The Philippines and Asia 2012 Economy: What’s going

National Economic and Development Authority 1

The Philippines and Asia

2012 Economy: What’s going

on?



on?

Core Logistics Conference 2012

4/F, Function Room, Board Room 3 New World Hotel, Makati City


Outline of the Presentation

I. Recent Philippine Economic Performance

A. Real Sector

B. Monetary and External Sector

C. Fiscal Sector

II. Macroeconomic Outlook

A. Growth Assumptions

B. Global and Domestic Risks to Growth

C. Near-term Policy Directions


I. THE PHILIPPINE ECONOMIC

PERFORMANCE


Source: NSCB

The economy grew at a moderate pace in 2011

(growth rate, in %, at constant prices)

Indicator 2010 2011

GNI (%) 8.2 2.6

GDP (%) 7.6 3.7

Net Primary Income (%) 10.0 (0.9)


Reasons for low growth in 2011

1External Shocks – MENA, high oil prices, Japan and Thailand disasters, Euro debt and economic woes, weak US economy, worldwide economic slowdown

2Government underspending, especially contraction in public construction amid process improvements and project reviews and good governance reforms

3 Base effects from election spending and rapid recovery in 2010

4 Typhoons and weather-related disturbances.

5


Indicator FY

2010 2011GDP (%) 7.6 3.7

Agriculture (0.2) 2.6

Industry 11.6 1.9Manufacturing 11.3 4.7

Services 7.2 5.0

Household Consumption 3.4 6.1

Gov’t Expenditure 4.0 (0.7)Capital Formation 31.6 11.1

Public Construction 4.1 (29.4)

Private Construction 24.1 6.3

Exports 21.0 (3.8)Imports 22.5 1.9

Major sectors affected by external shocks...

6


Major sectors affected by government

underspending...

7

Indicator FY

2010 2011GDP (%) 7.6 3.7

Agriculture (0.2) 2.6

Industry 11.6 1.9Manufacturing 11.3 4.7

Services 7.2 5.0

Household Consumption 3.4 6.1

Gov’t Expenditure 4.0 (0.7)Capital Formation 31.6 11.1

Public Construction 4.1 (29.4)

Private Construction 24.1 6.3

Exports 21.0 (3.8)Imports 22.5 1.9


Indicator FY

2010 2011

Construction 17.5 (4.1)

Public 4.1 (29.4)

Private 24.1 6.3

Construction sector contracted

amid process improvements and

project reviews...

Source: NSCB


Source: NSCB

Contribution to Real GDP Growth 2011

By ExpenditurePercentage Points

Contribution to Real GDP Growth

Major ContributorsMajor ContributorsMajor ContributorsMajor Contributors

Household Consump. 4.2

Capital Formation 2.3

Durable Equipt. 0.9

Private Cons. 0.4

Least ContributorsLeast ContributorsLeast ContributorsLeast Contributors

Exports of goods (2.2)

Public Construction (0.7)

Gov't Consumption (0.1)

By Industrial Origin Percentage Points

Contribution to Real GDP Growth

Major ContributorsMajor ContributorsMajor ContributorsMajor Contributors

Manufacturing 1.0

R.Estate/Renting/Bus.Acts 0.8

Other Services 0.7

Financial Intermediation 0.4

Trade 0.4

Least ContributorsLeast ContributorsLeast ContributorsLeast Contributors

Construction (0.4)

Utilities (0.1)

Forestry (0.1)


ITEMS

Working Age Pop ula tion ('000) 60,717 61,882

Labor Force Level ( '000) 38,893 40,005

(g rowth ra te, %) 2.6 2.9

Not in the La bor forc e 21,823 21,878

LFPR( %) 64.1 64.6

Labor Entrants ('000) 1,002 1,112

(g row th ra te, %) (7.7) 10.9

Emp loyment Level ('000) 36,035 37,192

(g row th ra te, %) 2.8 3.2

Emp loyment Ra te (in %) 92.6 93.0Employment by No. of Hours Worked ('000)

Less than 40 hrs. a week 12,654 13,448

(g row th ra te, %) (2.3) 6.3

40 Hrs. and Above 22,906 23,257

(g row th ra te, %) 6.3 1.5

Emp loyment by Class of Workers ('000)

Wage and Sa la ry Workers 19,627 20,537

(g rowth ra te, %) 5.1 4.6

Self-emp loyed w /o any pa id emp loyee 10,858 10,994

(g rowth ra te, %) 1.2 1.3

Emp loyer in own-family opera ted fa rm/bus.1,394 1,355

(g rowth ra te, %) (3.1) (2.8)

Unpa id family Workers 4,157 4,305

(g rowth ra te, %) (1.5) 3.6

Emp loyment Genera ted ('000) 974 1,157

(g rowth ra te, %) 0.1 18.8

Agric ulture (87) 310

(g rowth ra te, %) (754.7) 457.3

Industry 305 132

(g rowth ra te, %) 574.6 (56.8)

Manufac turing 140 49

(grow th ra te, %) 533.3 (64.9)

Servic es 755 715

(g rowth ra te, %) (17.4) (5.3)

Unemp loyment Level ('000) 2,859 2,814

Unemp loyment Ra te (%) 7.3 7.0

Underemp loyment Level ('000) 6,762 7,164

Underemp loyment Ra te (%) 18.8 19.3

20112010

FY FY

Labor Market

“The labor market performed better in

2011 as the country generated more

employment compared a year ago.

Employment level rose by 1.157

million, largely on the strength of the

continued growth in services and the

recovery in agriculture – albeit the

slowdown in industry .”DOLE-BLES, Labstat, Vol. 16 No. 1 http://bles.dole.gov.ph/PUBLICATIONS/LABSTAT%20UPDATES/vol16_1.pdf


Philippine inflation still within target

Source: National Statistics OfficeNote: 2012 inflation data reflects January 2012 only


Philippine Peso remains stable

Source: Bangko Sentral ng Pilipinas

0.00

0.00

0.01

0.01

0.02

0.02

0.03

0.03

41

41

42

42

43

43

44

44

45

45

03-Jan-11

17-Jan-11

31-Jan-11

14-Feb-11

28-Feb-11

14-M

ar-11

28-M

ar-11

11-Apr-11

25-Apr-11

09-M

ay-11

23-M

ay-11

06-Jun-11

20-Jun-11

04-Jul-11

18-Jul-11

01-Aug-11

15-Aug-11

29-Aug-11

12-Sep-11

26-Sep-11

10-Oct-11

24-Oct-11

07-Nov-11

21-Nov-11

05-Dec-11

19-Dec-11

02-Jan-12

16-Jan-12

30-Jan-12

13-Feb-12

volatility (rhs) Peso/US$ (lhs)

21 Feb 2012: US$1 = Php 42.498 Volatility: 0.014%


-60

.0-4

0.0

-20

.00

.02

0.0

40

.06

0.0

Merchandise Exports (y-o-y growth)

Merchandise Imports (y-o-y growth)

Dec 2011 -20.69%

Nov 2011 0.68%

Mixed developments in trade and remittances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0.0

0.5

1.0

1.5

2.0

US$ billion (lhs) growth rate (rhs)

Source: Bangko Sentral ng PilipinasSource: National Statistics Office

OF RemittancesMerchandise Exports and Imports


Net inflows of foreign investments continue

-200

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

BSP Registered Net FPI, US$ million

Jan 2012 US$ 586.01mn

0

500

1,000

1,500

2,000

2,500

3,000

2000 2002 2004 2006 2008 2010

Net FDI, US$ million

Jan-Nov 2011

US$782mn

Source: Bangko Sentral ng Pilipinas


Build-up of foreign reserves continues

$77.0 bn

11.3

6.9

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0

10

20

30

40

50

60

70

80

90

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

GIR(lhs, US$ bn)

months worth of imports (rhs)

Short-Term External Debt Cover** (rhs)

Source: Bangko Sentral ng Pilipinas; *As of end- 2011 **based on residual maturity

*As of January 2012


Fiscal deficit within program as of November 2011

NG CASH OPERATIONS REPORTJan – Nov % Change Program*

2010 2011 (y-o-y) 2011

REVENUES 1,104.8 1,249.8 13.1 1,357.3

Tax Revenues 998.3 1,105.0 10.7 1,225.1

BIR 753.3 849.5 12.8 935.5

BoC 233.5 243.0 4.1 276.4

Other Offices 11.5 12.5 9.0 13.2

Non-Tax Revenues 106.5 144.8 36.0 132.2

EXPENDITURES 1,374.6 1,346.0 -2.1 1,617.9

SURPLUS/(DEFICIT) -269.8 -96.3 64.3 260.7

NET FINANCING 269.8 96.3 -64.3 -

Net external borrowings 126.3 57.0 -54.9 -

Net domestic borrowings 210.2 42.7 -79.7 -

Change in cash 82.6 -130.9 -258.6 -

* Revised with Disbursement Acceleration Program (October 2011 DBCC)


II. OUTLOOK


FY 2012 Growth Outlook (Supply Side)(growth rate, in %, at constant prices)

Actual 2012 Assumption*

2010 2011 Low High

Agriculture (0.2) 2.6 4.1 5.0

Industry 11.6 1.9 5.6 6.6

Services 7.2 5.0 4.9 5.9

GDP 7.6 3.7 5.0 6.0

GNI 8.2 2.6 4.0 5.0

*DBCC approved only the GDP growth rate. Assumption details may still change.


FY 2012 Growth Outlook (Demand Side)(growth rate, in %, at constant prices)

Actual 2012 Assumption*

2010 2011 Low High

HH Cons. 3.35 6.1 4.6 5.6

Govt. Cons. 4.0 (0.7) 4.0 4.6

Investment 31.61 11.1 8.9 10.2

Total Exports 21.0 -3.8 8.4 9.3

Total Imports 22.5 1.9 9.7 10.4

*DBCC approved only the GDP growth rate. Assumption details may still change.


Growth Assumptions:

Government Expenditure:

� More efficient and faster process due to the implementation

of bureaucratic reforms in budget management and

administration initiated in 2011.

� Accelerated budget execution process

�Per DBM, 99.6% of the budget for PS and 90.4% for MOOE have

already been released 1/

1/ as of January 17, 2012


Reform-Minded Administration with Focus on Good

GovernanceGood governance agenda with emphasis on fiscal discipline, transparency and accountability

� Prudent fiscal controls coupled with intensified revenue collection efforts over the past year have laid the framework for efficient budgetary allocation in 2012

� Tax reform measures including the proposed hike in the Sin tax (alcohol and tobacco product taxes) and the rationalization of fiscal incentives aim to further improve the fiscal position

� Tighter prioritization of expenditures through the Zero Based Budgeting approach, improved composition of expenditures and quality of government services

� Rigorous implementation of RATE, RATS, RIPS programs to go after evaders, smugglers, corrupt officials, respectively, have improved tax collection

� Contracts and public tenders are now posted on public websites to instill transparency in the procurement process

� Set-up BIR key performance indicators and publish actual results; establish appropriate performance standards and evaluations

� Enacted the GOCC Governance Act of 2011 which lays the groundwork for enhanced discipline in GOCCs

� Set up the Debt Management Office at the Department of Finance which is tasked to formulate and oversee the implementation of the Republic’s debt management strategy

Key Reforms Instituted by the Administration

Fiscal DisciplineTransparency and

Accountability

Source: BSP-IRO


Focus on Good Governance Yielding ResultsROP is showing improvement on several governance and competitiveness indicators

Source: BSP-IRO based on World Bank , Transparency International and WEF

*World Bank Governance Indicators and Transparency International values are for the year 2010 / World Economic Forum Rankings values are from the 2011/2012 report data

2009/2010 2010/2011* Change

World Bank Government Effectiveness Indicator 51 52 1 percentile

Transparency International – Corruption Perceptions Index

139 134 5 places

World Economic Forum (“WEF”) Competitiveness Rankings

Overall 85 75 10 places

Institutions 125 117 8 places

Macro environment 68 54 14 places

Higher Education and Training 73 71 2 places

Goods and Market Efficiency 97 88 9 places

Technological Readiness 95 83 12 places

Financial Market Development 75 71 4 places

Business Sophistication 60 57 3 places

Innovation 111 108 3 places


FitchMoody's S&PBaa

3

Ba1

Ba2

Ba3

B1

B

B-

Last upgraded to BB+ (June 23, 2011)

Last upgraded to BB (November

12, 2010)

Last upgraded to Ba2 (June 15, 2011)

“The national government recorded a

small fiscal surplus, building upon the

notable turnaround in fiscal

management seen during 2H 2010.

Much of the improvement has been

attributed to the progress made in

fiscal consolidation by the new

Aquino administration”

“The strength of the Philippines’

external balance sheet and

favorable growth trajectory support

the sovereign credit ratings on the

country. Structural strengths of the

current account appear sufficiently

well entrenched”

“The upgrade in June reflects

progress on fiscal consolidation

against a track record of macro

stability, broadly favourable

economic prospects and

strengthening external finances”

BBB

-

BB+

BB

BB-

B+

B

B-

BBB

-

BB+

BB

BB-

B+

B

B-

S&P: Positive Outlook (December 16, 2011)

Source: Moody’s, S&P, Fitch taken from IRO presentation

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Progress Has Been Recognized by the Rating AgenciesROP credit ratings are in rising trajectory


� Philippines CDS implied-ratings of the ROP continue to climb and is now at Baa2 according to Moody’s, BBB+ according to S&P and BBB according to Fitch

� The bond implied-rating of the Philippines as calculated by Moody’s is Baa1, a staggering 4 notches difference from the actual Ba2 rating

� This gap between bond-implied and actual rating is the largest in the world according to the data provided by Moody’s

� The message from the markets is clear: the Philippines is the most underrated country in the world

Sources: Moody’s “Market Signals Sovereign Risk Report”, GS Research taken from IRO presentation

Philippines Colombia Panama Peru Indonesia Costa Rica Mexico Malaysia Korea Thailand

Actual Rating Bond Implied-Rating

B1

Ba3

Ba2

Ba1

Baa3

Baa2

Baa1

A3

A2

A1

Aa3

Baa1 Baa1Baa1

Baa1Baa1

A1

A3A3

Baa1Baa1

Baa2

Baa3 Baa3Baa3 Baa3 Baa3 Baa3

Ba2

Baa1

100

150

200

250

300

350

Feb-1

0

Mar-

10

Apr-

10

May-

10

Jun-1

0

Jul-10

Aug-1

0

Sep-1

0

Oct-

10

Nov-

10

Dec-1

0

Jan-1

1

Feb-1

1

Mar-

11

Apr-

11

May-

11

Jun-1

1

Jul-11

Aug-1

1

Sep-1

1

Oct-

11

Nov-

11

Dec-1

1

Jan-1

2

Indonesia 5 year CDS Level Philippines 5 year CDS Level

Baa2

Under-rated Over-rated

The Markets Recognize ROP’s StrengthThe market’s verdict is clear: the Republic’s ratings should be higher

The Republic’s risk perception outperforms higher rated peers

According to Moody’s bond implied-ratings, the Philippines is the most underrated country in the world


Growth Assumptions: (cont’d)

Investments:

� Early release of funds for infrastructure projects

� 72.1% or PhP150.2 billion allocation for capital outlays has already

been released to agencies like DPWH, DA, DepEd

• Sixteen (16) projects under PPP are already in the pipeline

� Estimated to cost PhP 140.8 billion


Project Title

1. PPP for School Infrastructure Project

2. Vaccine Self-Sufficiency Project Phase II

3. LRT Line 2 East Extension and O&M Privatization

4. NLEX-SLEX Connector Road

5. O&M of Puerto Princesa Airport Development Project

6. Grains Central Project

7. O&M of Laguindingan Airport Development Project

8. Modernization of the Philippine Orthopedic Center

PPP Projects as of February 2012

Source: PPP Center


Project Title

9. New Bohol (Panglao) Airport Development Project

10. Mactan-Cebu International Aiport Passenger Terminal Building

11. CALA Expressway (Cavite and Laguna Side)

12. Common Automatic Fare Collection System

13. New Water Supply Source Project

14. O&M of AHEPP Auxilliary Turbines 4&5

15. Balara Water Hub

16. Establishment of Cold Chain Systems Covering Strategic Areas in the

Philippines

PPP Projects as of February 2012

Source: PPP Center


Global and Domestic Risks to Growth� External Risks

oBalance sheet issues and weak consumption in the US

oFiscal problems and sluggish output in the Eurozone

� Internal Risks

oWeak industry output

o Damages in agriculture and infrastructure due to

natural calamities

o Timely and effective implementation of Disbursements

Acceleration Program


ITEMS 2010 2011 2012 2013 2012 2013

World Output 1 5.2 3.8 3.3 3.9 –0.7 –0.6

Advanced Economies 3.2 1.6 1.2 1.9 –0.7 –0.5

United States 3 1.8 1.8 2.2 0 –0.3

Euro Area 1.9 1.6 –0.5 0.8 –1.6 –0.7

Japan 4.4 –0.9 1.7 1.6 –0.6 –0.4

United Kingdom 2.1 0.9 0.6 2 –1.0 –0.4

Canada 3.2 2.3 1.7 2 –0.2 –0.5

Other Advanced Economies 2 5.8 3.3 2.6 3.4 –1.1 –0.3

Emerging and Developing Economies 3 7.3 6.2 5.4 5.9 –0.7 –0.6

Central and Eastern Europe 4.5 5.1 1.1 2.4 –1.6 –1.1

Commonwealth of Independent States 4.6 4.5 3.7 3.8 –0.7 –0.6

Developing Asia 9.5 7.9 7.3 7.8 –0.7 –0.6

China 10.4 9.2 8.2 8.8 –0.8 –0.7

India 9.9 7.4 7 7.3 –0.5 –0.8

ASEAN-5 4 6.9 4.8 5.2 5.6 –0.4 –0.2

Latin America and the Caribbean 6.1 4.6 3.6 3.9 –0.4 –0.2

Middle East and North Africa (MENA) 5 4.3 3.1 3.2 3.6 . . . . . .

Sub-Saharan Africa 5.3 4.9 5.5 5.3 –0.3 –0.2

Memorandum

European Union 2 1.6 –0.1 1.2 –1.5 –0.7

World Growth Based on Market Exchange Rates 4.1 2.8 2.5 3.2 –0.7 –0.4

World Trade Volume (goods and services) 12.7 6.9 3.8 5.4 –2.0 –1.0

Imports

Advanced Economies 11.5 4.8 2 3.9 –2.0 –0.8

Emerging and Developing Economies 15 11.3 7.1 7.7 –1.0 –1.0

Exports

Advanced Economies 12.2 5.5 2.4 4.7 –2.8 –0.8

Emerging and Developing Economies 13.8 9 6.1 7 –1.7 –1.6

Commodity Prices (U.S. dollars)

Oil 6 27.9 31.9 –4.9 –3.6 –1.8 –3.1

Nonfuel (average based on world commodity

export weights)

26.3 17.7 –14.0 –1.7 –9.3 2.2

Consumer Prices

Advanced Economies 1.6 2.7 1.6 1.3 0.2 –0.1

Emerging and Developing Economies 3 6.1 7.2 6.2 5.5 0.3 0.4

London Interbank Offered Rate (percent) 7

On U.S. Dollar Deposits 0.5 0.5 0.9 0.9 0.4 0.3

On Euro Deposits 0.8 1.4 1.1 1.2 –0.1 –0.4

On Japanese Yen Deposits 0.4 0.4 0.5 0.2 0.2 0

Year over Year

Projections

Difference

fromSeptember

2011 WEO

Projections

Source: IMF WEO, Jan 2012

“Growth in emerging and

developing economies is

also expected to slow

because of the worsening

external environment and a

weakening of internal

demand.”


Asia is still on the grip despite the

sluggish global demand

� Deceleration of growth for Asia is due to the weak

external demand

� Financial contagion from Europe remains to be of

concern for Asia

� Potential strong policy response are available in the

event of further slowdown


Near-term Policy Directions

� Stimulating domestic demand

o Sustaining domestic consumption

o Securing investments

� Accelerating fiscal spending and infrastructure outlays

� Diversifying domestic and external trade

� Strengthening economic relations with fast-growing ASEAN

economies; seizing the opportunity from China rebalancing


Average GDP Growth, First 10 Years of Demographic Window (%)Demographic Windows* in Asia

*Defined as the period when population under 15 years old drops below 30%

and population over 65 years old is less than 15%.

The youngest population in Asia supports a strong medium-term economic growth outlook

Sources: BSP IRO based on the UN World Population to 2030, UN World Population Prospects (2010 Revision), IMF World Economic Outlook, Japan Cabinet Office

� 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, the Philippines will enter its Demographic Window in 2015, 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 withaccelerated 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%

A Promising Future Lies AheadThe Philippines is the last major economy in Asia to enter its demographic “sweet spot”

2050

2050

2045

2040

2040

2030

2025

2020

2015

2015

1995

2015

2010

2010

2005

2005

1995

1990

1985

1980

1980

1965

1960 1980 2000 2020 2040 2060

Philippines

India

Malaysia

Vietnam

Indonesia

Thailand

China

Korea

Singapore

Hong Kong

Japan

**Thailand is an exception, as its Demographic Window began in 1995, and thus

its high-growth period was interrupted by the Asia Financial Crisis of 1997-98

10.3

9.08.2 8.1 7.8

7.47.0

6.25.4

3.3

0

2

4

6

8

10

12

Chin

a

Kore

a

India

Japan

Sin

gapore

Hong K

ong

Vie

tnam

Indonesia

Mala

ysia

Thaila

nd**




on?



on?

Core Logistics Conference 2012

4/F, Function Room, Board Room 3 New World Hotel, Makati City

The Philippines and Asia 2012 Economy: What’s going

Documents

Transcript of The Philippines and Asia 2012 Economy: What’s going