

Philippine gross domestic product(GDP) expanded 11.2 times ,an

average growth of 4.4% each

year. But the growth rate was

never smooth. The economy, for

instance, contracted in 1984

1985, 1990, and 1998.

Why Philippines economy

collapsed in 1984-85?

i. In 1983, five commercia

banks failed on account

their fast and loose

assessments of the defau

of borrowers.

ii. The violation of DOSRI

by directors of bank and

officials.

iii. The average share of the

performing loans of thesbanks reached more than


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Accounting for Sources of Growt

On the demand side, the share of private consumption in GDP in t

Philippines averaged around 75% during the 1950s and 1960s, and decl

just below 70% in 1970s. Since then it has been on a rising trend, and r78% during 20012010.

On the supply side, the three major sectors (agriculture, industr

services) grew steadily during the 1950s, 1960s, and 1970s. B

economic crises in the mid-1980s, early 1990s, and late 1990s

growth considerably. Industry recovered in the 1990s and stabilized

2000s, but services proved to be the main contributor to growth star

the 1980s. During 20012010, agricultures average contribution t

growth increased to 15.9%; that of industry decreased to about 2

while that of services increased to almost 61.5%.

.


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Poverty & Inequality

Addressing the widespreadpoverty problem is thesingle most important

policy challenge faced by

the Philippines. Not onlypoverty is high in compareto other country of East

Asia but also its reductionis too slow

Philippines poverty line marksa per capita of 16,841 peso per

year. According to the datafrom the national Statistical

Co-ordination Board 27.9% ofthe population fell below the

poverty line in the firstsemester of 2012.

Poverty in the Philippersisted for almo

decades even as MaThailand, which had

economies in the 19almost eradicated it.

some well known behind this


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What is causing poverty in the Philippines why has it been persistent over the years

Low tomoderateeconomic

growth for thepast fourdecades

Unemployment

Failure toManage

Population

Growth

Income

Inequality

G P R d


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Government Program to ReduPoverty


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Sadia Kamal 16-070


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Human Development Index (HD

Life

expectancy at

birth

Expected years

of schooling

Mean years of

schooling

GNI per capit

(2005 PPP$)

1980 63.2 10.4 6.1 2,786

1985 64.2 10.5 6.7 2,208

1990 65.2 10.7 7.1 2,506

1995 66 10.8 7.5 2,606

2000 66.8 11.4 8 2,694

2005 67.4 11.6 8.6 3,040

2010 68.5 11.7 8.9 3,568

2011 68.7 11.7 8.9 3,649

2012 69.0 11.7 8.9 3,752

Between 1980 and

2012, Philippines

HDI value

increased from

0.561 to 0.654, an

increase of 17

percent or average

annual increase of

about 0.5 percent.

Reason . . .


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Current status regarding HD

With 0.654 score, Philippine is now classified as a medium hu

development category. The value is above the average of 0.64

countries in the medium human development group and belo

average of 0.683 for countries in East Asia and the Pacific

Position: 114 out of 187 countries and territories

The rank is shared with Uzbekistan


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Inequality-adjusted HDI

The 2010 HDR introduced the Inequality Adjusted HDI (IHDI)

takes into account inequality in all three dimensions of the H

discounting each dimensions average value according to its inequality. The loss in potential human development due to ineq

given by the difference between the HDI and the IHDI, and can

as a percentage.

Philippines HDI for 2012 is 0.654. However, when the vdiscounted for inequality, the HDI falls to 0.524, a loss o

percent due to inequality in the distribution of the dim

indices.

E i I f


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Economic InfrastructureInfrastructure spending in the Philippines was one of the lowes

amongst its neighbors, and the trend as a percentage of GDP ha

declining since the 1980s.

For 2006, the Philippines received a rating of 2.7 ona scale of 1(for poor) to 7 (for excellent). This is a

low score in absolute terms. The low levels ofinvestment and poor conditions of infrastructure in

the Philippines have increased the cost of doingbusiness in the country. Increased cost of doingbusiness and the inability to attract more foreign

investment has constrained growth at both nationaland sub-national levels. Because of the rapid growth

of the mobile phone industry, the Philippines is

performing very well in telecommunicationsinfrastructure


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Money Supply in Philippine experienced volatility for t

following reasons:

Before the 1969,1984, and 1986elections, themoney supply grewrapidly.

The Central Bankreleased funds tostabilize thefinancial situationfollowing a

financial scandal inearly 1981,

Time The money wasthen repurchasedby the Treasuryand the CentralBank--at highinterest rates, rates

that peaked inOctober 1984 at 43percent

The interest paidon this debtnecessitated evengreater borrowing.

Effect

Fi l P li


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Fiscal Policy

The government has taken a conservative stance on fiscal activities because until tnational government expenditures and taxation generally were each less than 10 p

GNP.

In 1987 and 1988, the ratio of government expenditure to GNP rose abov

Maintaining stability in Tax revenue, Chronic government budget deficits we

by international borrowing and domestic borrowing.

Over time, the apportionment of government spending has changed consi

A tax reform program was formulated in 1986 where Most export taxes were elimincome taxes were simplified and made more progressive.


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Monetary Policy

1) From the time it began operations until the early 1980s, the Central Bank

extensively in the country's financial life. It set interest rates on both bank d

loans.2) Central Bank credit was extended to commercial banks through an extensiv

rediscounting. In the 1970s, the banking system resorted, with the Cen

assistance, to foreign credit on terms that generally ignored foreign-exchang

combination of these factors mitigated against the development o

intermediation in the economy, particularly the growth of long-term saving

3) The dependence of the banking system on funds from the Central Bank at l

rates, in conjunction with the discretionary authority of the bank, has been

contributing factor to the financial chaos that occurred in the 1980s.

4) At the start of the 1980s, the government introduced a number of monetar

built on 1972 reforms to enhance the banking industry's ability to provid

amounts of long-term finance. Efforts were made to broaden the capital bathrough encouraging mergers and consolidations.

B k D it G th t


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Bank Deposit Growth rate .

Deposits grew 8.9 percentto P5.0 trillion for theperiod March 2010 to

March 2011 slower than

the 9.0 percent depositgrowth for March 2009 toMarch 2010.

By Bank Type

Deposit growth for KBs was lowerat 8.9 percent from the 9.2 percentgrowth in the previous period. TBsexperienced accelerated growth at

10.0 percent from 6.77 percent.Deposits in RBs grew slower at 6.2percent from 12.2 percent in the

previous period

By Deposit T

Savings depositmost at 12.6 pe

followed by DemNow deposits a

percent, and bydeposits growing

percent after contr1.0 percent las

I t t R t


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Interest Rate

Historically, from 1985 until 2013, Philippines Interest

averaged 10 Percent reaching an all time high of 56.60 Pein December of 1990 and a record low of 3.50 Perce

September of 2012

The official interest rate is the reverse repo rate (RR/P) w

is the overnight borrowing rate. The central bank o

Republic of the Philippines is committed to promote

maintain price stability and provide proactive leadersh

bringing about a strong financial system conducive

balanced and sustainable growth of the economy

Variable 2: Market Size


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Variable 2: Market Size

MarketSize.

The number of banking institutions (head offices) fell further to 723 as of end-Mafrom the quarter- and year-ago levels of 726 and 746 respectively, denoting the c

consolidation of banks as well as the exit of weaker players in the banking system

SavingsMobilization

Savings and time deposits remained the primary sources of funds for banks. Bankdeposits as of end-March 2012 amounted to P4.0 trillion, 5.3 percent higher than ago level of P3.8 trillion. The continued growth in deposits reflected depositors sconfidence in the banking system.

Bank LendingOperations

Outstanding loans of commercial banks, net of banks' RRP placements with the BSP as of eMarch 2012, grew by 18.7 percent y-o-y and by 0.9 percent compared to the level as of endDecember 2011. Likewise, outstanding loans of commercial banks, inclusive of RRPs, expa17.7 percent y-o-y and 0.7 percent q-o-q. Commercial banks' loans have been growing steadouble-digit growth rates since January 2011, providing support to the domestic economy asubdued global growth prospects


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Bond

Market

Bonds issued by the Bureau of the

Treasury (BTr) accounted for the buof total public issuances, which wermostly in the form of Fixed-RateTreasury bonds (T-bonds) and Treas

bills (T-bills).

Private sector bond issuances consilargely of bonds and notes, wissuances made mostly by real esand financial firms.


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Rajon Saha 16-158

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Variable 3 : Agriculture and Rura


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Variable 3 : Agriculture and RuraFinance

Agricultural Income Growth

An important consideration in the assessment of the contribution of rapid agricultur

during 1965-80 to rural development and overall economic performance is that thgains from that growth were not broadly based.

The distribution on income gains from agricultural growth has also been shape

distribution of landholdings. With an unequal distribution of land and agricultura

technological change that increases land rent (and the return to capital) but not the r

can be expected to worsen the distribution of rural income. As late as 1980, only 3 per

farms in the Philippines were larger than 10 hectares, but they accounted for about on

of the total agricultural land area. In the early 1960s,

The government implemented a redistributive agrarian reform program called Operat

Transfer, beginning in October 1972. It was limited to tenanted land, however, so

landless continued to have no access to land. Moreover, the coverage was limited to

corn; the exclusion of farms growing other crops, constituting about half of the total

area, further restricted the program's effectiveness in redistributing land ownershi

alleviating rural poverty. Based on census data, the proportion of total farm area owner-operated decreased only slightly from 73.9 percent in 1971 to 72.4 percent in 19

Rural Income Growth and Distribution


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Rural Income Growth and Distribution

The acceleration in agricultural growth during 1965-80 did not

to be accompanied by commensurate income growth among

households. Based on FIES (Family Income and Expenditure Sudata, the average rural household income in real terms increas

11.2 percent between 1957 and 1961, and by 17.8 percent be

1961 and 196.

After 1965, however, income growth was only 4.5 percent throu197I, even negative between 1971 and 1975, and insignificant

1975 to 1985. Using a different price deflator, Balisacan's (

finding is that the average real income of rural households (in

pesos) grew by 19 percent from 1961 to 1965 and by anoth

percent from 1965 to 1971.


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Govt. Expenditure


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Govt. Expenditure

Total government expenditures increased at an average annual r

16.6per cent from P1.116 billion in 1951 to p32.66 billion in

(see Table 9). Total government spending grew at an average oper cent per annum between 1957 to 1979. During the first half

seventies, government expenditure expanded at an accelerated

(36.3 per cent annual rate of increase on the average) with the r

increment reaching a peak of 57.6 per cent in 1975. From 1976

end of the seventies, this growth trend exhibited a tapering off waverage of14 per cent per year for this period.

In real terms, total government expenditures grew at 7.8 per ce

year on the average from 1957 to 1978.4

l l


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Policy Implication

low level andgrowth of

investment

low domesticsavings rate

Rapidpopulation

growth

low level andgrowth of

investment

Can be

as the re

slow pacou

P li I li i (C d)


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Policy Implication(Contd)

Making Ac cess to Oppo rtunit ies More Equitable

Suppo rt ing Expansio n and Diversi f icat ion of the Indu str ial B

Inst i tu t ing Good Governance

Acc elerat ing Infrastruc ture Development

Expanding the Fiscal Space


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Thank You

Economic Experience of Philippines (Sec B) FINAL

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