Post on 31-Dec-2021
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
TurningthecrisisintoanopportunityAproposedeconomicrecoveryprogram
Draftproposalfordiscussionpurposeonlyasof13May20201
“PH-PROGRESO”Philippine Program for Recovery
with Equity and Solidarity
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
1. Overview2. Wherearewenow?
a. Realeconomy:GDP,income,andjobsb. Fiscalposition:revenue,expenditure,deficitc. Surveyresults:consumers,MSME,farmers
3. Proposedphasedandadaptiveeconomicrecoveryprogram(PH-PROGRESO)a. BayanihanII(expenditureside)b. CREATE:CorporateRecoveryandTaxIncentivesforEnterprises
Act (taxincentivesside)2
Contents
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
Twoeconomicprinciplestomemorize,dreamabout,andapply
1. Nothingisfreefromheaven2. Everythingisatrade-off
3
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
JunetoDec2020
Dextroseinregularroom
BayanihanII,CREATE
PillarIIIandIV
● Budgetandprocurementflexibility● Reprioritizationof2020budget.● PriorityBBBresumption.● Demandsidetoraiseincomeandcreatejobs:bettertargetedandimplementedBayanihanIprograms.
● Supplysidetosupportfirms:Liquidityandequityinfusion,andguaranteethruthefinancialsector.
● Targetedtaxincentives.4
MarchtoMay2020
IntubationinICU
BayanihanI
PillarIandII
● Budgetandprocurementflexibility.
● Subsidytopoorandlowincome.● Smallbusinesssupport(graceperiod,wagesubsidy)
● Supporttokeysectors(e.g.agriandOFW).
● Healthsystem,capacity,andinsurance.
● Supportfront-liners.
Phasedandadaptiverecoveryapproach
Period
Analogy
Law
Pillar
Keyfeatures
2021onwards
Vitaminsathome
2021-22GAAandotherreformlaws
PillarIIIandIV
● Reprioritizationofthe2021and2022budget.
● Structuralreformstoturncrisisintoopportunitytoprepareforthenewnormal.
● SupportBalikProbinsya,BagongPag-asa(BP2)Program.
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
Keymessages
6
a. Buildingonpastreformsandsolidmacroeconomicmanagement todeliverbetter.
b. Amongthefastestgrowingeconomies (averageof6.6%from2016to2019).c. Likelytobecomeuppermiddleincomecountry in2020(USD3,512percapita).d. Lowandstableinflation(averageof3.0%from2016to2019).e. Lowesteverratesofunemployment (5.3%),underemployment (14.8%),and
poverty (16.6%).f. Strongfiscalposition (revenueof16.1percentofGDP,highestsince1997).g. FallingdebttoGDPratio (39.6percentofGDP,lowestsince1986).h. Highgrossinternationalreserves (USD89billionor7.9monthsofimport).i. BBB+creditrating(onenotchbelowtheA-rating)
i. Illustration:foreveryonetrillionpesosinborrowing, a1%lowerinterestrateduetogoodcreditratingtranslatestoasavingsof10billionpesosperyear.
1. ThePhilippinesentered2020withstronggrowthprospects.
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
7
Keymessages
a. Conservativeandresponsible fiscalmanagement.b. Taxreform(4taxlaws,3morepackagestogo).c. Structuralreforms (ricetariffication,easeofdoingbusiness,national ID,
UHC,universalaccesstotertiaryeducation,etc.).d. BBBprogram (infraspending exceeded5%ofGDPin2018).
a. Taalvolcanoeruption inJanuary.b. DeclineintourismandtradeduetoglobalpandemicstartingFebruary.c. ECQstartingMarchtocontainthevirus.
2.Thisstrongfoundationisdueto...
3.Butwehavefacedtotallyunexpectedshocksin2020:
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
1. Threepossiblegrowthcasesbuthardtoputanestimate.a. V-shape:quickrecoverystarting July2020.b. W-shape:quickrecoverystartingJuly2020followedbyasecondwaveof
infection.c. LongU-shape(valley):long recoveryspanningseveralquarters,withlikely
recoveryin2022whenvaccineisdeveloped.2. ButwecanproactivelyusepoliciestoachieveaV-shapedrecovery.
a. Viruscontainmentpolicy(ECQ,GCQ,minimumhealthstandards).b. Fiscalpolicy(socialameliorationprogram,support tobusinesses,health
capacity,BBBprogram).c. Monetarypolicyandfinancialsectorregulatory relief.d. Built-inflexibilityinthe2021and2022budgets incaseofaWorlongU-shape
recovery.e. Structuralreforms.
Wecanproactivelydetermineourgrowthtrajectory
8
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
Weneverknowifthecrisisisover,thustheneedtobeconservative:1918to1920flupandemiccurve(UK)
9Source:Taubenberger, J.andD.Morens.2006.“1918Influenza:theMotherofAllPandemics.”EmergingInfectiousDiseases,Jan;12(1):15–22.Accessed13May2013https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3291398/
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
10
Four-pillarstrategytorespondtotheCOVID-19crisis
P589.97billion(3.0%ofGDP)
P843.0billion(4.4%ofGDP)tofundPillar4
P58.55billion(0.3%ofGDP)
Grandtotal:P1.49trillion(7.7%ofGDP)asofMay12,2020
(tobecosted)
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
Strongfiscalandfinancialposition toaddressthecrisis.
TheEconomistranksthePhilippines 6thamongselected emergingeconomiesintheworld,andthebestamongthoserankedfromSoutheastAsia,intermsofeconomic,fiscal,andfinancialmanagement.
11Source:Economist,“Debt indevelopingcountries:nextinline,”2May2020.
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
Macro-fiscalframeworkhasweakened,butfundamentalsstillstrong
13
Keyvariables 2019
2020(approvedbyDBCCasofMarch26)
2020(approvedbyDBCCasofMay12)
GDPrealgrowth(%) 6.0 0to-0.8 -2.0to-3.4
NominalGDPrevised(trillionpesos) 19.5 19.8 19.3
Revenue (%GDP) 16.1 16.8 13.6
Expenditure (%GDP) 19.5 22.1 21.7
Deficit (%GDP) -3.4 -5.3 -8.1
NGdebt(%GDP) 39.6 44.4 49.8
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
14
Keyvariables Consumersurvey MSME+largesurvey Agriculturesurvey
Respondents 389,859 44,097 6,863
Periodofsurvey April5to8,2020 April4to8,2020 April3to8,2020
Estimatedrevenue/income impact
44%sayincomeisnotenough tomeetbasicneeds
-87.2%inMarchvsFebruary(extrapolated:767billion)
(66%zerosales,33%decreasedsales)
65%wereabletosell35%werenotabletosell(108.5millioninlosses)
Estimatedjob loss 44%(ofnon-governmentworker
respondentslosttheirjoborsourceofincome)
-10.5%inMarchvsFebruary(extrapolated:2,240,610workers)(74.4%no lay-off,25.4%withlay-
off)
86%continued tofarm
Estimatedfirmclosures N/A 33,041firms(74.9%) 35%werenotabletosell
Top3needs Accesstofoodsupplyandessentials
Moreefficienthealthsystem
Transportation
Paymentdefermenttogovernment,banks,andutilities
Taxdiscountsortaxcredits
Lowinterestloansfromgovernmentandbanks
Cashassistance
Production support(seeds,plantingmaterials,fertilizers,etc.)
Machineryandequipment(tractors,cultivators,pumps,etc.)
Surveyresultscorroboratetheeconomicdecline
Sources:NEDAandDOF
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
JunetoDec2020
Dextroseinregularroom
BayanihanII,CREATE
PillarIIIandIV
● Budgetandprocurementflexibility● Reprioritizationof2020budget.● PriorityBBBresumption.● Demandsidetoraiseincomeandcreatejobs:bettertargetedandimplementedBayanihanIprograms.
● Supplysidetosupportfirms:Liquidityandequityinfusion,andguaranteethruthefinancialsector.
● Targetedtaxincentives.16
MarchtoMay2020
IntubationinICU
BayanihanI
PillarIandII
● Budgetandprocurementflexibility.
● Subsidytopoorandlowincome.● Smallbusinesssupport(graceperiod,wagesubsidy)
● Supporttokeysectors(e.g.agriandOFW).
● Healthsystem,capacity,andinsurance.
● Supportfront-liners.
Phasedandadaptiverecoveryapproach
Period
Analogy
Law
Pillar
Keyfeatures
2021onwards
Vitaminsathome
2021-22GAAandotherreformlaws
PillarIIIandIV
● Reprioritizationofthe2021and2022budget.
● Structuralreformstoturncrisisintoopportunitytoprepareforthenewnormal.
● SupportBalikProbinsya,BagongPag-asa(BP2)Program.
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
17
Recoveryphase:threeinstruments(threebills)
1. Spendingandcapitalsupport(BayanihanII)
2.Taxincentives(CREATE:CorporateRecoveryandTaxIncentivesforEnterprisesAct)
3.2021GAApreparation
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
Demand side priority is to create jobs and restore income levels
We can use Bayanihan II to stimulate private consumption through:
1. Healthsystemcapacityandinfrastructure
2.Foodvaluechain:agriculture, foodmanufacturing, logistics,andfood trade
3.RestartthemostimpactfulBBBprojects.
18
Recoveryphase:threeinstruments1Spendingandcapitalsupport(BayanihanII):restoreincomeandjobsofconsumers
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
19
Recoveryphase:threeinstruments1Spendingandcapitalsupport(BayanihanII):provideliquiditytofirms
Objective: Provide liquidity and prevent insolvency:
Size of firm Supply side intervention
Micro firms Borrowings from microfinance, cooperative, rural, and thrift bank lending, supported by wholesale banking of LBP and DBP (to buy loans to free up lending envelope)
Small and medium firms
Credit guarantee through PhilGuarantee and wage subsidy
Large firms Targeted equity support to match bank lending, with conditions
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
a. Forallfirms:i. Across-the-boardimmediateloweringofCITratefrom30%to25%startingJuly
2020.ii. Enhancednetoperatinglosscarryoverfrom3to5years.Lossesin2020canbe
creditedtofuturetaxpayment.b. Fornewinvestors:Targeted,timebound,andtailor-fittedtaxincentivestoproactively
attracttherighttypesofinvestment(demanddrivenledbyBOI,notsupplydriven,toattachinvestorsleavingChina,etc.).
c. Forexistinginvestor:Nochangeinpresentincentivesforthenext4to9years.d. Forcountrysideinvestor: TargetedandtimeboundtaxincentivestosupporttheBalik
Probinsya,BagongPag-asa(BP2)Program(geographicandsectortargeting).e. Inallthese,FIRBtomanageanddecidethegrantoftaxincentivestoimprovegovernance:
performance-based,targeted,timebound,transparent.20
Recoveryphase:threeinstruments
2.Taxincentives(CREATE:CorporateRecoveryandTaxIncentivesforEnterprisesAct)
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
a. Agencybudget submissions thatprioritizes health,BBB,agricultureandfoodvaluechain,andothernewnormalpriorities.
b. Thiswillensurethattherecoverystageisadequatelysupported should theBayanihanIIbeinsufficient, oriftherecoverytakesalonger time.
21
Recoveryphase:threeinstruments
3.2021GAApreparation
DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.
Fivelessonstomemorize,dreamabout,orapply
Economic1. Nothingisfreefromheaven
2. Everythingisatrade-off
Lifeingeneral3. Knowthefact
4. Contributesolutions,focusonthe“how”
5. Sharealsothegoodnews
22