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Report No. 99648-PH
PHILIPPINE ECONOMIC UPDATE
MAKING GROWTH WORK BETTER
FOR SMALL BUSINESSES
October 2015
M F M G P
P C O
E A P R
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PREFACE
The Philippine Economic Update (PEU) provides an update on key economic and social
, . I World Bank studies on the Philippines. It places them in a longer term and global context, and
P.
I
. I , ,
, ,
engaged on the Philippines.
T PEU W B M F M (MFM) G
P (GP), T C (T&C) GP. I
J L L (R A T T L), K Cz (R A),
J C (R A), MFM GP, G S (O O) F M GP, R G (O O), B Tj
(R A), J F A (S T E), T L (L
A), G ML (L S), M P (S F E),
D T (S T E), G A, C B, C H,
J K, M P ( C), T&C GP.
T K K C (S C E)
R B (L E P L). M V M H
P M MFM T&C, . L
M C S (P A), A A, R A R ( T
A) . T M E C T,
D L (C O), J L (O C
O), G R (P A), , ,
.
T , ,
World Bank, the government, business, labor, academe, and civil society. The team is very
. T , ,
this Update W B
, , .
T PEU ,
M C S ([email protected]). F q
, K K C ([email protected]). Q
media can be addressed to David Llorito ([email protected]).
F W B P,
www.worldbank.org/ph.
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TABLE OF CONTENTS
PREFACE I
EXECUTIVE SUMMARY III
RECENT ECONOMIC AND POLICY DEVELOPMENTS 1
Output and demand 1
Employment and poverty 5
Financial markets 7
Prices and monetary policy 9
Fiscal policy 11
PROSPECTS, RISKS, AND POLICIES 14
Prospects and risks 14
Policies 22
MEDIUMTERM REFORM AGENDA 29
Simplifying business regulations to enhance inclusive growth 29SPECIAL FOCUS 1 45
The real cost of starting and maintaining a business 45
SPECIAL FOCUS 2 60
Export transaction costs in the Philippines 60
DATA APPENDIX 75
PHILIPPINE EcONOMIc UPDATE OcTOBER 2015
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EXECUTIVE SUMMARY
The Philippines is among the strongest performers in the region, buking the trend. I
(H1) 2015, j ,
q P, 5 5.6 , V. I
, q , P 5.3
2011. On the demand side, the strong
8.1 ,
, GDP . H,
GDP . O , E N
to stagnant agriculture growth. Meanwhile, growth in industry and services was respectable,
5.8 . I Q3, q , , .
connued job gains in the servies and industry setors ould not ompensate for the
substanal job losses in agriulture aused by El Nio.1B L
F S (LFS) J 2015, j ,
j , . I ,
, , j . H, j
j ,
877,000 j q E N. I ,
96,000 j J 2014 J 2015.2
In reent years, strong eonomi growth and eeve government programs are improving
poverty reduon, but, in 2014, natural disasters and delays in state-managed rie
importaon harmed the poor.B 2012 2013,
(),
q . T
(CCT) - . H,
2014, A P I S3 suggests that poverty increased. The
T Y ( , )
( ). N,
2012 2014.
1 This paragraph is based on government press release. Further breakdowns are not available as the July 2015
L F S (LFS) L 2014 LFS L
T Y.2T j .3 T , FIES (F I E S)
APIS 2013. T APIS -FIES , -
.
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Like the rest of the region, the domes nanial market experiened large volalies in
reent months, but underlying fundamentals remain sound. A
, q . B A, --
. H, , US
C . T ,
- , q ,
. L,
. T , ,
, .
Gains from higher revenues and unpreedented inreases in the budget have yet to translate
into ommensurate inreases in government spending to support an investment-led growth.
I H1 2015, 14.1 GDP 13.7 H1 2014
. H, , Q1,
Q2. S 2010, 15
, . E
. F , H1
2014 H1 2015, 18.5 ,
8.5 . A
budget could have yielded higher economic growth. For example, had the government
2010 2014 -- 79.7 85 , GDP
6.9 ,
6.2 .
In the medium-term, growth prospets remain posive. In 2016, growth is expected to
6.4 6.2 2017. H, 2015,
j 5.8 . T
, ,
E N. I , j
. I , -
j, 0.6 GDP 2015,
. O , E
N .
Poverty reduon is expeted to onnue if the ountry is able to maintain the relavely high
eonomi growth and beer job trends in reent years. U -
F I E S, j 8.2
2017 ( USD 1.90/ PPP, 2011 PPP
, ), 10.5 2014. G
j . H,
. E
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,
, .
Simplifying business regulaons an unleash the full potenal of the private setor, inparular, small and miro businesses, as they are important ontributors to inlusive
growth. I H1 2015, 8.1 -
5.3 . H,
P. T
, ,
j . T ,
. P j
:
, , . T -
.
The total osts, both diret and opportunity, of starng and maintaining a business, espeially
for MSMEs, need to be brought down (Speial Fous 1) . R
. Overall, the cost imposed on
MSME . T
q 17 36 (PHP 21,000 45,000),
, . I
,
. A ,
requirements are needed to maintain the business, which can take many days every year.
M, q
. T
PHP 100 . M, PHP 40
F . T
60,000, q
.
Reognizing the adverse impat on the eonomy of ostly business start-up, the government
has begun to address a number of doing business onstraints. For instance, the government
G N A 2014,
- , , (MSME), - Qz C. H,
MSME. T : )
, ) P
, )
, ) q
, , , ) -
, )
.
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Finally, Philippine export proedures and osts are very high for small exporters (Speial
Fous 2). E , . N j
, -
. F , . T
, : ) -
N S W B
C , )
,
, ) - .
T - ,
, .
The remaining eight months of the Aquino Administraon present an opportunity to learly
and praally dene the unnished business in the strutural reform agenda. These are ,
j.T :
Iz ,
,
C , q,
- , , z
-, j
(.., ),4
F
,
S ,
R- .
W , , j ,
eliminate extreme poverty.
4T j
real income.
PHILIPPINE EcONOMIc UPDATE OcTOBER 2015
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RECENT ECONOMIC AND POLICY DEVELOPMENTS5
Output and demand
1. The Philippines is among the strongest performers in the region, buking the trend,
beause of strong fundamentals. I (H1) 2015, j
the region, the only countries to accelerate their quarterly growth rates were the Philippines,
5 5.6 , V. I , q
, P 5.3
since 2011. O , 8.1
, , . H,
. O
, E N 0.3 . M,
, 5.8. I Q3, q , ,
.
Table 1. GDP growth by setor
H1
2014
H1
2015
H1
2014
H1
2015
Supply side Demand side
Agriulture, shery, & forestry 1.9 0.3 Household nal onsumpon 5.9 6.1
A & 2.8 0.8 Government onsumpon 0.9 2.9
Forestry -2.3 -2.2 capital formaon 10.6 14.3
Industry 7.3 5.8 Fixed capital 4.2 9.5M & q 4.9 0.1 C 5.0 10.2
M 9.0 5.3 Durable equipment 3.9 10.4
C 4.3 10.5 B & -3.3 0.4
E, , & 1.7 4.0 Intellectual property products 20.0 2.6
Servies 6.3 5.8 Changes in stocks 48.2 75.5
T, , & 7.5 7.1 Exports 10.2 5.0
Trade 6.3 5.8 Merchandise exports 13.2 0.4
Finance 5.9 5.1 N- 0.1 22.4
R , 9.3 6.6 Imports 10.4 10.6
Government services 3.5 -1.8 Merchandise imports 9.9 9.8
Other services 3.7 7.8 N- 12.4 14.0
Gross domes produt 6.2 5.3 Gross domes produt 6.2 5.3S: P S A
2. On the supply side, the onset of El Nio exerted a further drag on a perennially
underperforming agriulture setor (Figure 2).In the last six years, the agriculture sector grew
1.2 , q
5 T K Cz (R A) K K C (S
C E) J L L (R A), M F
M G P.
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2
. T E N M
2015 ( B 3 ) ,
0.3 . T - 0.5 ,6 led by
, , , - . T - 2.2 E N . L
E N.
3. Meanwhile, growth in servies and industry was respetable, although manufaturing
deelerated signiantly. T 5.8 7.3
2014,
9 5.3 . S , ,
,7 j 2.1 ,
. S -
J (-7.5 ) C (-32 ) .8On the other hand, the services
5.8 , , 3.3 (), z.
E -
. G , 1.8 .
Figure 1. The Philippines remained among the stronger
performers in the region.
Regional GDP growth
Sources: CEIC, Reuters
-2
0
2
4
6
8
10
Q1 Q2 Q3 Q4 Q1 Q2
2014 2015
Percent
Thailand Indonesia Malaysia
Philippines Vietnam China
-2
0
2
4
6
8
10
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2012 2013 2014 2015
Percentage
point
Agricu lture Manu facturing
Other industries Services
GDP growth
Figure 2. On the supply side, services and industry
connued to drive growth while agriculture stagnated.
Supply side: Contribuon to GDP growth
Source: Philippine Stascs Authority
6 A P S A, -
, 2.8 15.7 , , Q2. H, q
pineapple, mango, abaca, monggo ( ), ,
.7 F - 40
. T , 1.9 , j .8J P , C .
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Figure 3. On the demand side, strong private
consumpon, in the midst of weak government
spending and falling net exports, connued to drive
growth.
Demand side: Contribuon to GDP growth
Source: Philippine Stascs Authority
-8
-6
-4
-2
0
2
4
6
8
10
12
14
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2013 2013 2014 2015
Percentage
point
Pri vate co nsum po n Govt co nsum pon I nvestment
Discrepancy Net exports GDP growth
Figure 4. Although rising, the Philippines sll
aracts much less FDI compared to its ASEAN
neighbors.
Net foreign direct investment
Source: World Development Indicators;
Country stascs offices
0
5
10
15
20
25
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
USDb
illions
Indo nesia Mal aysia
P hi lipp ines T ha iland
Vietnam
4. On the demand side, the strong performane of private domes demand at 8.1
perent onnued to drive growth. S 6.1
(F 3), , ,
. S
F T Y. I
, (11.2 )
q . S q 10.4
EU Gz S P P (GSP+)9
D 2014 - .10
5. Government spending, whih had a slow start, began to reover in Q2.S
Q1 2015, ,
. T ,
24 Q1. G
Q2 6.9 20.4 . T
H1 0.4 GDP
9T GSP+ P . T (),
, , , , , . T
200,000 j EU 11 (:
D T I).10 D H1 2015, . T
M R P (MRP),
30 GDP 15 2025.
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. T
detail.
6. In addion, a weaker global eonomy reversed the performane of merhandiseexports, while imports onnued to grow.S 0.4
H1 , J C. I ,
(-31 ) (-14 )
. H, ,
16 US . I ,
, 9.8 . A ,
2.6 GDP . G
driven by a 56 percent increase in electronic parts imports. Within this product group,
82 . T
H2
. I , , , q .
7. Despite a growing trade deit, the ountrys urrent aount balane remained in
strong surplus, as exports of servies and remianes remained resilient. I H1 2015,
USD 4.7 (3.3 GDP)
USD 3.9 (2.9 GDP) H1 2014. T
( 9.7 ), -
(BPO) . I H1 2015, USD 8.5
170,000 j . D
, 5.6
. H, ,
. R E,
, . D ,
M E , 6.8
F .
8. Aer reahing a reord high last year, net foreign diret investment (FDI) slowed in H1
2015. T FDI
.11T J 2015, P FDI USD 2
billion, which was 40 percent lower than the same period in 2014. Despite the sharp decline,
FDI H1 2015 FDI 2010.12
H, E A , FDI (F
4),
( ). F , z
11F P , A 2014 PEU.
T : ://../////---
-------.12H1 FDI PHP 1.9 2010 2014.
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P 2014 USD 1.3 FDI
j USD 35 2005. O ,
, Q2,
S -- USD 64 ( ).
9. With a strong urrent aount and stable nanial aount, the balane of payments,
whih was in deit in 2014, returned to a surplus in H1 2015.A ,
(GIR) USD 80.6 J
A USD 80.3 . T
GIR , , IMF
q. R 10.3 4.5
- .13
10. In Q3, available high frequeny data suggest an improving eonomy. T Q3 2015. I ,
J, (
), J A
. I ,
, 16 14
J. M, . I J,
25 , , 93
. T
, E N . 14 In July, merchandise
. H, ,
semiconductors, grew strongly by 55 percent.
Employment and poverty
11. connued job gains in the industry and servies setors ould not ompensate for the
substanal job losses in agriulture aused by El Nio.15 B
L F S (LFS) J 2015, j ,
j , . I ,
, , j . H, j
13 S- , ,
, -
private sectors due in one year or less.14T P S A 14 Q3 2015,
Q3 2014.15 This paragraph is based on government press release. Further breakdowns are not available as the July 2015
L F S (LFS) L P 2014 LFS L
T Y.
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j
, 877,000 j q E N.
I , 96,00016 j J 2014 J
2015. (Figure 5).
12. Moreover, underemployment inreased signiantly while the labor fore
paripaon rate fell. A 6.5 J 2015,
2.5 20.8 , q
j . H , , ,
75 ( -
). T j . A ,
1.4 . T
. F, .17S,
, , . A
, . A . O ,
j j
. O ,
, , . I
,
, .
13. Sine 2012, poverty is trending downwards, although reent data shows a slight
upk. A H1 2012 H1 2013,
H1 2013 H1 2014.18 T T
Y ,
.19 Even though poverty increased slightly, the overall
. A
, (CCT) 2014
. I , APIS,
(F 6).20
16T j .17D j
. D j
LFS .18T 2014 A P I S (APIS).19T H1 2014 12.2 ,
.20 I 2013, 30 ,
CCT . T 2014,
. T
that the CCT program is reaching more poor Filipinos, as the CCT program expands.
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Figure 6. The large increase in domesc transfers in
the first three income deciles suggests that the
governments CCT program is reaching more poor
Filipinos.
Real percent changein domesc transfers
Source: PSA, World Bank staff computaons
0
5
10
15
20
25
30
35
1std
ecile
2ndde
cile
3rdde
cile
To
p70p
ercent
Percent
2 01 2- 13 2 01 3- 14
Finanial markets
14. Like the rest of the region, the domes nanial market experiened large volalies
in reent months but underlying fundamentals remain sound. T P S E
(PSE) 8,127
A 2015 12.4 (F 7). H,
US F R
q . M , C
,
, - ,
-- . O A 24 B M PSE, 6.7
. T 2008.21
15. However, the bond market saw pries rise. D
C,
. F ,
ROP 2032 2034 (.., ) 146 156 156 163, , (F 8).
21PHP 764 ( GDP) .
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16. Inreased volality in global nanial markets have led to a sharp reversal in net
foreign porolio investments (FPI), leading to a net oulow in the rst eight months of the
year. A USD 1.8 2015,
M -- USD 64 S2015. C C
US
S, . H, ,
(F 9),
the strongest currencies in the region in real terms. This has naturally led to concerns about the
P .22
Figure 7. The PSEi was not immune to volality in
global financial markets as year-to-date gains were
wiped out.
Philippine stock market performance
Source: Philippine Stock Exchange
-15
-10
-5
0
5
10
15
20
5,000
5,500
6,000
6,500
7,000
7,500
8,000
8,500
Jan2
014
Feb2
014
Mar201
4
Apr201
4
May201
4
Jun2
014
Ju
l2014
Aug2014
Sep2
014
Oct201
4
Nov201
4
Dec201
4
Jan2
015
Feb2
015
Mar201
5
Apr2015
May2015
Jun2
015
Jul20
15
Aug2015
PHP
billion
Index
Net Foreign Buy (RHS)
PSEi
Figure 8. Recently, bond prices have increased given
benign inflaon outlook and as investors
reposioned their asset holdings in the market.
Bond prices: ROP 32 and 34
Source: Bloomberg
100
110
120
130
140
150
160
170
180
190
200
Janu
ary-13
March
-13
May
-13
July-
13
Septem
ber-1
3
Novembe
r-13
Janu
ary-1
4
March
-14
May
-14
July-
14
Septem
ber-1
4
Novembe
r-14
Janu
ary-15
March
-15
May
-15
July-
15
Bond
price
index
ROP 32
ROP 34
17. The domes nanial market remains strong with a number of prudenal measures
in plae to migate risks. However, areful monitoring is sll needed given the possibility of
more global volality and ertain data gaps. N- 2.4
(TLP) z
B BSP 10 ,
capital to absorb any possible shock on their credit exposures.23A -
. I ,
22F , A 2014 PEU.23 U BSP C 839, q 10
q q . T q q
q .
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20 TLP .24 H,
- . 25Finally,
,
.
Figure 9. Following significant real appreciaon in
the last decade, the peso has been relavely stable
in the past few months, while it generally
depreciated in nominal terms.
Nominal andreal effecve exchange rates(REER) (2010=100)
Note: Nominal exchange rate expressed in USD/PHP. An increase in the REER index,
and the exchange rate in USD/PHP represents an appreciaon.
Source: Bank for Internaonal Selements, BSP
0.020
0.021
0.021
0.022
0.022
0.023
0.023
0.024
100
105
110
115
120
125
U
SD/PHP
REER
index
Real effectve exchange rate ( lhs) Nominal exchange rate (rhs)
Pries and monetary poliy
18. cPI inaon onnued to deelerate, averaging 1.7 perent in the rst eight months
of 2015, below the entral banks target of two to four perent for 2015. S
, 0.6 A (F 10).
L 1.2 A
8.3 26
(T 2). I , q
.27 I , , 54 A
24U BSP M N. M-2012-036, BSP C 600, BSP
. T 20
percent cap on real estate exposure.25F , IMF A IV 2015, P
. T : ://../////2015/15246.26F , 31 .27 T 1.8 () S 2015. T
500,000 F, 250,000 J, 250,000 S, --
. I , 787,000
(MAV) .
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2015 compared to the same period in 2014,28
, , . O ,
,
, 2.2 --. T ,
economy.
Table 2. Breakdown of food inaon by ommodity; total rie stoks
19. Monetary poliy remains supporve with room to respond to higher global interest
rates. G , M B ,
. S
-S 2014, ,
. T (SDA) 2.5
q 20
. T
(M3) , J 2015,
33 2014 (F 11).
28 O , ,
.
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Figure 10. Inflaon reached its lowest level in 20
years as a result of deceleraon in food prices and
the connued decline in oil prices, bringing inflaon
down to 1.7 percent as of August (year to date).
Contribuon toy-o-y CPI inflaon
Source: Bangko Sentral ng Pilipinas (BSP)
-1
0
1
2
3
4
5
6
Percentagep
oint
Food and beverage Fue l, light, & water
Transport Others
Inflaton rate
Figure 11. Money supply growth remained low and
stable given appropriate monetary policy and
prudental measures.
Money supply growth breakdown
Source: BSP
-10
-5
0
5
10
15
20
25
30
35
40
45
Percentagep
oint
Net domestc assets - Private
Net domestc assets - Public
Net foreign assets - Other Depository Corp
Net foreign assets - BSP
Liquidity aggregates growth
M3 growth
Fisal poliy
20. connuous improvement in tax eort is helping build adequate sal spae for the
government to ramp up investment to aelerate growth. T 14.1
GDP H1 2015 13.7 GDP H1 2014. T B I R (BIR),
80 , 10
2014. I , BIR
. I , B C (BOC)
H1 2015, .29
21. However, gains from higher revenues and unpreedented inreases in the budget
have yet to translate into ommensurate inreases in government spending. S 2010,
15 ,
. E
. F H1 2014 H1 2015,
18.5 , 8.5 . T T Y ,30 which indicates that
29T BOC PHP 40 (0.3 GDP) VAT
oil prices.30 A J 30, 2015, 53 PHP 167 Y
, .
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.
A ,
within key departments and agencies, which includes i) poor planning, ii) weak program and
j , ) q , , ---, , . T
, A O (AO) N. 46
M 2015
j 2015 .31 Procurement units are also being
, . I
, q
.
22. In parular, publi infrastruture spending ontrated in Q1 2015 before rebounding
in Q2.In Q1, 11
Q2 37 , . W ,
j -
(PPP) . A , M-C , PPP
j, J 2015. A j, ,
,
. F
, PPP j 2016 (T
3). H, , -- ,
, PPP j
schedule.
23. The ountrys sal posion is sustainable. I H1 2015,
0.2 GDP -- PHP 18.5
J. P
. T
. B ,
, , - , ,
- . F ,
PHP 2.4 . I H1 2015, GDP
44.9 GDP, 40
-. T 20 - 25.7 GDP H1 2015.
31 U AO 46, q j
q -A. T q
D B M O C S
j 2015 G A A.
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24. Going forward, the government needs to review and improve budget planning and
exeuon so that improved revenues an translate into beer spending and improved publi
investment.T ,
( ).
Table 3. Status of PPP projets
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PROSPECTS, RISKS, AND POLICIES32
Prospets and risks
25. The Philippines strong maroeonomi fundamentals provide the neessary
ondions for rapid, sustained, and inlusive growth. T z
, , , -
-q , (F 12)
. G, z
j
. W
,
,
j, .
26. Near term eonomi growth will remain robust and is projeted to improve from 5.8
percent in 2015 to 6.4 percent in 2016 (Table 4). Lower 2015 growth takes into account the ,
, E N. S j
. I , -
32 T J L L (R A), K Cz (R
A), K K C (S C E), M
F M G P.
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15
(PPP) j, 0.6 GDP 2015,
( B 1
). L . H, E N
exports can pull down growth considerably.33 In 2016, growth is expected to accelerate to
6.4 2015
government spending34 6.2 2017.
Table 4. Philippine, East Asia, and global growth projeons
2015 2016 2017
Philippines
R 5.8 6.4 6.2
Previous 6.5 6.5 6.3
East Asia
R 5.7 5.8 5.8
Previous 6.7 6.7 6.6
Global
R 2.5 3.0 3.1Previous 2.8 3.3 3.2
27. Poverty reduon is expeted to onnue if the ountry is able to maintain relavely
high eonomi growth and beer job trends in reent years, despite reent shoks to
agriulture. U - 2012 F I E S, 11.2 2012 10.5 2014
j 8.2 2017 (
USD 1.90/ [PPP], 2011 PPP ,
). A 2015,
-. H,
. E
,
, , .
33T E N j . T E N
1982-83 1997-98 , .34 T M 2013 P (PEU) H1 GDP
() ,
. T :
://..///W//EAP/P/P_E_U_
M2013..
S: W B
N: P j J 2015 G E P
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Box 1. Lower oil and rie pries: potenal impat on growth and poverty
Over the past year and a half, oil pries have fallen signiantly, and are likely to stay below USD 60
per barrel over the medium-term. P j 35were more transitory (.., 1991 G , 1997 A , 2001 S 11 -
, 2008 ). I ,
: ) -OPEC
, ) OPEC , )
economic slowdown, led by China.
Given that the ountry is a major net importer of oil, the Philippine eonomy stands to benet
signiantly. L . U 2006 -
, . I
, 11 . T 2014
, . A , ,
- GDP 2015.36
Lower oil pries and low food inaon also aet households posively, and more so among poor37
households given that food aounts for 40 perent of their onsumpon basket. H
,
. E
, , .
While the preise impat of lower food and oil pries is diult to measure, the household survey
suggests that it an be signiant.F , 2012 F I E S,
PHP 6,000 (q 32 ) , , .38C
2014, PHP 4,400 -- . I
j ,
, PHP 1,600 .39This is money that can be
.
35A j 30
six month period.36 S E A P U A 2015 . T :
://../////----37I , 30 ,
poverty incidence.38 T, 32 ,
22 .39T 2014 j 2012 FIES
2009 FIES. T j 2014
2014 q . T q ()
, 2014 2015,
.
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Finally, the poor an benet even further if exise taxes on petroleum produts are inreased and the
revenue is redistributed in the form of beer soial servies, inluding soial proteon. R
q
(.., 10 60 ).40
B 3 J 2015 P
PHP 20 .
Box table 1.1. Impat of lower oil and rie pries on the poor
PHP
Projected consumpton
at 2014 average prices
Consumpton at 2015
current prices
(September)
Consumpton if oil
prices fall further as
projected and rice
prices stay the same
Oil and oil related expenditure 10,430 6,929 6,234
Rice 21,441 19,106 19,106
Total 31,871 26,035 25,340
Freed up money* 4,377 1,633
Source: PSA, WB staffestmates
*Freed up money is pro-rated from the start of the year up to the current month (September), while the potental
gains if prices fall further are pro-rated from October up to the end of the year.
Seleted referenes
K, M. A., F. O, & M. S. 2015. T : C, q,
policy responses. World Bank Group, Development Economics.
W B. 2015. E A P U (A 2015). A :
://../////----
28. With private domes demand growing by an average of 6.9 perent sine 2010, 41
realizing the administraons end-term growth target of seven to eight perent will primarily
hinge on its ability to signiantly inrease publi spending to oset weak external demand.
T q 95 79.7
( B 2 ). I -, 95
q . I -
,
(
).
40 F ,
PEU J 2015 .41 S 2010, 6.9
GDP 6.2 .
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Box 2. What if the government spent the budget as planned?
A simple sta analysis (without mulplier eets) shows that if the government spent loser to the
budget, growth would be higher, even reahing the administraons end-term target of seven to eightpercent.42 D , 4.5
2010 . W --
43 79.7 , GDP 6.2 2010 2014,
- 2016. I
() 85 , GDP 6.9 . W 15
95 , 8.2 . H,
.
Box table 2.1. Summary of senariosCases 2010 2011 2012 2013 2014 Average
Actual spending rato* 83.7 73.6 80.7 82.7 78.0 79.7
Actual government spending growth 4.0 -6.2 15.7 6.7 2.4 4.5
Actual private domestc demand growth 8.9 6.2 3.9 10.1 5.4 6.9
Actual overall GDP growth 7.6 3.7 6.7 7.1 6.1 6.2
Spending rato scenarios
85 percent 7.6 4.5 7.5 7.8 6.9 6.9
90 percent 7.6 5.3 8.3 8.6 7.7 7.5
95 percent 7.6 6.1 9.1 9.4 8.5 8.2
Source: WB staffesmates
*Defined as the rao between government spending, as measured in the naonal income accounts, and primary appropriaons, as calculated using DBM data.
29. The government has idened a number of exeuve and legislave measures to
speed up publi spending, espeially on infrastruture.These measuresreducing lump sums,
( AO 46),
, -- q --
, -
2015 2016 .
30. Eorts are also needed to fast-trak bidding and implementaon of the PPP program.
C, 15 j PHP 503.1 ( 2014 GDP)
, 10 j ,
, . W q
j , PPP j 0.6 GDP 2015 0.8 GDP 2016. I , 18 PPP
J 2016, PPP , N-S ,
42G 1970.43 G
. P q , ,
, . I
GDP.
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PHP 171 (1.4 GDP). F-
.
31. Higher spending that is in line with budget targets will not inrease the ountrys debtburden. N 75 GDP
j 45 GDP 2014. D ,
85 2006 j 27 2014,
- , . W
, q GDP
-
(F 14 15). R q
( ).
Figure 14. Naonal government debt will connue
to fall over the medium-term even with an interest
rate shock
Interest rate shock (in percent)
Source: World Bank staff esmates
Note: The doed line represents d ebt projecons with a one standard deviaon
shock to interest rates.
Interest rate
shock
Baseline
30
40
50
60
70
80
PercentofGDP
Figure 15. or an exchange rate shock.
Interest rate shock (in percent)
Source: World Bank staff esmates
Note: The doed line represents a one-me, real exhange rate depreciaon of 30
percent, with real depreciaon defined as nominal dep reciaon minus inflaon.
Real
depreciaton
shock
30
40
50
60
70
80
Percentof
GDP
Baseline
32. Near-term growth projeons are lted towards the downside. Philippine external
demand hinges primarily on the strength of reovery of the US, Euro, and Japanese
eonomies. T P ,
C- P- . H, P
-
-. T
, P ,
. I , -
, .
33. The upoming inrease in US poliy rates may yet again disrupt the loal nanial
market. T US Q4 2015.
H, 2013, z
, ,
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20
. C ,
. M,
.
34. But the greater onern lies in its impat on the ost of naning, both for the publi
and private setors. T P
. L
. I
. A
US , -
- . R -
z ( )
- .
35. closer to home, while the chinese stok market volality poses lile risk for thePhilippine nanial setor, the eet of a chinese slowdown ould be more pronouned.44
F C P ,
C . H, P
C 13 .
O , C ( USD 400 )
.45 O , C
, C
- , C
. M, C
, P . C
, C j
P. T C
j 15,000 2000 2014. T
C
.
36. On the domes side, El Nio is the main threat, not so muh on GDP growth per se
but on the quality of growth, as tens of millions of farmers lives may be aeted. Current
j 2015
E N. H, E N j ,
GDP , .S , 1983 E N, GDP
2015 5.4 , . I
44F , J 2015 PEU. T
: ://../////-- j-
2015.45 F , 2012, C -
sanitary concerns.
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, 1998 E N, GDP 5.1
percent.46 W , ,
q . T
( B 3 E N). T E N -
q , . I
-, ( J 2015
P ).
Box 3. The likely onsequenes of El Nio and the governments response
Latest foreasts indiate that the urrent El Nio episode may rival the 1997-98 episode, whih
resulted in a large ontraon in the ountrys agriulture setor. T E N
1997-1998, J 1997 A 1998.47A ,
1998,
. T
j , , . T
, 8.3 1998 2.9
1997. H - 1998,
higher.
As a onsequene, the impat of El Nio on poverty was pronouned. D H (2000)
1998 A P I S (APIS)
1997 1997-98 E N
29.1 31.7 1998. T E N 46
in the poverty incidence.
The urrent episode of El Nio has begun to take its toll on the ountrys agriulture setor, albeit not
yet as pronouned as the 1997-98 episode. I H1 2015, 0.3
, 70
81 .48 T D A (DA)
PHP 3.3 E N
A. D , ,
q ,
prices.
46 T GDP
- j 11 -.47A , 1982-83 E N
8.6 .48 B P A, G, A S
A (PAGASA) j-- , j
E N : A N, A S, S N, S S, C V,
D N, D O, M; B, I, M P,
Lz ; Sqj V.
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For the rest of 2015 to early 2016, the eets of El Nio on farm output may pose an upside risk to
inaon and poverty as the urrent bout of El Nio is expeted to intensify in the last quarter of the
year and persist unl early 2016.49 I 8.3
1998 , 0.8 2016
compared to 2014.50A ,
q. I S 2015,
750,000 E N
. F, DA q PHP 1.9
billion,51 N E D A
E N. T
.
Seleted referenes
D, G. H. H. 2000. E N E P? C, P, I D
P. W B E A P R. W, DC.
D, R.T. 2015. W 2015-2016 . B W. A :
://../.?=O&=-----2015-
2016-&=114871
Poliies
37. The remaining eight months of the Aquino Administraon present an opportunity to
learly and praally dene the unnished business in the strutural reform agenda. These ,
j.T ) z
, ) ,
q, - , )
, )
, )
49T E N N 2015 M A2016.50 T 2014 APIS . T 2016,
: ) 2016 j 2014
2012 2013 3.5 50 ( 2013
2014 ), ) j 2016
j 2014 2015, 8.3
2016, - 2016, )
2016.51T ) , , - ,
(PHP 804 ), ) (PHP 989 ), ) (PHP
73 ), ) j (PHP 65 ).
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, , , -
. W ,
, j , .
38. The Aquino Administraon made substanal progress on improving the
maroeonomy and governane, in parular, with respet to ghng orrupon and
inreasing transpareny. T -
. I 2010, - Aq A
. T z . A ,
S W S, 41 F
with the government52
achieved.53 G, T I C P
I 49 134 2010 85 2014. I , ,
j .
39. The administraons fous on improving sal revenues and publi nanial
management allowed a onsiderable ramping up of spending, inluding on programs whih
benet the poor diretly. T 2016 2010,
12 . T
. O
. I , -
- . T
53 2011 27 2014.
40. The growing sal spae was rightly targeted towards priority areas, led by soial
servies. T , ,
2010 2016. A ,
(CCT) . T
13 . U
. A - -
.
I , , -,
GDP 2016. T
,
52T SWS
president.53I q ,
40 (.., C. Aq: 10 , R: 35 , E: , A:
38 !).
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1.9 GDP,
spending.
41. On the strutural reform agenda, the Aquino Administraon has begun to addressdeades-long onstraints that have held bak the potenal of the private setor. These
:
Passing an overarhing ompeon poliy law: U ,
. T
, .
Allowing foreign transshipment of goods: C z -
, j
.
T - , - .
T z,
, . I ,
.
Fully liberalizing the banking industry: T z
. M, z 2014 USD 1.3 FDI
j USD 35 2005.
Simplifying business registraon: F,
SME, . H,
SME
investment climate.
M, z
, ,
.
42. Taken together, the administraons governane and strutural reforms led to asigniant aeleraon of eonomi growth sine 2010. H,
, ,
, . A
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IMF54
important contributor to growth. As it is unlikely that a sudden improvement in technology
, .
43. The reforms are also beginning to translate into more and beer job reaon and
faster poverty reduon.A , , 2013 A P
I S (APIS) 2012 2013. T 2013
20
, 30
q
CCT - . M,
. H, 2014, APIS
, T Y ( , ) ( ),
. N,
q .
44. The reforms undertaken by the Aquino Administraon signal a break from the past.
W z
,
j. T , , , ,
, P
C j,55 P E
Update.56
45. This losing disussion highlights the key reommendaons that the administraon
an onsider as it ends its term:
Instuonalize urrent publi setor reforms to inrease budget transpareny and
aountability, and spending eieny: T
z F
I B. T z ,
- z
54 F , IMF IV 2015 . P:
.55 T 2013 P C j :
://..///W//EAP/P/PDRFR..56 T PEU :
://../////--
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(.., E PDF ). 57B
z -
. T z ,
z .58
cra a simpler, more equitable, and more eient tax system to sustainably nane
an investment-led growth:59 F ,
: ) z
, , -, ,
,
, )
, .R j
q. O
reduce tax rates be considered. These could include i) lowering the top marginal income
tax rate to 25 percent, ii) reducing the gap between regular and special corporate
, ) . F
, . R
.
Further open up the eonomy to more ompeon by reduing the investment
negave list:60F ,
. M,
. T
, , : ,61shipping
57C , FOI
, , ,
, j , (.., ).
58 U 2014 , ,
, j , , q
; ---, ,
.59F , A 2014 PEU T
.60F , J 2015 PEU.61For instance, in its latest household download index, internet metrics provider Ookla (which owns the popular
website speedtest.net), ranked the Philippines as 21st 22 A
3.64 (), L M, A. C
P , T 20 ,
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, . T j,
income, and improve quality while lowering prices.
Seure property rights through land governane reforms: Following the near ,62 ,
: ) j
, , ) z
, )
- z , )
L A R A N
Land Use Act.
Overhaul business regulaons to make them simpler and far less ostly: The private
. I H1 2015, 8.1 - 5.3
. T , , ,
z -
. W , j
. B j ,
-
- ,
j
.
46. A number of these reommendaons are urrently being addressed. I -
-- (SONA) J 2015, P Aq 2016
G A A , , )
j , )
. I ,
z , -
,63 and the
V 18 . A , - S H K
100 . M , ,
P , USD 18 USD 5
per mbps, as measured by Ookla.62I 2015, D E N R
. T 30 1,634 .
H, 118 A R M M
.63 R A I M P C P
.
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Bangsamoro Basic Law, which is expected to help sustain peace in Mindanao. Outside the
SONA, P
.
47. To onlude, ahieving inlusive growth is within reah, now more than in any
previous period. T z
,
,
z, , , ,
.
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MEDIUM-TERM REFORM AGENDA
Simplifying business regulaons to enhane inlusive growth64
1. complex Philippine business regulaons are major hindranes to inlusive growth.
T , ,
j. T
,
. P j
: , , .
A omplex set of business regulaons
2. Philippine business regulaons are omplex and among the ostliest in East Asia,
undermining rms, espeially miro and small rms ability to reate jobs. V
. T D B 2015
P 95 189 .65 A j
ASEAN , I . F ,
P (T MT1). F
, 161. P
, 127 104, . A
, 100 (..,
worse). In contrast, Malaysia and Thailand are among the easiest places to do business, with 18 26, . I, P
D B , j ( 49
P 128). E 72nd
2007 to the 50th 2015, .
Starng and maintaining a business
3. cumbersome regulaons and proedures in starng and operang a business deter
new rm entry and business expansion, espeially among miro and small rms. For example,
, q
64T P R C J (W B 2013).
I K K C (S C E, M F M
[MFM] G P) J L L (R A, MFM), H S (S
P M, T C G P) G S (O O, F
M G P).65 R () 189 ().
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P, 16, .66T
34 q PHP 21,156
(q 16.6 )
. F P , (F MT1). U 18 , ,
. I ,
(F MT2).
Table MT1. Rank (and perenle rank)1in Doing Business 2015 and seleted sub-indiators
4. The proess for individuals seeking government lienses, permits, or learanes for
employment purposes is also umbersome. F ,
N B I
, ,67
, S S S (SSS) (..,
processing),68 P O E
A (POEA) F . T
66 I A 2015, . T
being validated by the Doing Business team and will be released in the upcoming Doing Business report 2016.67I ,
. A , .68 I SSS , SSS
. F .
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,
, , q .
Figure MT1. Firms in the Philippines need to applyfor licenses more oen.
Applied for operang license in the past 2 years(percent of firms in operaon for more than 2 years)
Source: Enterprise Survey 2009
0 20 40 60 80 100
Indonesia
Vietnam
Mongolia
Philippines
Lao PDR
Percent
Figure MT2. Firms report the need to pay bribes orgive gifs to obtain permits.
Expected to make informal payment/gi inorder to obtain license/connecon
Source: Enterprise Survey 2009
Note: In this figure, firm sizes are based on definions used by the Enterprise
Survey. Large firms have 100 or more workers. Medium firms have 20 to 99
workers. Small firms have 5 to 19 workers.
0 20 40 60
Phone connection
Operating license
Import permit
Water connection
Electricity connection
Tax inspection
Construction permit
Percent
Large Medium Small
5. Finally, a weak bankrupty resoluon regime makes it parularly diult for
ineient or unprotable rms to exit the market. A new insolvency law was recently passed,
21
. H, q 42 T 80
M, .
Paying taxes
6. Paying taxes is also umbersome in the Philippines. According to the Doing Business
2015 , P ,
, ASEAN
127 189 . T
,69q 42.5
36,
M, T,
payments more than that in Myanmar, the lowest overall ranked East Asian country. The
69 T
, . T D B 2015
2013. T
. T (
) ( ,
) (: D B 2015).
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P q 70at
193 , 264 T 254 I. I M,
133 . H, q
F , .
Accessing nance
7. Another key onstraint to rm entry and expansion in the Philippines is limited aess
to nane. T , , -z (MSME),71
j . I
. A
-
q q
. O
, , , - . B ,
.
8. A 2007 study by the Internaonal Finane corporaon (IFc)72suggests that the annual
unmet demand for SME loans ranged from PHP 67 billion to PHP 180 billion. The government
SME.
H, SME , q -
-z , q
SME SME . T
banks in the Philippines.73
9. Limitaons in bank regulaon and supervision framework have also aeted redit
growth for SMEs. L q
. A
70T , , j
: , - , , (S: D B 2015 ).71Updated Bangko Sentral ng Pilipinas 2008 2013,
MSME PHP 311 PHP 386 , j 12
P , 4 . M,
U P S, I. (UPS) A B M R (2009),
P SME ( 67 ),
74 .72S V (2007) .73 E - ,
. M,
SME SME .
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-
.
10. Aess to redit is also hampered by a relavely high redit repayment risk. SME
,
. I SME ( 10
percent74) is so low, considering that the bankruptcy process is extremely slow (i.e., it takes around
6 ), (38
), ,
. M,
use it.75T SME P.
11. The previous lak of aessible informaon on payment histories added further to
reditor risks. T -
. T , , q
P . T R A 9510, C
I S A, z , C I C,
2015 . H, ,
.
12. Moreover, the land registraon and tling system is fragmented into dierent
registries, making debtor searhes and naning diult, and property rights inseure. The
q. T
. T
. U
.
13. Finally, signiant deienies also abound in the registraon of moveable ollateral
(i.e., hael). T -z
. I R D z,
- ,
.
74W B E S D (2011 S ).75 A -- , R A 10142 F R I A,
q
2010. I, , 2013 A.M. N.
12-12-11-SC F R R P (2013)
R A N. 10142.
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Informality and weak entrepreneurship as onsequene
Large-scale informality
14. Informality is one of the major onsequenes of ostly business regulaons. The
j
F . W
q j,
j
j . M -
, , j.
15. The Philippine labor market is haraterized by high levels of informality. Around 75
F .76 I
- ( ), , , ,
2008 I S S (ISS)77 P S A (PSA). T PSA
D T I (DTI) 90 F
, , -z (MSME)78 -, 60
.79 A ISS, 70 -
. A j
.
16. In the past 15 years, the share of vulnerable workers, whih inlude own-aount and
unpaid family workers an indiator of informality have dereased but their magnitude is
sll high. W 57
2012, 6 1997 (F MT3). T -
: BPO, , . T 43
- (32 ) - (11 ).
76 T E C P,
77 (Oz-L 2008).
77 T ISS I L Oz (ILO) 15th and 17thI C L S (ICLS). T
: ) - , ) z, ) -
. O , : )
) .78 F , 10 ,
10 99 , 100 199 , 200
more employees.79 T
. O, . T
: ) , )
, , (TCS).
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17. Vulnerable workers are susepble to job or inome losses. W -
j,
, ,
j . I ,
the agriculture and services sectors (Table MT2), and is highly correlated with poverty incidence
(Figure MT4).
Figure MT4. Vulnerable employment is highly
correlated with poverty incidence at the regional
level in 2009.
Employment by class of worker
Source: LFS 2009, PSA
NCR
1
23
4A
4B
5
6
7
8
910
11
12
CAR
ARMMCARAGA
0
10
20
30
40
50
60
0 20 40 60 80 100
Povertyincidence
rate
Vulnerable emplo yment rate
Table MT2. Agriculture and the informal services
sectors have the highest rates of vulnerability.
Composion of employment by sector
Source: LFS 2011
Industry
Wage
and
salary
Own
accountUnpaid Total
Agriculture 29.1 46.0 24.9 100
Industry 81.8 14.6 3.6 100
Manufacturing 73.6 20.3 6.1 100
Others 92.2 7.4 0.4 100
Services 63.6 30.4 5.9 100
Formal 90.1 7.9 2.1 100
Informal 50.7 41.5 7.8 100
18. Even among wage workers, many are informal workers. Many wage workers do not
q L C. T L C de factoprotects only about
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. T j
(T MT3). D ISS 63
2008 62 . S
j . T j. P
. A 60
, (70
) . A
, 90
. T
(64 52 , ).
Table MT3. Measures of informality for wage workers
Wrien Verbal NoneType of ontrat 36.7 40.1 23.2
Yes No
Soial Insurane
(Soial Seurity System or
Government Servie Insurane System) 38.1 61.9
Proteon from dismissal 41.4 58.6
compensaon in ase of dismissal 29.8 70.2
Leave benets
Paid leave 28.0 72.0
S 28.9 71.1
Maternity/paternity leave 27.3 72.7S: ISS 2008
Weak entrepreneurship
19. Apart from large-sale informality of workers, the other major onsequene of ostly
business regulaon is the slow growth of entrepreneurship, whih has resulted in limited job
reaon for the poor. T z ,
, , ,
.
20. A huge majority of Philippine rms are small and remain small over the years . Micro,
, -z (MSME) 99 Philippines,80 j -.81The 2009 Enterprise
S ( ),82 , ,
80S: M, S, M E D C (2011)81S: WB DTI, NSO, WB 82T 2009 E S 5 .
T , z E S j
accordingly.
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91 -z
. T -z , 17
-z . H, -z
(21 ) (T MT4). T P.
Table MT4. Transion between rm size (in perent of total rms)
21. The number of registered MSMEs is very low. A comparison between the Global
Entrepreneurship Monitor (GEM) survey83 W D I (WDI)
W B
P MSME . F , 2014, 18.4 GEM
P / ,84
(F MT5). H,
WDI, 2012,
10,000 (F MT6).85
83GEM . I 85
2,000 . T GEM P 2014 (
://../).84I GEM ,
- .85 T
. B , 2 . I C,
,
75 10,000 . I , I T,
.
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Figure MT5. The share of Filipinos involved in
starng a business is one of the highest.
Adults involved in new businesses
Source: Global Entrepreneurship Monitor (GEM)
0 5 10 15 20 25
Russia
Malaysia
South Africa
Turkey
Singapore
Canada
Indonesia
Argentna
Brazil
Philippines
Colombia
Mexico
Thailand
Percent
Figure MT6. But few businesses are formally
registered.
Number of new registered companies
per 1000 adults
Source: WDI
0 2 4 6 8 10
Philippines
Indonesia
Argentna
Thailand
Mexico
Canada
Turkey
Colombia
Italy
Malaysia
Brazil
Russia
South Africa
Singapore
22. The share of Filipinos involved in starng a business is one of the highest in the world,
but new businesses are oen started out of neessity, and while many introdue innovaons,
few intend to grow. A GEM , 18.4 F
,
, (F MT7). T F
(F MT7), j
(F MT7). W F
, j
, j .
Figure MT7. About a third of new firms cite necessity as the main reason for starng a business and
very few introduce innovaon or plan to add five or more jobs over five years.
a b c
Source: GEM Source: GEM Source: GEM
Necessity as the main reasonto start a business
New business with newproduct or market
Expect to add 5+ employeesin 5 years
0 10 20 30 40 50
Singapore
United States
Malaysia
Chile
Thailand
Indonesia
Mexico
Germany
Philippines
TurkeyChina
Colombia
Percent0 20 40 60 80 100
Malaysia
Germany
Mexico
Indonesia
United States
Singapore
Thailand
Colombia
China
PhilippinesTurkey
Chile
Percent
0 10 20 30 40 50
Indonesia
Philippines
Malaysia
Thailand
Mexico
Germany
China
United States
Chile
SingaporeColombia
Turkey
Percent
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23. The average produvity of MSMEs in the Philippines is very low. The labor
MSME P - M -
- (F MT8).86A, P MSME GDP
. T 60 36 - (F MT9).
Figure MT8. Labor producvity of smaller firms in
Philippines is much lower than in other countries.
Average MSME labor producvity
Sources: European Commission, US SME Characteriscs and Performance, Singapore
Department of Stascs, Singapore, SME Corp. Malaysia, Micro, Small, and
Medium Enterprise Development Council (2011)
0
20
40
60
80
100
120
USD
thousand
Figure MT9. MSME contribuon to GDP is small
relave to its employment share.
Share of value-added of MSMEs
Sources: OECD Structural and Demographic Business Stascs (SDBS) Database, NSO (2008 ), Micro,
Small, and Medium Enterprise Development Council (2011)
0 20 40 60 80
PhilippinesSouth Korea
JapanUK
PolandMexico
GermanyAustralia
SpainPortugal
Italy
Greece
Percent of GDP
Figure MT10. The retail trade sector accounts for
majority of new job creaon.
Net job creaon by sector as a shareto total job creaon
Source: Enterprise Survey 2009
-38%
-23%
-18%
-4%
-4%
-4%
-2%
-1%
0%
4%
4%
8%
41%
Electronics
Wood and furniture
Food
Other manufacturing
Plastic materials
Chemicals and pharmaceuticals
Auto and components
Garments
Textiles
Hotels and restaurants
Construction
Metals and machinery
Other services
Retail and wholesale trade 138%
24. More than 50 perent of new businesses luster in retail trade, given few opons
elsewhere(Figure MT10). This share is much larger than in other countries. Countries such as
86N F MT9 z. F ,
USA 500 US- .
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40
C, I, M .
Cq, j j sari-sari
(.., ), , - j,
insurance or real estate.
Reforms to simplify business regulaons
25. Simplifying business regulaons are needed to enourage the rapid growth of
businesses of all sizes and enourage movement of small rms to the formal setor, and in
the proess reate more and beer jobs. T
,
- , z. P
D B R
: ) , ) , ) . T
.
Simplify and automate key business registraon and licensing processes to reduce
transacon costs
26. Starng a business an be simplied by harmonizing and streamlining proedures
through a proess re-engineering. T P
q 16 . A ,
q 18 . T
P EAP ,
16 7. T ) z
LGU (.., z
and barangay ), )
( q S
S S (SSS) 87), and iii)
q j. T )
- q, )
, )
, ) q B
I R (BIR) . S q ,
.
87U J M C N. 1 2012 (D 2012) SSS D
I L G, SSS
. I, SSS LGU q . B
.
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27. Automang and ompletely implemenng the Philippine Business Registry (PBR) and
the Business Permit and Liensing System (BPLS) thorough the RS4LGU program (disussed in
speial fous 1) are also needed. A PBR
BPLS ,
. C PBR
q
. T -
, B P L O,
BIR. I PBR
, BPLS, LGU. T LGU
BPLS, LGU P C F
BPLS .
28. Greater transpareny of business regulaons an help improve understanding of theregistraon, liensing, and taxaon proesses (espeially among inipient rms) and help
redue transaon osts. T --
. T
-- , q
, , ,
, . A
A-R T A 2007 (R A 9485), Cz
C . T
, , . D
,
. M ,
z --
.
29. The proess for individuals seeking government lienses, permits, and learanes for
employment purposes also needs to be simplied. T
z SSS, L T O 88, N
B I, P O E A,
, q
, . T -
88 F , q : PHP 350 , PHP 67
, PHP 100 , PHP 100 , PHP 50
, PHP 667. R
j (.., )
, .
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42
. F ,
, .
Simplify tax regime for micro and small taxpayers
30. Moving toward a simplied tax regime for miro and small businesses is warranted to
redue ompliane osts and enourage movement of rms to the formal setor. The
MSME q . A
) , q, ,
) q , )
, ) - (VAT), ,
.
R . R
LGUs, and then expanding it when public support has increased. By reducing compliance
,
, j
.
Facilitate greater access to nance, especially for micro and small enterprises
31. The publi repository of redit informaon is now underway. Currently, there is no
z P
. F
have set up their own private credit bureaus. These credit bureaus are, however, mutually
. T
. I 2008, C I S A (R A
9510) . T C I C (CIC),
z . T z
. D
. A approach to be launched by June 2016.
32. The mandated system of lending to small and medium enterprises (SMEs) needs to be
replaed by a system of redit guarantees. M SME
SME ,
P SME -
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. A
SME
.
33. Strengthening the Philippine ollateral system an improve aess to nane. The
. T ,
, z, . T , ,
. I
across registries.
34. Inreasing lending seured by non-real property or movable assets an further
improve aess to nane. T )
, ) , z
, ) . W , SME
j.
35. The role of ooperaves in aessing nane needs to be enhaned. C
provide savings and credit services to over seven million members in the Philippines and can
,
, . L q
. C
z
. Y q , , ,
. P
) C
D A (CDA), )
, ) F R
I A . R
. I
q , , ,
.
Ensure a coherent strategy for MSME development and measure impact of programs
36. Internaonal experiene shows that eeve implementaon is the key to ensuring
the suess of strategies, plans, and programs for MSME development.89The Philippines, like
89T MSME z MSME D P 2011-2016. T
SME - GDP 40 ( 35 2008)
SME j . T
: ) , ) , ) , ) . I
, , ,
, .
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44
, MSME
various departments and agencies.90 I
SME . T
- .
Seleted referenes
M, S, M E D C. 2011. M, ,
2011-2016. M C: B M, S, M
E D, D T I.
Oz-L, S. 2008. T j. M: E
C P.
V, L. 2007. IFC S SME F. ..:..
W B. 2013. P D R: C j. M
W, DC: W B.
W B. 2015. D P. A :
://..////
90T M, S, M E D (MSMED) C MSME .
I S T I
.
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SPECIAL FOCUS 1
The real ost of starng and maintaining a business91
Introduon
1. Miro, small, and medium enterprises (MSMEs)92 are important ontributors and
beneiaries of eonomi growth.In 2012,93MSME 99.6
P, 90 , 36
- (DTI 2014). F, 89 MSME
. G , MSME
.
2. However, business regulaons have long been a umbersome proess in the
Philippines, posing obstales to the development of MSMEs and hene job reaon.While the
P 2015 D B R
(95th 189 , 50th ),
(T 1.1). B , E A , S
M , 6
13, . S, MSME P
. T ) , )
, ) , ) , )
q ( - discussion).
3. Of parular onern is the high overall ost imposed on MSMEs in starng and
maintaining a business. T q 17 36
91 T J C (R A), J L L (R
A), K K C (S C E), M F M
(MFM) G P (GP), R G (O O), B Tj (R A),
T L (L A), J K (C) M P (C), T C (T&C) GP. T H S (S O O)
M A (R M S), T&C, ,
D T I, N C C, Qz C B
P L O C C C .92R A 9501 MSME PHP 100
199 . T : )
PHP , 10 , ) PHP
15 , 10 99 , ) PHP 15 100
million, or employs 100 to 199 workers. The employment criteria takes precedence over the asset criteria in case
.932012 is the year with latest available data.
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46
(PHP 21,000 45,00094), they also spend a considerable amount
,
. I ,
. S P
j ,
the government.
4. To omplement the disussion in the medium-term seon, this speial fous analyzes
the diret and opportunity osts of starng and maintaining a business, and argues that
reforms to redue overall ost would free up substanal resoures to make growth more
inlusive. I
, ,
-
maintenance.
Table 1.1. Progress in starng a business indiator
Philippines 2005 2010 2015
S 102 145 162 183 161 189
N 17 18 16
N 49 42 34
C ( )95 24.1 21.6 16.6
Cost (in current pesos) 14,587 18,918 21,156
S: W B D B P (://..///)
Diret osts
5. In the Philippines, the omplexity of starng a business reets the deentralized
manner of seuring various permits and lienses. An entrepreneur needs to visit the local
( ), ,
(.., , , , ) , ,
. T , q -, z . T
q (..,
sole proprietor) and the local government unit.
94A , PHP 19,000 9 thincome decile and
M M PHP 12,000.95 T : PHP 60,528 2005, PHP 87,582 2010,
PHP 127,438 2015.
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6. For a orporaon registering in Quezon city,96 it takes 16 steps and 34 days to
omplete all government requirements and osts around PHP 19,638.Table 1.2 outlines the
steps and the corresponding direct cost involved.
Table 1.2. Proedures for starng a orporaon with average ost and me onsumed
Steps Days cost
(PHP)
1. V S EC (SEC).
1 40
2. D - . 1 0
3. Nz . 1 500
4. R SEC - (TIN).
2 3,065*
5. Obtain a barangay(village) clearance. 1 500
6. P
(CTC) C T O (CTO).971 500
7. O B PL O (BPLO).98
6 5,353*99
8. B . 1 400
9. A C R (COR) TIN B IR (BIR).
1 115
10. P (DST) z (AAB).
1 5,665*
11. O BIR. 1 0
12. Print receipts and invoices at the print shop. 7 3,500
13. H P C D (PCD) BIR.
1 0
14. R S S S (SSS). 7 0
15. R P H I C (PH). 1 0
16. R H D M F (P-). 1 0
Total 34 19,638
96 Qz C q D
B R.97A Qz C B P L O,
2012. F , q CTC
. T PHP 500 - .98B , , ,
. U ( B 1.2),
LGU- q -.99A Qz C B P L O, z
. T PHP 2,400.
S: D B 2015
*S D B 2015 , ://..////--
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7. Sole proprietors follow a slightly dierent trak, whih has been simplied in reent
years.100T Qz C T 1.3.In 2010,the
D T I (DTI) P B R (PBR) Qz
City.
101
T PBR , TIN, SSS, PH, P-IBIG. B
, 1 , , j . I , ,
delays, can lead to more days. At the local level, step three has become easier with the Business
O S S (BOSS)
within the day.
Table 1.3. Proedures for starng a sole proprietor
in Quezon city with average ost and me onsumed
Steps Days cost (PHP)
1. R DTI
P B R (PBR).
1 PHP 15
PHP 200
to 2,000 depending on
scope.
2. Obtain a barangay clearance. 1 PHP 300 1000
on barangay
3. G B O S S (BOSS)
) PBR ( DTI), )
, ) (
) (
), ) / .
1(
steps
3 5)
*D z, ,
4. P C T
O.
5. P BOSS
BOSS
and business license plate.
6. Comply with other necessary requirements102
90 ( ).
Total 3 PHP 515 to 3,015
S: Qz C C C, B P L O, B O S S B.
100T C C B P
L O Qz C.101T Qz C G PBR 2009 2010, PBR II 2012.102T ) , ) ,) , )
, ) q, .
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8. Aer a business ommenes, numerous annual regulatory requirements are needed
to maintain the business, whih an take several days to fulll.103 The primary step is the
. R
q . P ,
B F P,
C H D, L
B O.104T q
. A q,
VAT
be presented and assessed. While these requirements may serve important purposes, they
, P
( , F MT1 -
).
9. Moreover, there are tax and ontribuon payments that have to be paid frequently
within the year. F , , 36
( q q), 193
(T 1.4). A ,
be made in person in some cases.
Table 1.4. Number of regular tax and ontribuon payments by a medium-sized ompany
Steps Number of
Payments
Hours
1. Local tax payment. 1 ..
2. R . 1 ..
3. SSS, P-, PH, . 25 38
4. N ( VAT) 2 155
5. Other tax payments 7 ..
Total 36 193
S: D B 2015
N: .. .
10. These tax and ontribuon requirements make no onession to business size. Micro
tax regime is applied to them
103T LGU. Qz C
D B R.104F , , carinderia(small eatery) will also
, / D
H.
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z (..,
q ). T
. I ,
j . M,
.
Opportunity osts
11. Apart from legally-mandated diret ost, orrupon adds to the ost of starng and
maintaining a business. W
,
. F ,
2009 E S, 11, 8, 25 , , ,, ( F
MT2 - ). T
. A S
W S (SWS) 2015 . I 25
bribes in order to obtain a local license, while 21 percent paid bribes in order to obtain a
.
12. More importantly, onsiderable opportunity ost arises from missing produve days
of work, and thus lost inome, in order to omply with government requirements.For most
,
.105 These lost
. I z,
z. E
j ,
, .
13. Using parameters from the previous seon, total opportunity ost from produve
days lost an easily reah more than PHP 100 billion annually.106 T
: F , ( PHP 11.9 ). F
, (
PHP 9.7 ). F, , ( PHP133.8 ). T 1.5 z B 1.1
() .
105 T ,
, .106U, , q
( q). H,
, .
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14. Moreover, opportunity ost an also arise from disouraged Filipinos who ould have
started a business if only the ost was reasonable. W
, . F ,
PHP 200,000 (.., )
a business,107 . T 2012 F I E S (FIES)
117,782 , PHP 374,000.
H, , PHP
602,140.108 I F (OFW) ,
, 6.5
, 42 . T 35.5 109
, -
. A
amount,110 PHP 12.6 . A
15 , PHP 1.9 PHP 1.5 . F, -
1.8, PHP 21.2 . A j
, j 62,179,
. T j .
15. These indiave esmates suggest that high ost of doing business is learly a toll on
the ountrys inlusive growth agenda. When taking all other Doing Business indicators into
(.., , , ),
, , .
107T - . I , . T
, (..,
will not start a business because they are simply risk averse).108FIES , , ,
j. A j FIES BOP FIES
. S BOP PHP 903.7 FIES PHP 560.2,
is around 1.61.109 T ,
, .110T
0.68, 0.83.
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Table 1.5. Annual opportunity osts in billions of PHP
Forgone
investment
Forgone
business net
inome
Forgone
tax and
ontribuonrevenues
Forgone
aggregate
spending
Forgone
employment
Loss to orrupon Signicant but very dicult to measure
Starng a business 0.13111 0.11112 1.50113
Maintaining a business 11.77114 9.57115 132.28116
Total diret opportunity
ost
11.90 9.68 133.78
Indiret opportunity ost
from forgone investment
12.59117
F
year only
1.89118 1.54119 21.23120 62,179
Grand total 12.59 13.79 11.22 155.01 62,179
S: WB .
Box 1.1. Methodology for esmang the opportunity ost of lost
produve days and disouraged potenal investors
T ,
q
. T , N C
R . T
D T I MSME 2008
2012. I 2008 2012, , DTI 758,436 940,802 MSME. T
45,592 MSME . T
111T (34 PHP 481 4,559 ) + (3 PHP 481 41,033
). T PHP 74.6 PHP 59.2 .112T (PHP 133.8 42.5 _ + (PHP 969.34 5.36 ) [ VAT
50 ]. R :
13.8 86.2. T PHP 56.87 PHP 51.96 .113T PHP 835.57 1.8 ( - ).
114T 26 PHP 481 940,802 MSME. 26 193 q .115T (PHP 11.77 42.5 ) + (PHP 85.26 5.36 ). T PHP
5 PHP 4.57 .116T PHP 73.49 1.8.117 T 117,782 j PHP 602,140 35.5
percent OFW households who are risk neutral and could have invested.118T PHP 12.59 15 .119T (PHP 1.89 42.5 ) + (PHP 13.68 5.36 ). T PHP
0.81 PHP 0.73 .120T PHP 11.79 1.8.
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4,559 (10 ) 41,033 (90 ) . T
, DTI MSME 2012
. T
cost.
T ,
42.5 , D B R. I
, VAT 12 . T ,
50 -VAT. F, 13.8 86.2,
, - C P B
Industry.
T ( GDP),
- 1.8, 2006 - .
F, . O
. S
BSP OFW , .
Details are discussed in the main text.
Reforms to redue the ost of starng and maintaining a business
16. Reognizing the adverse impat on the eonomy of ostly business start-up, the
government has begun to address a number of doing business onstraints. A , (MOA)
government agencies and a local government unit on April 14, 2015.121T j
z . I ,
Qz C 34 8
16 6. S - .
17. The new proess in registering a orporaon involves a re-engineering of exisng
proesses and the reaon of an integrated business registraon system. M
(F 1.1). A ,securing a barangay, B P
L O (BPLO). S ) , )
121 T : N C C (NCC), D F (DOF), D
T I (DTI), D I L G (DILG), S E
C (SEC), B I R (BIR), S S S (SSS), H D M
F (P-IBIG), P H I C (PH), Qz C.
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, ) ) SSS, ) PH,
) P-I. T q SEC
PBR, SEC, SSS,
PH, P-IBIG TIN BIR. F, LGU
,
. BIR
. L, q /
.
Figure 1.1. Newly simplied approah to orporate business registraon.
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18. If fully implemented, this reform an also result in me and ost savings. For each day
, PHP 2 . M, PHP 68
2015-2016 N C C (NCC)
- . W , . F, PHP 9
13
36 . I ,
(.., 24
M, Qz, M, M) , ,
.
19. At the loal level, 25 ies122 have also taken iniaves to redue business start-up
osts. I P, , , barangays (villages) play a big role in
. I , -
. T , D I L G (DILG) RS4LGU
(R S LGU)
( B 1.2). S 2010, 25 (EO)
. C
EO 45 3
30 1. M DILG
other LGUs.
Box 1.2. Regulatory simpliaon program for business permit renewal in the Philippines
Iniated in 2008, the regulatory simpliaon program targeted and removed system ineienies,
and regulatory redundanies to make starng a business easier.123 T
) (LGU) , )
, , . T
- LGU . A I
F C (IFC) z
. A
. I z
-,
. T - - LGU-
possible.
122 T - : Lz: U,
K, S F, S, C, L T, Lz, T, B, L, T, V, I,
K; V: B, C, C, T, O, D, L-; M: S,
T, S, T.123T I F C W B G.
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