Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
The State of the Philippine Economy Sec. Arsenio M. Balisacan National Economic and Development Authority Ayala-UPSE Economic Forum InterContinental Manila, Makati City 29 January 2015 1 Takeaway • No longer the “sick man” of Asia – 1970s to 2000s: Low economic growth in comparison with Southeast & East Asian neighbors – If boom occurred, it was soon followed by bust • Resurgence beginning 2010 – “Structural break” to higher growth trajectory – 2010-2014 average growth: 6.3%, highest 5-year average in the past 40 years – 2014: 6.1%, high by the standard of major developing countries – Supported by sound economic fundamentals • Bright prospects in the near term: 2015 & 2016 growth to remain among the fastest in Asia’s developing countries • But big challenges remain: deepening reforms to sustain growth and make it more inclusive • Good governance plus good economics is key to good growth (rapid, sustained, inclusive) 2 The Philippine economy is on a higher growth trajectory since the beginning of the current decade. GDP in 2000 billion Php, 1946-2014 8.00 7.00 6.00 5.00 4.00 Real GDP growth 6.3% (2010-2014) Structural break of potential real GDP at around 2009 6.1% (2014) 7.2% (2013) 6.8% (2012) 3.00 2.00 1.00 - Source: PSA 3 Average growth in 2010-2014 is the highest 5-year average growth since the mid-1970s. Real GDP growth (5-year moving average) 10.00% 1973-1977 2010-2014 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% 5-year moving average 6.3% (2010-2014 ave.) Source: Authors’ calculations 4 Philippine growth in 2010 to 2013 is among the highest in Asia — no longer the “sick man” of Asia. Average GDP growth (in %, 2005 prices) 12.0 10.0 8.0 China Indonesia Malaysia 6.0 Philippines Thailand 4.0 Vietnam 2.0 0.0 1960-1969 1970-1979 1980-1989 1990-1999 2000-2009 2010-2013 Source: WB 5 What have driven recent growth? • Private consumption, on the demand side, and services, on the supply side, have been the main drivers of growth – Private consumption, fuelled partly by OFW remittances: over two-thirds of GDP – Services: over one-half of GDP • Need for “rebalancing” to reduce vulnerability to regional/global shocks and generate more and higher-quality jobs – Demand side: Driving investment and net exports – Supply side: Driving resurgence of industry, particularly manufacturing; revival of agribusiness 6 Structural changes in the economy are taking place. Investment and industry are increasingly becoming major drivers of GDP growth. Demand side 7.0% 6.0% 6.3% Ave. growth 5.0% 4.0% 3.0% Supply side 6.1% 7.00% 6.3% 6.00% 4.5% 5.00% 6.1% 4.5% 4.00% 2.8% 3.00% 2.0% 2.8% 2.00% 1.0% 0.0% 1.00% -1.0% 0.00% Consumption Government Investment Net exports Agriculture Industry Services Source: NEDA 7 Growth of GDP by component, 2013 & 2014 2013 Supply side Agriculture Industry Manufacturing Services Demand side Private consumption Government consumption Fixed capital formation Exports Imports GDP 2014 Growth rate Share to (%) GDP (%) Growth rate (%) Share to GDP (%) 1.1 9.3 10.3 7.2 8.8 27.5 19.1 47.6 1.9 7.5 8.1 6.0 8.4 27.8 19.4 47.5 5.7 58.2 5.4 57.7 7.7 9 1.8 8.6 11.9 17.8 8.6 18.2 -1.1 5.4 7.2 37.4 39.3 100 12.1 5.8 6.1 39.5 39.1 100 Source: PSA 8 Supporting this remarkable performance are sound macroeconomic fundamentals. Monetary side • Robust external position • Low and stable inflation • Favorable interest rate & sound banking system Inflation rate (%) 6 Interest rate & CAR (rhs), % Current account balance (% GDP) 5 4 3 2 1 Sources: PSA, BSP 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q3 Q3 2013 2014 9 Supporting this remarkable performance are sound macroeconomic fundamentals. Fiscal side • Declining external debt & interest payments • Modest fiscal deficit • Increasing reliance on domestic financing • Result: wider fiscal space 40 External debt (% GDP) 35 30 25 20 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 Mar-13 Mar-14 10 Result: The country enjoys an unprecedented level of confidence among the international business community — and has improved its global competitiveness rankings. Long-term sovereign credit ratings Baa2 BBB Outlook: Stable Outlook: Stable BBB- As of December 11, 2014 As of May 8, 2014 As of March 27, 2013 Outlook: Stable Global Competitiveness ranking, 2009-2015 Philippines 2009-10 2010-11 2011-12 2012-13 2013-14 2014-2015 87 85 75 65 59 52 Source: The Global Competitiveness Report, World Economic Forum Ease of Doing Business rankings, 2009-2014 Philippines (old method.) 2009 (181 economies) 2010 (183 economies) 2011 (183 economies) 2012 (183 economies) 2013 (185 economies) 2014 (189 economies) 141 144 134 136 133 108 Philippines (new method.) Source: Doing Business Report, World Bank and International Finance Corporation 86 2015 (189 economies) 95 11 But why has poverty been persistently high? • Lesson of recent economic history: structural transformation drives poverty reduction. – From low-productivity areas/sectors to high-productivity areas/sectors • East Asia’s experience: Rapid & sustained growth (3 to 4 decades); shift of employment from agriculture to industry and services, facilitated by robust agricultural productivity growth. • Philippines: Low growth for most of post-1970s. – Poorly performing agriculture – Industry, particularly manufacturing, saddled by high production costs (low productivity) 12 Weak performance in poverty reduction relative to the country’s neighbors. “Lost decade” in 2000s owing primarily to low income growth and to the high inequality of access to employment & social development opportunities. 90 Poverty headcount ratio at $1.25/day, PPP (% pop.) 80 70 60 50 40 30 20 10 0 EAP (developing only) Indonesia Philippines Thailand Viet Nam China Source: WB 13 Poverty reduction has been slow over time, though recent gains have been made. Poverty incidence among pop. (%) 40 35 34.4 28.8 30 25 Response of poverty to growth (elasticity) has improved (source: WB) 20 –2.02 (2012-2013) 26.6 28.6 27.9 24.9 26.3 25.2 –0.24 (2006-2012) 17.2 15 Annual estimates First semester estimates Note: The 2014 1st Semester estimates will be released in March 2014. MDG target Source: PSA 14 Similarly, self-rated hunger has somehow abated in recent years. Total hunger incidence, July 1998 to Dec 2014 (% of households) 25 20 15 10 5 0 Source: SWS 15 The other big challenge: EMPLOYMENT. • Not a “jobless growth” – about 1 million new employment generated between Oct 2013 & Oct 2014. • Unemployment rate is decreasing, although underemployment remains stubbornly high. • Quality of jobs is improving – rising share of wage and salaried workers in total employment. Ave 2010 Ave 2011 Ave 2012 Ave 2013 Ave 2014* Oct 2013** Oct 2014** Labor force (‘000) 38,893 40,006 40,426 41,022 40,051 40,397 41,322 Employed (‘000) 36,035 37,192 37,600 38,118 37,309 37,793 38,839 54.5 55.2 57.2 58.4 57.9 57.7 58.1 Unemployment rate (%) 7.3 7.0 7.0 7.1 6.8 6.4 6.0 Underemployment rate (%) 18.8 19.3 20.0 19.3 18.4 18.0 18.7 Indicator Wage and salary workers (% share to total employment) Source: Labor Force Survey, Philippine Statistics Authority *The average estimates for 2014 exclude Region 8. Moreover, average estimates for wage and salary workers are computed using the January 2014 data (which exclude Region 8) and April-October 2014 (which exclude Leyte). **Due to Typhoon Yolanda’s devastation, estimates for Oct. 2014 exclude Leyte; for comparability purposes, Oct 2013 16 estimates less Leyte is also provided. The other big challenge: EMPLOYMENT. • Internationally, the share of wage & salaried workers in total employment is a broad indicator of employment quality • Rising in the Philippines, albeit slowly Wage and salaried workers (% of total employed) 100 90 80 70 60 Indonesia 50 Malaysia 40 30 20 Philippines Singapore Thailand 10 0 Source: WB 17 Deepening reforms to sustain growth & make it more inclusive • • Rapid growth in recent years is the outcome of past and ongoing governance and policy reforms – Broadly, reforms have been evidence-based, focused on most binding constraints to growth Primacy of deepening reforms to sustain growth and make it more inclusive – Learning from the lessons of recent development experience – Deploying political capital for reform & development Lessons learned in first 3 years of PDP implementation – Good governance is an effective platform for the strategies’ implementation – Macroeconomic and political stability fuel positive expectations leading to growth – Economic growth is necessary but not sufficient for poverty reduction – Growth strategies need to have spatial and sectoral dimensions to ensure inclusivity – Disasters can negate gains and even push back development 18 Deepening reform efforts to address the key constraints to growth and shared prosperity Huge backlog in infrastructure & human capital development Weak & fragmented regulatory systems Key constraints to growth Conflicts & human insecurity, especially in Mindanao High vulnerability to natural disasters & extreme events 19 Infrastructure: There have been improvements in the overall quality of infrastructure, but we’re still lagging far behind ASEAN counterparts. Overall quality of infrastructure (2010-2014 ranking) 2010 2011 2012 2013 2014 (139 economies) (142 economies) (144 economies) (148 economies) (144 economies) Philippines 113 113 98 98 91 Malaysia 27 23 29 25 25 Thailand 46 47 49 61 48 Indonesia 90 82 92 82 56 Source: WEF Global Competitiveness Report 2010-2014 Inadequate infrastructure has contributed to the growing congestion problem in Metro Manila. Economic cost of congestion (Php billion/day) 2012 2030 (w/o intervention) 2030/2012 ratio 2.40 6.00 2.50 Source: JICA Study Team 2014 20 Infrastructure: Public infrastructure spending is targeted to rise from 2.2% of GDP in 2012 to at least 5.0% in 2016. Public infrastructure spending as % of GDP 6 5.1 5 Actual (2011-2013)/Projected (2014-2016) Target 4 3 2.2 2 1 4.0 1.6 2.2 3.5 2.5 5.1 4.1 3.4 2.7 1.6 0 2011 2012 2013 2014 2015 Source: DBM; note: 2011 to 2013 – Based on actual GDP and spending; 2014 – Based on General Appropriations Act; 2015 – Based on National Expenditure Program; 2016 – Projected 2016 21 Human capital: Due to a wider fiscal space, spending in human capital development and social protection have enjoyed increasing shares in the national government budget. Sector Education Health Social protection Share to total NG budget (%) Growth rate (%) 2011 2012 2013 2014 2012 2013 2014 46.7 47.2 47.2 46.2 9.8 18.2 18.0 7.4 8.9 8.3 10.5 29.4 10.2 53.0 21.3 24.5 24.2 25.5 25.3 16.7 26.8 Source: BESF, DBM The country’s CCT program (4Ps) has been scaled up rapidly. 60 4Ps budget and beneficiary families 50 6 5 4 40 3 30 2 20 10 1 0 0 2007 2008 2009 2010 2011 2012 2013 2014 Number of families (in million) Budget (in billion Php) 70 Budget allocation in the GAA (billion Php) Number of families in millions (right axis) Source: DSWD 22 Disaster preparedness: Investment in disaster preparedness is crucial given the country’s high vulnerability to natural disasters. Climate Risk Index 2013 Ranking Country 2012 Ranking Deaths per 100,000 inhabitants Absolute losses (in million USD PPP) 1 2 Philippines 6.65 24,538.56 2 65 Cambodia 1.22 1,495.52 3 46 India 0.60 15,147.02 6 3 Pakistan 0.16 5,419.77 8 32 Viet Nam 0.17 2,397.04 Source: Germanwatch Average annual loss for the Philippines is estimated to be Php 206B/year (1.8% of GDP) in direct losses to private and public assets. [WB 2015] High rates of return to investment in disaster preparedness: • Studies on the Philippines show $3 to $30 worth of benefits per $1 of investment, depending on type of disaster or hazard. [Kelman & Shreve 2013] 23 Conflict: ARMM’s underdevelopment is linked to its long history of armed conflict. (Annual cost of around P5-7.5 billion [HDN 2005].) ARMM National Average Rest of Mindanao 14,565 68,897 46,050 55.8 25.2 39.1 72.5 26.1 95.2 64.6 - 4. Access to safe water source 36.6 79.9 73.3 5. Seal of Good Housekeeping 6.6 76.6 59.7 Number of armed groups 43 86 3 Number per million pop. 12.3 0.91 0.13 Indicators 1. GDP per capita, PHP in 2000 prices (PSA 2013) 2. Poverty incidence (%, PSA 2012) 3 Net enrollment (%, SY 2012-13) Primary Secondary (source: ARMM-RPDO/DepEd) (% of HH, FIES 2012) (%, municipalities, DILG 2012) 6. Private armed groups (PNP 2012) Sources: PSA, Bangsamoro Development Plan [2014] 24 Regulation and corruption: Remaining bottlenecks in sound regulation and corruption are reflected in the country’s competitiveness rankings. 2013 rank WB - Ease of Doing Business WB - Ease of Doing Business (new method.)* Change (past 3-4 years) 2014 rank ASEAN rank as of 2014* 108/189 na 40 na 86/189 95/189 na 5 (10) WEF - Global Competitiveness Report IMD - World Competitiveness Report TI - Corruption Perception Index 59/148 38/60 52/144 42/60 33 -1 5 (9) 5 (5) 94/177 85/175 49 3 (9) HF - Economic Freedom Index 97/177 76/178 (2015) 33 5 (9) Source: National Competitiveness Council [2014] *Rank of PH within ASEAN. Figures in parentheses are number of ASEAN countries covered. Cost of starting a business (% GNI p.c.) Indonesia Malaysia Thailand Viet Nam Philippines Source: ADB [2014]. 2005 101.7 26.6 8.1 27.6 23.9 2013 20.5 7.6 6.7 7.7 18.7 Change -81.2 -19.0 -1.4 -19.9 -5.2 Time to start a business (days) 2005 2013 151 37 33 45 47 48 6 28 34 35 Change -103 -31 -5 -11 -12 25 Priority legislative measures to sustain growth and make it more inclusive. • • • • • • • • • • • • • Bangsamoro Basic Law Competition Law Fiscal Incentives Rationalization Rationalization of Mining Revenues Removing investment restrictions in specific laws cited in the Foreign Investment Negative List (FINL) Amendment to BOT Law Amendment to BSP Charter Customs and Tariff Modernization Act (CMTA) Water Sector Reform Act Amendment to Cabotage Law National Land Use Act Land Administration Reform Act Acquisition of Right-of-Way of Government Infrastructure Projects 26 Growth targets & outlooks for 2015 & 2016 NEDA BoardDBCC (as of Jan. 7, 2015) 2015 (projected) 2016 (projected) GDP growth (%) 7.0-8.0 7.0-8.0 Inflation, CPI (%, 2006=100), average 2.0-4.0 2.0-4.0 Exchange rate (PhP/USD) 42-45 42-45 -2.0 -2.0 Budget deficit (% GDP) PDP Update (as of Jan. 2014) – – – 6.7 6.6 Underemployment rate (%) 18.0 17.0 Sources: NEDA, DBM. *First semester estimate. – – – Unemployment rate (%) Poverty incidence (%) Drivers of growth in the near to medium term • Supply side 22.5 19.0 • Manufacturing Construction and logistics including rehab. in disasteraffected areas International and domestic tourism Wholesale and retail trade Business Process Management (BPM) fueling growth in the real estate, renting, and business activities sector Agribusiness Demand side – – – – Investment: public construction, including infrastructure and reconstruction; private construction Household consumption: remittance inflows, strong consumer confidence Exports of services: good prospects on BPM External trade conditions: low world price of oil 27 International organizations’ outlooks for Philippine growth remain optimistic (as of Jan. 2015). 2013 2014 2015 (forecast) 2016 (forecast) IMF 7.2 .. 6.6 6.4 WB 7.2 6.0 6.5 6.5 ASEAN-5 IMF 5.2 4.5 5.2 5.3 Emerging and developing Asia IMF 6.6 6.5 6.4 6.2 East Asia & Pacific WB 7.2 6.9 6.7 6.7 IMF 7.8 7.4 6.8 6.3 WB 7.7 7.4 7.1 7.0 IMF 3.3 3.3 3.5 3.7 WB 2.5 2.6 3.0 3.3 Philippines China World Sources: IMF’s WEO Update (Jan 2015); WB’s Global Economic Prospects (Jan 2015) 28 The 3Gs of Inclusive Development Good governance Good growth • Rapid • Sustained • Inclusive Good economics 29 Thank you! Presentation can be downloaded from: http://www.econ.upd.edu.ph/ayala-upse 30