Download Macroeconomic Projections of the Philippines Ira C. Camarao Department of Finance UNESCAP, Bangkok, Thailand

Macroeconomic Projections of the Philippines
Ira C. Camarao
Department of Finance
UNESCAP, Bangkok, Thailand
December 8 ‐10, 2015
Structure
• Overview of the Philippine Development Plan
•Initial Framework of Macroeconomic Projections
•Proposal of Next Year’s Annual Budget •Methodologies
•Moving Forward
Philippine Development Plan
National Economic Development Authority
(NEDA) Board implements a Medium Term
Development Plan (MTDP) during the Arroyo
Administration(2004‐2010) and now currently
known as Philippine Development Plan (PDP)
under the Aquino Administration (sustainable and
inclusive growth through institutions and human capital)
• Identifies and sets the goals (economic and social development and growth) of the country
• Six year plan
•Annually Reviewed
Composition of the NEDA Board
Chairperson: President of the Philippines
Vice‐Chairperson: NEDA (Socioeconomic Planning) Secretary
Members:
Secretary of Budget and Management, Secretary of Interior and Local Government Secretary of Finance
Secretary of Agriculture
Secretary of Public Work and Highways
Secretary of Environment and Natural Resources
Secretary of Transportation and Communications
Secretary of Energy
Secretary of Science and Technology
Secretary of Trade and Investment
Secretary of Tourism
Secretary of Education
Secretary of Health
Secretary of Labor and Employment
Governor or (Deputy Governor) of Bangko Sentral ng Pilipinas
Chairman of the Housing and Urban Development Coordinating Council (Vice President)
Chairman of Metro Manila and Development Authority
Governor of Autonomous Region for Muslim Mindanao
President of the Local Authorities of the Philippines
Chairperson of the Mindanao Authority
Office of the President •Presidential Communications Development and Strategic Planning Office
•Cabinet Secretary
•Presidential Management Staff
Crafting of the PDP
•NEDA initially identifies and sets the socioeconomic
plan
•Asks the different ministries to formulate roadmaps in
achieving this goals.
•Different Ministries are then clustered or grouped
• Development Budget Coordination Committee (DBCC)
• Infrastructure Committee (Infra Comm)
• Investment Coordination Committee (ICC)
• Social Development Committee (SDC)
• Committee on Tariff Related Matters (CTRM)
• Regional Development Committee (RD Comm)
• National Land Use Committee (NLUC)
Approval PDP by the NEDA Board
Publication of PDP
Contents of the PDP
1. In Pursuit of Inclusive Growth
2. Macroeconomic Policy
3. Competitive Industry and Services Sector
4. Competitive Agriculture and Fisheries Sector
5. Accelerating Infrastructure Development 6. Towards a Resilient and Inclusive Financial Sector 7. Good Governance and the Rule of Law
8. Social Development
9. Peace and Security
10.Conservation, Protection, and Rehabilitation of the Environment and Natural Resources
Initial Framework for Macroeconomic Projections Development Budget Coordination Committee
(DBCC)
DEPT. OF BUDGET &
DEPT. OF FINANCE
MANAGEMENT
CHAIR
VICE-CHAIR
Formulates the
Prepares the
expenditure program revenue program, the
borrowing program,
of the National
and estimates the
Government
consolidated public
sector financial
position
NATIONAL ECONOMIC OFFICE OF THE
& DEVELOPMENT
PRESIDENT
AUTHORITY
MEMBER
MEMBER
Determines the
initial framework
of the national
income accounts
and estimates
GNP and GDP
Oversight
Executive Technical Board
BANGKO SENTRAL
NG PILIPINAS
RESOURCE
INSTITUTION
Provides projections
on foreign exchange
rate, and trade
statistics (imports and
exports) , crude oil
prices and inflation
Initial Framework for Macroeconomic Projections or Targets Approved PDP
BSP
P
R
O
J
E
C
T
I
O
N
S
•Inflation
•Interest Rate
• FOREX
•Trade on Goods
•Dubai Crude Oil
•Gross International Reserves
•OFW Remittances
NEDA
Inputs
Annual Path Model
Estimated Initial Macroeconomic Parameters
(GDP )
Executive Technical Board
Initial Framework for Macroeconomic Projections or Targets Executive Technical Board
BSP Projections
Estimated Initial GDP
PDP
DOF
DBM
Projects the revenue program
Projects the disbursement and priority sector
•Tax Revenues
•Income •Goods and Services
•Non‐Tax Revenue
•Fees and Charges
•BTr Income
•Proceeds from Privatization
•Debt
•Major Infrastructure
Projects
•Provisions of basic services
CONDITION
Budget Deficit target 2% DOF determines:
• the
Borrowing
/
Financing Composition
and Debt Sustainability
•New Measures
•Administrative
Improvements
Medium Term Fiscal Program is set at the ETB Level
Initial Framework for Macroeconomic Projections Medium Term Fiscal Program
I
N
P
U
T
BSP
P
R
O
J
E
C
T
I
O
N
S
•Inflation
•Interest Rate
• FOREX
•Trade on Goods
•Dubai Crude Oil
•Gross International Reserves
•OFW Remittances
NEDA
Inputs
Annual Path Model
Medium Term Macroeconomic Parameters / Assumptions is set at the ETB Level
•Projections GDP Initial Framework for Macroeconomic Projections or Targets ETB
Medium Term Macroeconomic Assumptions
Medium Term Fiscal Program
Development Budget Coordination Committee
(DBCC)
Cabinet
President
Approval of the DBCC, Cabinet and President
Medium Term Macroeconomic Parameters Medium Term Fiscal and Expenditure Program
Basis of Setting the Annual Budget Process or Setting the Proposed Annual Budget for the Next Fiscal Year Annual Budget Setting for the Next Fiscal Year
•PDP
•Latest Macroeconomic Parameters
•Latest Medium Term Expenditure Program Once the GDP growth of last year is released
BSP
P
R
O
J
E
C
T
I
O
N
S
•Inflation
•Interest Rate
• FOREX
•Trade on Goods
•Dubai Crude Oil
•Gross International Reserves
•OFW Remittances
NEDA
Inputs
Annual Path Model
Projected GDPn
Executive Technical Board
Annual Budget Setting for the Next Fiscal Year
Executive Technical Board
BSP Projections
Projected GDPn
PDP, Budget Submission of the Different Ministries
DOF
DBM
Determines the revenue program
Adjusts the expenditure program to align to DBCC’s target deficit
‐Set the tax target
‐Bureau of Internal Revenue (BIR)
‐ Bureau of Customs (BOC)
‐ Set the non‐tax target
Revised Revenue Program
•Debt
•Major Infrastructure
Projects
•Provisions of basic services
Adjusted Expenditure Program
CONDITION
Budget Deficit target 2% DOF determines:
• the
Borrowing
/
Financing Composition
and Debt Sustainability
•New Measures
•Administrative
Improvements
Annual Budget Setting for the Next Fiscal Year
Adjusted Expenditure Program
I
N
P
U
T
BSP
P
R
O
J
E
C
T
I
O
N
S
•Inflation
•Interest Rate
• FOREX
•Trade on Goods
•Dubai Crude Oil
•Gross International Reserves
•OFW Remittances
NEDA
Annual Path Model
Inputs
•Projections GDP If Projected GDPn causes no further adjustments in the fiscal (revenue and expenditure) program
Proposed Annual Budget
DBCC conducts consistency checks
Submission to Congress
President’s Approval Methodologies
NEDA’s Annual Path
• Is a static model in Excel format that uses the elasticities from the
NEDA Quarterly Macroeconometric Model in its equations. This
model has been in use since mid‐1990s and has been adjusted
over the years.
• In generating the projections or targets, the model also needs
indicator projections as inputs. These include medium term
macroeconomic assumptions particularly inflation, exchange
rate, Dubai crude oil price, exports, imports, and OF remittances
as well as medium term expenditure program.
NEDA’s Annual Path
• It is also used in generating the annual projections for growth of
both production and demand side components of the National
Income Accounts.
Note: While this model serves as the main tool for estimating
growth projections, NEDA also does preliminary forecasting
using non‐structural (e.g. ARIMA forecasting) and structural
(Quarterly Growth Indicator System) methodologies. The
results from these other methodologies serve as guide in
refining the NEDA Annual Path.
NEDA’s Annual Path
• GDP is basically computed from the supply side, but changes in
the demand side also affect the sub‐sectors in production, via
private consumption expenditures; government consumption;
public and private construction, breeding stocks, changes in
stocks and exports of goods and services.
• The NEDA Annual Path basic projection is in Peso and real terms.
Thus, these determinants are converted into local currency (if
not in Peso) and adjusted for inflation (based on BSP’s forecast).
GDP = Agriculture + Industry + Services
GNP = GDP + Net Factor Income from Abroad
GDP is Gross Domestic Product
GNP is Gross National Product
Determinants of the NEDA’s Annual Path
Sector
Supply Side
Agriculture
Industry
Mining and Quarrying
Manufacturing
Construction
Determinants
Forecast of the Department of Agriculture and impact of
changes in Dubai crude oil prices
Sum of its subsectors
Outlook for the subsector
Domestic demand elasticity and exports elasticity
Elasticity for both public and private construction (demand
side)
Elasticity of oil prices
Sum of its subsectors
Elasticity of oil prices and outlook for the subsector
Electricity, Gas, and Water
Services
Transportation, Communication and
Storage
Trade
Elasticity of oil prices and outlook for the subsector
Finance
Outlook for the subsector
Ownership of Dwellings and Real Estate Elasticity of oil prices, inflation, and outlook for the
subsector
Private Services
Elasticity of oil prices, inflation, and outlook for the
subsector
Government Services
Expenditures on Personal Services and Allocation to Local
Government Units from the DBM Expenditure Program
Net Factor Income from Abroad
Outlook for OFW deployment, overseas Filipino
remittances, exchange rate
Determinants of the NEDA’s Annual Path
Expenditure Item
Determinants
Demand Side
Private Consumption Expenditures (PCE) Growth in Agriculture, growth in total construction, inflow
of compensation (OFW), inflation rate, oil prices
Government Consumption
Total Current Operating Expenditures net of interest
payments and subsidy from the DBM Expenditure Program
Gross Domestic Capital Formation (or
Sum of its subitems
Investments)
Public Construction
Infrastructure and other Capital Outlays from the DBM
Expenditure Program
Private Construction
Elasticity of oil prices on industry
Durable Equipment
Elasticity of oil prices on industry
Breeding Stocks
Outlook for the expenditure item
Changes in stocks
Outlook for the expenditure item
Exports
Sum of its subitems
Goods
BSP projections on Merchandise Exports (BOP concept)
Services
Imports
Goods
Services
Net Factor Income from Abroad
Outlook for the expenditure item
Sum of its subitems
BSP projections on Merchandise Imports (BOP concept)
Outlook for the expenditure item
Outlook for OFW deployment, overseas Filipino
remittances, exchange rate
NEDA’s Annual Path
Model Limitations
•GNP and GDP can only be computed from the supply side. This explains why NEDA is only
releasing the supply side projections for the Development Budget Coordination Committee
(DBCC)’s internal use. NEDA is not that confident with its demand side projections (another factor
is statistical discrepancy which is impossible to project).
•The specialists adjust the results based on other hard indicators that do not enter the models.
•The specialists adjust the results based on his/her own evaluation of the sectors (i.e. from new
clippings, government program, etc.)
•The DBCC and Executive Technical Board principals also give instruction for adjustments, based on
their judgment.
General Sources of Forecast Errors
•Data revisions
•Sudden, unanticipated shocks
•Forecasting technique
Latest updates
Given the release of the 2000‐based/revised National Income Accounts, NEDA estimated 2000‐
based economic growth assumptions for the medium‐term and was submitted to the DBCC
Secretariat on June 23, 2011 for review by the principals. Due to time limitations however, the
2000‐based projection still used elasticities in the annual path that were derived from 1985‐based
historical data.
DOF’s Revenue Program
• Projects Tax Revenue program by major collecting agency (BIR,
BOC) and by type of tax using the approved macroeconomic
assumptions.
• Revenue Programming by type of tax of BIR:
 Analyze the tax effort trend (starting 1986 historical series)
 Revenue projections by type of tax thru elasticity approach:
Elasticity of tax revenue =
Percent change in tax revenue
(Under an unchanged tax system)
Percentage change in the tax base
• GDPn is used a as proxy to the tax base
 Corporate and Individual Income Taxes, Gross Receipts Tax,
Documentary Stamp Taxes, and other percentage taxes
 VAT forecast also uses elasticity, but GDPn is adjusted
downwards for non‐agricultural exports (VAT‐ 0% rate)
DOF’s Revenue Program
 Projections for Excise Tax use the actual volume of
removals of each major excise product (alcohol,
tobacco, petroleum products and miscellaneous
items).
 The actual volume of removals * GDPr growth *
excise tax rate.
•Revenue Programming for BOC:
•Import growth, Exchange Rate, Tariff rate and dutiable
value of imports
• Non‐Tax Revenues is managed by the Bureau of Treasury.
Other DBCC Offices
DBM’s Expenditure Program is based on trend and accounting analysis BSP
•Monetary Policy Framework
•Inflation Targeting
•Macro‐prudential tools
Moving forward
NEDA conducted:
1. A multi‐sectoral workshop on SDG Indicators last October with
the following objectives:
•Examine whether the initial list of indicators are relevant to
the Philippines
•Identify indicators which are not included in the list but are
deemed to be relevant and crucial for program planning in
the Phil and achieving the SDG targets
• Assess whether data on the indicators are available from
existing data sources
•Prioritize the indicators that should be part of the core
indicators to be monitored by the Philippines.
Moving forward
2.
An inter‐agency capacity building for the National Government to
formulate a long‐term development plan or vision (Philippines 2040) to
facilitate the country’s attainment of sustainable development. This will
serve as guide for the formulation of Medium and Short Term Plans.
This formulation is through training of the capacity building in developing
the Threshold 21 model for the Philippines. This training was conducted by
Dr. Qu of the Millennium Institute. He trained Philippine technical team on
basic skills on using vensim software and running the T21 model and
simulating long‐term scenarios. The team has also validated data
requirements and initial parameters of the model to enhance
customization of the model according to country’s development context.
First Phase: August 2015
Second Phase: last week of October to 1st Week of Nov.
Third Phase: January 2016
Maraming Salamat !!