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October 2013
Good Governance is Good Economics
The Republic of the Philippines
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Table of Contents
2
I. Executive Summary.................................................................. 3
II. Institutionalizing Good Governance…………………………….. 8
III. Robust Improvements in Economic and Financial Metrics
- Healthy, Sustained and Inclusive Growth……………………………
- Rapidly Strengthening Public Finances and Debt Dynamics……..
- Supportive and Stable Monetary Conditions and Healthy Banking
Sector……………………………………………………………….......
- Strong External Position………………………………………………
15
19
27
36
IV. Improving Investment Climate…………………………………… 40
V. Mindanao - Peace Leading towards Progress……………....... 45
VI. Outlook…………………………………………………………….. 50
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I. Executive Summary
Contents
3
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Executive Summary
Pushing forward on all fronts
Rapid and Resilient
Economic Growth
Improving Governance
and Effective
Policymaking
Stronger Fiscal and
Government Finances
Progress in Investments
and Infrastructure
Development
Steep change in economic
growth with a 6.8% increase in
GDP in 2012, and 7.6% in
1H2013
Broad-based quality of growth
with increases across
consumption, public spending,
and investments
Upward revisions of 2013
growth forecast for the
Philippines by World Bank
from 6.2% to 7%; ADB from
6% to 7%
The Philippine economy is on
track to meet the Philippine
Development Plan average
growth target of 7- 8% for the
medium term
Focus on improved governance
is paying off with notable
improvements in the ROP’s
ranking in 3rd party indicators
Passage of sin tax and
reproductive health laws, etc.
demonstrate improved
government effectiveness and
firm commitment to implement
difficult reforms
Three years into office, the
Aquino Administration’s net
satisfactory rating remains in
the very good territory at
+66%*
ROP has run a primary surplus
since 2011
Aug 2013 fiscal surplus of
PhP 21.9 bn reflects the Republic’s
ability to raise revenues amid robust,
strategic and high-impact spending. .
Jan-Aug 2013 deficit of Php82.6 bn
is within the Q1-Q3 program
Jan-Aug 2013 revenue grew 12%
yoy to Php1,139.2bn indicative of
continued revenue buoyancy along
with accelerated spending growth
of 13% yoy to Php1,221.8bn
Much improved debt dynamics with
declining NG debt ratio of 49.5% of
GDP as of 1H2013, longer
maturities and increased share of
PHP-denominated debt
ROP is now a net external creditor
with foreign exchange reserves
exceeding gross external debt
The portion of the budget that is
spent on interest servicing will
decline to 15.5% of total budget in
2014 from 17.1% in 2012 and a
high of 31.6% in 2005 and 33.2% in
1988
Investors beginning to take note
of improving investment climate
and governance in the ROP
Infrastructure development is
accelerating with private and
public construction increasing
22.1% in the 1H 2013
Budgetary allocation for public
infrastructure increased by
17.7% in 2013
Philippines posted the highest
FDI growth rate of 54% in
ASEAN in 2012
BOI-PEZA approved
investments increased 36.6% to
Php285.6bn in 1H 2013, led by
electricity, gas, steam & air
conditioning supply (55.9%)
followed by real estate activities
(22.2%)
4 *2nd Quarter 2013 SWS Survey
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Source Box below Recent Economic Performance Reflects ROP’s Strong Economic Base
Strong economic growth in 2012 thru 1H2013 has been
broad-based in nature and supported by all components of
GDP
Private consumption is robust and remains a major
contributor to GDP growth, highlighting healthy
consumer confidence in the economy
Capital formation increased significantly at the end of
2012 and the 1H2013, particularly in the construction
sector, as investment and infrastructure development
began to take off
2Q2013 growth of 7.5% yoy outperformed market
consensus of 7.2% yoy. The growth trend demonstrates the
nation’s robust growth momentum
Philippine National Statistical Coordination Board (NSCB)
Sharp increase in economic growth
Strong Economic Fundamentals to position the economy to adjust smoothly to effects of QE tapering and
slow down in regional growth
On 23 September 2013, the IMF mission led by Rachel van Elkan noted that the Philippines is “expected to remain strong at 6.75% in 2013
and 6% in 2014
In the first half of 2013, growth of 7.6% was underpinned by dynamic private and public demand such as robust consumption and
investment
On the impact of Fed’s prospective tapering of asset purchase, IMF states that “when tapering does eventually begin, the Philippines’
strong fundamentals—including strong current account receipts, its net creditor status, steady reductions in public debt, and low foreign
participation in government securities markets—position the economy to adjust smoothly to the accompanying capital flow reversal and
slow down in regional growth.”
Contribution to GDP Growth, in percentage points
2012 1H2013
GROSS DOMESTIC PRODUCT 6.8 7.6
By Origin
1. Agri., Hunting, Forestry and Fishing 0.3 0.2
Agriculture and Forestry 0.3 0.1
Fishing 0.0 0.1
2. Industry 2.2 3.4
Mining and Quarrying 0.0 (0.0)
Manufacturing 1.2 2.2
Construction 0.8 1.1
Electricity, Gas and Water Supply 0.2 0.1
3. Services 4.3 4.1
Transport, Comm., Storage 0.6 0.3
Trade & Repair of Motor Vehicles, Motorcycles, Personal and
Household Goods 1.3 1.0
Financial Intermediation 0.5 1.0
Real Estate, Renting and Business Activities 0.8 0.8
Public Administration and Defense; Compulsory Social Security 0.3 0.3
Other Services 0.8 0.7
5
Executive Summary
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Executive Summary
Government financial strength continues to improve
6
Source: Moody’s
ROP’s debt stock has shown consistent improvement in recent years
and the government has several tools to manage amortization
As of 2012 the Bond Sinking Fund amounted to
Php825bn
The debt amortization schedule is front-loaded with domestic
debt, which the government has been able to easily refinance
owing to deep, captive domestic markets
General government consolidated figures are now published
and available publicly. GG figures significantly benefit ROP
in view of offsetting of intragovernmental holdings
ROP’s Debt Story Reflects Prudent Fiscal Management
General Government Consolidated Debt Adjustment
GG Debt vs. National Debt (as % to GDP)
Foreign Currency Debt Exposure Has Been Reduced
Amortization Schedule is Manageable
GG Debt vs. National Debt (in Php bn)
0
50
100
150
200
250
300
350
400
450
500
H2 2
01
2
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038-…
External Domestic
46.6
40.7 40
42
44
46
48
50
52
54
56
2009 2010 2011 2012 2013F 2014F
3 June Moody's Data (Nat'l Govt Debt)
25 July Moody's Data (Gen Govt Debt)
GG Debt as % to GDP
16.7
21.8
0
10
20
30
40
50
60
70
80
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98
19
99
20
00
20
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Q1
20
13
Foreign Domestic
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Source Box below 2005 vs. 2012
2005 2012 Change
Sovereign Credit Ratings
Fitch Ratings BB BBB- (Mar 2013)
Standard and Poor’s BB- BBB- (May 2013)
Moody’s Investors Service B1 Baa3 (Oct 2013)
GDP Growth Rate 4.8 6.8
GDP Per Capita1 (USD), PPP concept 3,061 4,431
GNI Per Capita1 (USD), PPP concept 3,855 5,834
National Government Interest (% of Revenue) 36.7 20.4
Fiscal Balance (% of GDP) (2.6) (2.3)
General Government Debt (% of GDP) 59.2 40.6
Gross International Reserves (US$ billions) 18.5 83.8
OFW Remittances (US$ billions) 10.7 21.4
Gross External Debt (% of CAR) 89.9 65.3
Import Cover (months) 3.8 12.0
Current Account (% of GDP) 1.9 2.8
Source: Bangko Sentral ng Pilipinas (BSP), National Economic and Development Authority (NEDA), Department of Finance (DOF)
1/ At current prices
ROP Achieves Investment Grade from Fitch, S&P and Moody's
Improved credit metrics across the board over the past 7 years
7
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II. Institutionalizing Good Governance
Contents
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Pipeline Developmental Reforms and Programs Accelerating reforms to achieve sustainable and inclusive growth
2013 and Beyond
2013 and Beyond:
Amendments to the Build Operate
Transfer Law or RA 7718
2013 and Beyond:
Amendments to the Anti-Money
Laundering Act
2013 and Beyond:
Amendments to the
Bangko Sentral ng Pilipinas Charter
2013 and Beyond:
Customs Modernization and
Tariff Act (CMTA)
2013 and Beyond:
Full implementation of the
Government Integrated Financial
Management Information Systems
(GIFMIS) in 2013
2013 and Beyond:
Rationalization
of Fiscal Incentives Law
2013 and Beyond:
Site or Location for National
Government Infrastructure Projects
and For Other Purposes
2013 and Beyond:
Removal of Investment Restrictions
in Specific Laws cited in the
Foreign Investment Negative List
(FINL)
2013 and Beyond:
Amendments to RA8974 or the Act to
Facilitate the Acquisition of Right-of-
Way
2013 and Beyond:
Rationalization of the Mining Fiscal
Regime
2013 and Beyond:
Amendments to the Cabotage Law
2013 and Beyond:
Tax Incentives Management
and Transparency Act
9
January 2014:
Implementation of Basel
III
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Real progress being made in helping the poor
Net Satisfaction with the National Administration on
Helping the Poor (%), December 1993-June 2013
Administration has strong national mandate and viewed
as sincere in fighting graft and corruption
Net Satisfaction with the National Administration on
Eradicating Graft and Corruption (%), March 1987-June 2013
C.AQUINO RAMOS ESTRADA ARROYO B.AQUINO
Widespread Support of the Aquino Administration
Strong mandate by the public to improve governance
The Aquino Administration attains record-high very good net satisfaction rating
Net Satisfaction with General Performance of the National Administration (%), February 1989-June 2013
10 Source: The 2013 SWS Survey Review, 23 September 2013, Social Weather Station National Surveys
Net figures (% Satisfied minus % Dissatisfied) correctly rounded.
-60
-40
-20
0
20
40
60
80
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
+66
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ROP has shown improvements in governance and competitiveness indicators
• Zero Based Budgeting to improve expenditure management
• Pocket Open Skies to support tourism potential
• Peace Agreement to unleash Mindanao’s potential
• Sin Tax Law to further strengthen the fiscal position
• Reproductive Health Act to improve family health planning
• Judicial Reform to enhance the regulatory environment and ensure level playing field
Strong political will to pursue
and implement
difficult reforms
Results are Significant - Good Governance is Winning Out
The sustained high trust ratings of the President provide the impetus to drive the governance reform agenda. The
reforms that the Republic have been implementing in past years are already bearing fruit as confirmed by improved
rankings of the country from third party assessors
11
Third Party Report Latest Previous Change
Transparency International
2012 Corruption Perception
Index 105/179 129/183 up 24
World Bank
2013 Worldwide Governance
Indicators’
Government Effectiveness*
58 57 up 1
IMD
2013 World Competitiveness
Report 38/60 43/59 up 5
Heritage Foundation
2013 Economic Freedom
Index 97/177 107/179 up 10
Thomson Reuters/INSEAD
Asia Business Sentiment
Survey**
(Q3 2013 vs Q2 2013)
100 94 up 6
Grant Thornton
2013 Global Dynamism Index 21/60 46/50 up 25
* Percentile Ranking
* * % of Respondents with positive outlook on the Philippines
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A Structurally More Competitive Nation Improvements in competitiveness to support long-term growth prospects
Global Competitiveness Rankings 2010 - 2011 2013 -2014
Overall Rank 85 26 59
Institutions 125 46 79
Infrastructure 104 8 96
Macroeconomic Environment 68 28 40
Health and Primary Education 90 -6 96
Higher Education and Training 73 6 67
Goods Market Efficiency 97 15 82
Financial Market Development 75 27 48
Labor Market Efficiency 111 11 100
Technological Readiness 95 18 77
Market Size 37 4 33
Business Sophistication 60 11 49
Innovation 111 42 69
The Philippines has improved by 26 spots in
the WEF Global Competitiveness Rankings
since 2010
Ranking of #59 (out of 148 countries) places
the ROP in the upper 40% percentile rank
Sub-rankings in Institutions,
Macroeconomic Environment and Financial
Market Development have in particular
improved dramatically, improving 46, 28,
and 27 places, respectively
Improving governance and the
economy have been key areas of focus
for the Aquino Administration
Supports the notion that good
governance is indeed good economics
and the two are inextricably linked
Proof that ROP is making real progress
in improving governance and
institutions
Consistent improvements for the Republic in the World Economic Forum Global Competitiveness Rankings
Source: World Economic Forum Global Competitiveness Rankings
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Progress Made in Reaching Development Plan Targets 2011-16 Philippine Development Plan goals now closer to reality
Notable progress being made in the ROP’s five major guide posts for the PDP
Target1 Progress
Rapid, Inclusive and
Sustained Economic
Growth
Average GDP growth of 7- 8%
Increase investment/GDP to 22% by 2016
Improved government finances with reduced
fiscal deficit-to-GDP ratio to 2.0% by 2016
Step-up change in GDP growth in 1H2013 to 7.6% yoy
Preliminary BSP study estimates potential output is now 6-7%
Significant uptick in public investment in 1H2013 with construction
and fixed capital formation growing in double-digits
Investment /GDP ratio of 20.5%* in 1H2013
Anti-Corruption and
Transparent,
Accountable
Government
Poverty Reduction
and Empowerment of
the Poor
Just and Lasting
Peace and the Rule
of Law
Integrity of the
Environment and
Climate Change
Mitigation
Improve institutions and governance
Increase government transparency and
public access to information
Improve public’s trust in the government
Ensure equitable and inclusive growth
Reduce poverty incidence to 16.6%
Effective social protection and strengthen
social safety nets for the poor
Reach negotiated settlement to all armed
conflicts
Increased internal stability
Improve the Philippines ability to adapt and
mitigate climate change and capacity to deal
with natural disasters
Improve air quality and water quality
Closer performance monitoring of agencies with Account
Management Teams deployed to 9 major departments in 2013
Open Data initiatives, including Freedom of Information Bill
(under discussion) to provide wider access to data
Bottoms-up Budgeting prioritizing the Local Poverty Reduction
Action Plans of the poorest municipalities
Sin tax revenues to help enroll the poor in universal healthcare
Conditional cash transfer program to the poor to benefit 3.8
million households in 2013
Breakthrough peace settlement agreement reached with Moro
Islamic Liberation Front (MILF)
Stable political environment with the Administration sustaining
a net satisfaction rating of +66% as of Q2 2013 SWS Survey
Philippines’ disaster preparedness lauded by the UNISDR2 and EU
Progress made in mainstreaming climate change adaptation and mitigation
initiatives in agriculture
Launched Project NOAH which provides more accurate, integrated, and
responsive disaster prevention and mitigation system, especially in high-
risk areas throughout the Philippines.
1 Based on Philippine Development Plan 2011-2016 2 United Nations Office for Disaster Risk Reduction
13
*current prices
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Passage of Landmark Sin Tax Law Sin tax to improve general health outcomes and boost government revenues
Key Provisions
Passage of the Sin Tax
Republic Act No. 10351 (“sin tax law ”) was approved by the legislature and finally signed into law in December 2012 after being first introduced over
15 years ago in 1997
Introduces higher taxes on tobacco and alcohol product based on a revised tiering system and will gradually increase over the next several years
Sin tax is expected to generate an additional Php248.5 bn revenues in the first 5 years from 2013 to 2017 of which Php34 bn is expected to be
realized in 2013
An estimated 69% of sin tax collections is expected to come from tobacco products in the first year
Highlights the Strength and Resolve of
the Aquino Administration
Passage of the sin tax after being
held-up for 15 years demonstrates the
strength of this Administration’s
mandate and ability to push through
tough legislation
Provides additional impetus and
momentum to push through other
tough legislation
Significant Additional Revenue
Generation
Aligned with Objective of Equitable
and Inclusive Economic Growth
Majority of incremental revenues will
be earmarked for health programs,
including enrolling the poor into the
universal healthcare program and
upgrading of hospitals and other
healthcare facilities
Projected Incremental Revenues (Php bn)
2013 33.96
2014 42.82
2015 50.63
2016 56.86
2017 64.18
2013-2017* 248.49
“Today, we are again making history: for the past 15 years, we have been trying to reform the tax structure of
imposing excise tax on tobacco and alcohol products. After 15 long years, we have finally succeeded.”
President Aquino, December 20, 2012
14 * May not add up due to rounding
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III. Robust Improvements in Economic and Financial Metrics
- Healthy, Sustained and Inclusive Growth
Contents
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Broad-based growth highlights overall health of the economy
Strong performance across all components of GDP underscore overall strength and resilience of the economy
Real GDP Growth by Expenditure Component (% contribution to growth)
Philippine National Statistical Coordination Board (NSCB)
Decade of rapid and sustained economic growth is set to continue
Sharp Increase in Economic Growth
2Q2013 growth of 7.5% yoy outperformed market consensus of 7.2%
yoy. This brought 1H2013 GDP growth to 7.6%. The growth trend
demonstrates the nation’s ability to grow in spite of external pressures.
The IMF expects the Philippines to grow 6.75% and 6% in 2013 and
2014, respectively and maintain growth at 5.5% in the medium term
Philippines growth is increasingly broad based with particular strength
coming from the services and the resurgence of the industry sector led by
construction and manufacturing. The government’s focus on promoting
investment and infrastructure coupled with the nation’s favorable
demographics will help propel economic growth in the long term
Real GDP Growth (% yoy)
16
2.9 3.6
5.0
6.7
4.8 5.2
6.6
4.2
1.1
7.6
3.6
6.8
7.6
0
1
2
3
4
5
6
7
8
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1H2013
Average:
4.8%
1.0 1.6 0.5 1.4
8.4 8.9
7.3 6.1 4.6
3.2
3.0 3.8
6.5
6.3 7.3 7.1
7.7
7.5
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
2009Q1
Q2 Q3 Q4 2010Q1
Q2 Q3 Q4 2011Q1
Q2 Q3 Q4 2012Q1
Q2 Q3 Q4 2013Q1
Q2
Private Consumption Govt. Consumption Fixed Capital Net Exports GDP Growth
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Sheltered from External Trade Shocks ROP is well-positioned to withstand a slowdown in global demand
Europe and China exports account for only a small portion of the total
Exports by Destination (USD bn)
The Republic remains less trade and export dependent than most countries in Asia and therefore less exposed to the lower consumption and slower
growth experienced in much of Europe, a slowing China and the rest of the world
In addition to being less trade dependent, exports to both China and Europe account for only a small portion of total exports for the ROP, further
insulating the economy from growth uncertainties emanating from those two regions
Despite European exports declining marginally in 2012, the total volumes of exports have actually increased highlighting its resiliency
Source: NSO
17
7.10 8.9 8.80 8.7 8.10 7.6 6.40 5.9 4.2 4.1
4.10 4.6 5.70 5.5 2.9 5.7 6.1 6.2
4.3 4.1
41.3
47.4 50.5
49.1 38.3
51.5 48.3
60
26.8 26.7
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
2005 2006 2007 2008 2009 2010 2011 2012 Jan-Aug2012
Jan-Aug2013
Others China Europe
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The Philippines is expected to reach the World Bank’s Upper Middle Income threshold in 2016
GDP per Capita Projections (USD)
Rising Employment and Wealth Create Inclusive Growth Economic growth is generating opportunities for all
Chart
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18
Compared to Regional Baa3 Peers, Philippines Wealth Levels are Comparable
GDP per Capita (USD; 2013)
Source: National Economic and Development Authority (NEDA), IMF WEO
2,909.7
3,254.0
3,621.4
4,032.2
2800
3000
3200
3400
3600
3800
4000
4200
2013P 2014P 2015P 2016P
World Bank’s Upper Middle Income Threshold: US$4,035
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III. Robust Improvements in Economic and Financial Metrics - Rapidly Strengthening Public Finances and Debt Dynamics
Contents
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Ability
to Meet Debt
Obligations
2
3 4
1
Automatic
Appropriation
for Public Debt
Service
Sound Debt
Management
Strategy
Strengthening
Fiscal
Framework
Bond Sinking
Fund
The Republic’s ability to meet its debt obligations has been strengthened even further due to improving macroeconomic fundamentals
Sound debt management strategy has reduced rollover risks and increased debt carrying capacity
Improving fiscal metrics make this ability ever stronger
Government financing is shifting towards being domestically funded and denominated in Peso
The national government’s willingness to service its debt
obligations is enshrined in the legal system
Bond Sinking Fund which necessitates consistent cash allocations to ensure debt servicing of maturing principal
– Presidential Decree 1177 or the Budget Reform Decree of 1977 which provides for the automatic appropriation of principal and interest payments on public debt
Rapidly Strengthening Public Finances and Debt Dynamics Strong framework in place to guarantee ability to meet debt obligations
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The Bond Sinking Fund was established in 1954 for
the sole purpose of holding funds for the retirement
of local currency bonds issued by the Government of
the Philippines
Payments to the Bond Sinking Fund are structured by
making annual payments to gradually retire the debt,
rather than make a single payment at maturity
Any investment returns are reinvested into the Bond
Sinking Fund balance
The Asset Management Service (AMS), an office in
the Bureau of the Treasury, ensures matching of fund
maturities to that of debt issues that are being
provisioned for
The AMS manages the maturity profile and ensures
that there is always complete alignment with debt
issues
Bond Issued
AMS calculates annual payment required
to cover principal payment
Annual contribution made over the life
of the bond until retirement
Bond Sinking Fund is reflective of the Republic’s prudent management of public debt
Bond Sinking Fund Enhancing Debt Management Improving public finances and debt management
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Source Box below Better governance bearing fruit as fiscal finances continue to strengthen
Sources: Bureau of the Treasury (BTr), Department of Budget and Management (DBM)
*Note: Some values may not sum up to exact figure due to rounding off
Improved Fiscal Metrics Across the ROP Creating a sustainable fiscal revenue and spending path
Firm administrative measures (i.e. RATE, RATS and RIPS) have resulted in higher tax revenue s and manageable deficits
Tax elasticity of BIR collection increased to 1.7 in 2012 from 0.8 in 2004, indicating effective tax administrative measures
1H 2013 revenue and tax effort of 15.3% and 13.6%, respectively exceeded the program for the year on stronger tax compliance
Jan-Aug 2013 fiscal deficit of Php82.6bn is 42.8% lower than Q1-Q3 program of Php144.5bn reflecting the Republic’s ability to raise
revenues along with a more focused, faster and higher spending
Jan-Aug 2013 spending of Php1,221.8bn is nearly 61.6% of total disbursement program for the year.
Aug 2013 revenue of Php155.1bn is 20% higher than Aug 2012 with BIR, BOC and BTr revenue growth of 22% (Php118.1bn), 15%
(Php26.1bn) and 15% (Php3.4bn), respectively
(in Billion Pesos)
Jan-Aug 2013 Jan-Aug 2012 % Growth
2012 v. 2013
FY 2013 2012
Actual Actual Adjusted Program Actual
Total Revenues 1,139.2 1,013.6 12.4 1,745.9 1,534.9
% of GDP - - - 14.7 14.5
Tax Revenues 1,021.2 901.4 13.3 1,607.9 1,361.1
% of GDP - - - 13.5 12.9
BIR 811.9 701.4 15.7 1,253.7 1,057.9
BOC 198.9 190.4 4.5 340.0 289.9
Other Offices 10.4 9.5 9.5 14.2 13.3
Non-Tax Revenues 117.9 112.2 5.1 136.0 165.5
% of GDP - - - 1.1 1.6
o.w. BTr Income 60.9 60.9 0 57.7 84.1
Others incl. Fees & Charges 56.8 51.3 10.7 78.3 81.3
Privatization .3 0 0 2.0 8.3
Expenditure 1,221.8 1,084.7 12.6 1,983.9 1,777.8
% of GDP - - - 16.7 16.8
Surplus/(Deficit) (82.6) (71.1) 16.2 (238.0) (242.8)
% of GDP - (2.0) (2.3)
22
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Improved Efficiency in Revenues and Expenditures
Fiscal consolidation on track despite accelerated spending
Source: BTr
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Sheet: 32
Expenditures disbursed more efficiently helping to
drive the development agenda
Expenditures (Php mn)
Firm tax administration pushes revenues higher
Revenues (Php mn)
23
Government’s continued effort to implement measures to
facilitate budget execution and program/project implementation
has resulted to ramped up spending
Total disbursements for January to August reached P1,221.8
billion, 13% higher than comparable disbursements in 2012.
Relentless tax campaign has resulted in greater taxpayer compliance
Revenue collection continues to gain strength growing by 12.6% and
12.9% in 2011 and 2012, respectively from 7.6% and -6.6% in 2010
and 2009, respectively
Collection continues to gain traction as a result of improved collection
efforts from both BIR and BOC
103,172
110,170
126,357
155,100
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
220,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2010 2011 2012 2013
147,810
211,670
242,102
133,200
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
220,000
240,000
260,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2010 2011 2012 2013
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The Administration’s focus on fiscal reforms has permanently increased the revenue base and over the medium term will
bolster the government’s ability to service external and domestic debt obligations
Revenue growth is expected to continuously outpace nominal GDP growth, thereby increasing revenue buoyancy
Through a combination of liability management exercises and fiscal reforms, the cost of existing debt stock has been lowered
while simultaneously increasing government’s revenue take
The result will be a significant decline in debt servicing cost over the coming years
Increased Flexibility to Service Obligations
Ensuring long-term debt sustainability
Source: 2014 BESF, DBM
Note: A- Adjusted; Pr- Proposed; P- Projections
Projections, subject to revision based on changes in macroeconomic assumptions and other factors
Improving revenue buoyancy due to rapid revenue
growth
Revenue and GDP Growth (% yoy)
Growing revenue base will improve debt servicing
ability
Revenue / GDP Projections (%)
12.6 12.9 13.7
15.6
18.4 17.8
7.8 8.8
12.6 11.8 11.3 11.3
6
8
10
12
14
16
18
20
2011 2012 2013A 2014Pr 2015P 2016P
Revenue Growth Nominal GDP Growth
14.0
14.5 14.7
15.1
16.1
16.9
12.0
13.0
14.0
15.0
16.0
17.0
18.0
2011 2012 2013A 2014Pr 2015P 2016P
24
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10 4
90 96 100 100 100 100
0102030405060708090
100
2003 2005 2010 2011 2012
Long-term: >10yrs
Medium-term: 1yr to 10yr
Short-term: <1yr
Increasing reliance on domestic financing sources
Source: DBCC as of Feb 2013, BTr
Share of external debt to national government debt
has been gradually declining over the years
National Government Debt Breakdown (% of total)
Domestic debt mix has become longer dated
Domestic Debt Breakdown (% of total)
External debt is all long-dated with maturity profiles
exceeding 10 years
External Debt Breakdown (% of total)
ROP Funding Becoming Increasingly Domestic
Actual Program Revised Actual
2012 2012 2013 Jan-Aug
2013
Total Net Financing (PHP mn)
242,827 279,106 238,028 250,071
Gross External Borrowings
156,621 181,435 104,340 27,000
Gross Domestic Borowings
798,527 535,074 630,691 419,281
Budgetary Change in Cash
295,345 54,234 61,817 167,460
Financing Mix (%) Foreign 16 25 14 6
Domestic 84 75 86 94
Jan-Jul
2013
25
51 52 56 56 59 57 56 58 58 64 64
49 48 44 44 41 43 44 42 42 36 36
0
10
20
30
40
50
60
70
80
90
100
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jan-Jul
2013External Domestic
32 25
19 10 8 9
34 31
26 20 14 12
35 44
54
70 78 79
0102030405060708090
100
2008 2009 2010 2011 2012 Jan-Jul2013
Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr
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Fiscal Reforms and Programs for 2013 and Beyond
Focus to ensure that positive momentum in government finances continue
Update on Key Fiscal Policy Reforms
Fiscal Incentives Rationalization
Intended to remove redundant incentives to reduce fiscal costs and ensure incentives will only be given to those who need them
Review of the Fiscal Regime of the Mining Sector
New mineral agreements are suspended until legislation rationalizing existing revenue sharing schemes mechanisms has been implemented
Tax Incentives Management and Transparency Act
Aims to foster transparency and accountability in granting fiscal incentives
Focus on leveraging technology in 2013 to improve effectiveness of major public finance departments
Bureau of Internal
Revenue
Re-engineering of business processes
Electronic Letter of Authority Monitoring System (eLAMS)
Electronic Certificate Authorizing Registration (eCAR)
On-line System for Transfer Tax Transactions (OSSTTT)
Electronic Tax Information Systems (eTIS) Project
Collection Reconciliation System
Expansion of ISO Certification to other districts
Procurement, Payment and Distribution Monitoring System
Re-registration of Taxpayers through Taxpayer
Registration Information Update (TRIU) Project
Centralization of Data Processing to regional offices
Mobile Revenue Collection Officers System (MRCOS)
Bureau of
Customs
Cleansing of the List of Accredited Importers and Consignees by the Interim Customs Accreditation and Registration
unit (ICARE)
Integrate National Single Window (NSW) with Electronic to Mobile System (E2M) and Other Government Agencies
automated permit/licensing systems
The Codification of Customs Memorandum Orders (CMOs) and Customs Administrative Orders (CAOs)
Implementation of cargo electronic tracking via Global Positioning Satellite systems
The Customs Modernization and Tariff Bill
Intensive utilization of the Post Entry Audit Group (PEAG)
Strengthening the Valuation Reference Information System
Source: DOF, BIR and BOC
26
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III. Robust Improvements in Economic and Financial Metrics
- Supportive and Stable Monetary Conditions and Healthy Banking Sector
Contents
27
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0%
2%
4%
6%
8%
10%
12%
14%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
M3 (LHS) Bank lending rates (RHS) Reverse repurchase rate (RHS)
<
Sound and Stable Inflation Environment Refinements in inflation targeting mechanism have allowed BSP to tame inflation and meet
the target for four consecutive years
Firm control over inflation has proven the effectiveness and credibility of monetary policy
Headline Inflation (%)
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Monetary policy remains supportive of healthy economic growth
Money Supply and Interest Rates (Php bn, %)
Source: BSP
August 2013: P6,028,250
Jan-August 2013: 5.81%
August 2013: 3.50%
Global inflationary
cycle
0.0%
5.0%
10.0%
15.0%
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Headline Lower bound of target Upper bound of target<
September 2013 - 2.7%
28
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Movement broadly in line with regional currencies
USD/PHP Exchange Rate
Peso remains one of the most stable currencies compared
to peers
1 Month Volatility
Peso Performance Supports Macroeconomic Stability Effective monetary policy contributes to low PHP volatility
Chart source
File name: s00017A_2013
RoP Ratings
(source)_as_ss.xlsx
Sheet: TBU
29 Sources: BSP, Bloomberg as of 21 October 2013
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Oct-
98
Oct-
99
Oct-
00
Oct-
01
Oct-
02
Oct-
03
Oct-
04
Oct-
05
Oct-
06
Oct-
07
Oct-
08
Oct-
09
Oct-
10
Oct-
11
Oct-
12
Oct-
13
Philippine Peso Brazilian RealIndonesian Rupiah South African RandTurkish Lira Thai Baht
21 Oct 2013 43.22
38
39
40
41
42
43
44
45
46
Jun
-11
Au
g-1
1
Oct-
11
Dec-1
1
Fe
b-1
2
Ap
r-12
Jun
-12
Au
g-1
2
Oct-
12
Dec-1
2
Fe
b-1
3
Ap
r-13
Jun
-13
Au
g-1
3
Oct-
13
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100
114.50 111.5
65
197
40
80
120
160
200
240
280
320
Jan-13 Feb-13Mar-13 Apr-13 May-13
Jun-13 Jul-13 Aug-13 Sep-13 Oct-13
PHILIP THAI MALAYS KOREA INDON
c c c c c c c c c c c c c c c c
114
80
90
100
110
120
130
140
150
160
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13
Philippines Indonesia Malaysia ThailandJapan UK US (S&P)
3.062
6.354
4.821
4.61
2.6032
3.674
0
1
2
3
4
5
6
7
8
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13
Philippines 2021 Sri Lanka 2022 Vietnam 2020
Indonesia 2023 US Generic 10Y Malaysia 2021 Sukuk
ROP’s CDS spreads trade tighter than Thailand and Malaysia
Sovereign 5Y CDS Spreads (bps)
Strong Fundamentals Provide Buffer Against Market Volatility Yields have risen less than peers while CDS levels continue to trade tightly
Normal correction in equities after record rise in 1H 2013
2013 Rebased Stock Exchange Performance (Jan 2013 = 100)
Chart source
Sheet:
Yields have outperformed peers due to strong onshore bid
Government Bond Yields (%)
Relatively high P/E ratio shows confidence in Philippines
Price to Earnings Ratio (x)
Sources: Bloomberg as of 21 October 2013; current P/E ratio is price divided by trailing 12 months earnings
Yield (%)
21-Oct 1-Jan change (bps)
Philippines 3.06 2.27 80
Sri Lanka 6.35 4.84 151
Vietnam 4.82 4.29 54
Indonesia 4.61 3.28 133
Malaysia 3.67 2.62 105
Generic UST 10Y 2.60 1.76 84
CDS spread (bps)
21-Oct 1-Jan change (bps)
Philippines 100 106 -6
Indonesia 197 136 61
Thailand 115 95 20
Malaysia 112 78 34
Korea 65 68 -3
30
19.4 18.9
15.8 16.9
18.1 16.9 16.2
15.0
0
5
10
15
20
25
Philippines Indonesia Thailand Malaysia
Current (21-Oct-13) FY 2012Phil Indon Malay Thai Japan UK S&P
Hi 127 121 107 118 150 116 120
Low 99 92 100 92 120 102 110
Last 114 106 107 104 141 113 122
Peak-Trough 28 29 7 26 31 14 10
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Macroprudential Measures Introduced as Safeguards
Stability
SDA
Investment
Restrictions
Further
Liberalization
of FX
Policies
Enhanced
Governance
Standards for
Banks
Increased FX
Capital
Charges
Increased
Monitoring of
Bank Real
Estate
Exposure
Policymakers in the Philippines have been proactive in managing risks and have
introduced several prudent macro-prudential measures over the past year as
additional safeguards to protect against potentially destabilizing “hot money” flows
and to strengthen the financial sector
Raising Capital Charges on NDFs
– Imposed higher capital charges on bank holdings of non-deliverable forwards
(NDFs) from 10% to 15%
Restrictions on Investments in Special Deposit Accounts
– Imposed strict restrictions on foreign funds flowing into the central bank’s
Special Deposit Accounts
– Reduces unstable fund flows and promotes the stability of the Peso
Increased Monitoring of Bank Real Estate Exposure
– Provided a more comprehensive measure of a bank’s real estate exposure to
include loans as well as related investments in debt and equity securities
– Consistent with sound risk management practices as bank real estate
exposure will be referenced against its adjusted capital
Enhancing Corporate Governance
– Revised existing regulations on corporate governance in line with
international best practices such as the “Principles for Enhancing Corporate
Governance” issued by the Basel Committee on Banking Supervision,
strengthened
Further Liberalization of FX Policies
– To keep FX policies responsive to current economic conditions, new rules on
FX transactions were adopted which includes among others increased limits
for OTC FX purchase
BSP remains ahead of the curve in protecting the economy from potential threats
Prudent and forward-thinking policymaking to preserve stability
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5%
7%
9%
11%
13%
15%
17%
19%
2004 2005 2006 2007 2008 2009 2010 2011 2012 1Q2013
CAR, solo CAR, consolidated
130.1
50
70
90
110
130
150
2005 2006 2007 2008 2009 2010 2011 2012 June2013
NPL Coverage Ratio of U/KBs (%)
3,344
2.7
0
4
8
12
16
20
0
1,000
2,000
3,000
4,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jun2013
Loans outstanding of U/KBs (net of RRPs)…NPL ratio (RHS) (%)
Banks are continuing to fortify their balance sheets with
increased capitalization, well above international norms
Capital Adequacy Ratio of U/KBs (%)
Unlike much of the world today, the Philippines’ banking system
remains healthy and exudes health across all relevant financial
metrics.
The banking system continues to improve its asset quality, with the
universal and commercial banks’ NPL ratio settling at 2.7% as of 1H
2013, while fortifying bank balance sheet through increased
capitalization and high loan-loss reserves
Banks remain funded predominately through domestic deposits and
not through wholesale channels, reducing liquidity and funding risk and
minimizing potential contagion from the lingering uncertainty in the
Euro-zone
Healthy Banking System - Key IG Credential
ROP exhibits an exceptionally healthy and resilient banking system
Asset quality of the universal and commercial banks remains
extremely strong with an NPL of ratio of only 2.7%
Gross Loans (PHP bn) and NPL Ratios (%)
BSP Regulatory Requirement: 10%
International Standard: 8%
Prudent NPL coverage ratios will ensure that the banking
system is well–prepared for any unforeseen shocks
NPL Coverage Ratio of U/KBs (%)
32
Source: Bangko Sentral ng Pilipinas
18.9%
17.8%
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Banking System Poses Minimal Risk
Relatively smaller banking system limits potential contingent liabilities
Potential contingent liabilities of the banking sector is
smaller than peers given relatively smaller size
Domestic Credit to Private Sector (% of GDP)1
Strong deposit base supports banking sector funding
Gross Loans-to-Deposits Ratio (%)
Banking sector remains well-funded through domestic deposits – prudent and conservative underwriting standards and credit have kept system
loans-to-deposit ratio low at 73.5%
Reduces the probability of banks seeking emergency funding from the sovereign in times of stress
Minimal risk of credit-fueled asset bubbles that threaten many other Asian nations with high growth rates
Banking system assets remain small relative to the total size of the economy compared to major peers - even in the extremely unlikely scenario
that a banking system crisis were to occur, potential government contingent liabilities for the ROP would still be lower than for peers
Source: BSP, World Bank 1Based on 2012 World Bank data
72.771.8
68.269.2
68
66.6
62.6
68.4
73.5
56
58
60
62
64
66
68
70
72
74
76
2004 2005 2006 2007 2008 2009 2010 2011 2012
Loans-to-Deposit Ratio
147.9
133.7
118.2
148.0
33.4
34.9
0 50 100 150 200
Thailand
China
Malaysia
Korea
Philippines
Indonesia
33
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Real Estate Exposure Risks are Muted
Moderate banking sector exposure to real estate mitigates price risks
Demand Continues to Outstrip Supply
Higher Real Estate Loan Levels Are Manageable
Real estate loans (REL) of universal, commercial banks and thrift banks
was 17.9% of the total loan portfolio as of end March 2013. This
exposure is within the BSP’s regulatory limitations which caps RELs at
20% of total loans.
In line with its proactive approach to ensure financial stability, the BSP
expanded its reporting system on real estate exposure (REE) of banks
which now also includes banks’ investments in debt & equity securities
as well as social housing. REE as of end March 2013 remains
manageable at 21.4% of total loan portfolio, slightly higher than the
20.8% ratio as of end 2012.
The latest data on real estate exposure of banks reflect the health of the
banking sector vis-à-vis the real estate sector. The REE report noted:
The non-performing real estate loans (NPREL) ratio remains
stable at only 3.5% as of March 2013 data
Internal simulations on credit impairment using March 2013 data
indicated that the industry’s CAR will remain well above the 10%
regulatory minimum even with a simulated 50% write down in
REEs.
In a comment to media, Moody’s Financial Institutions Analyst Jean-
Francois Tremblay commented in May 2013 on banks’ exposure to the
housing sector.
He noted that exposure figures were affected by the inclusion of
the low-cost and socialized housing segments that “tend[s] to be
less susceptible to speculation”
He further commented that “trends in [prudential measures]
have remained within reasonable limits,” making reference to
“factors such as demand and supply, underwriting standards,
loan-to-value ratios and the leverage of households and firms”
Demand Continues to Meet Supply in the High-Cost Sector
Metro Manila Condo Market
Units per
Year
No. of
Years Total Units
Current Housing Backlog 3,919,566
New Housing Need
2012-2030
345,941 18 6,226,940
Housing Production
Capacity
200,000 18 (3,600,000)
Backlog by 2030 6,546,506
Housing data shows that demand for new housing remains high, a
trend that will continue through the long term
Source: Colliers International 1Q 2013 Market Overview
Source: Subdivision and Housing Developers Association and Housing & Urban Development Coordinating Council
34
26,692 25,514 24,998
19,285 21,267
19,757 22,182
26,757 26,103 26,432
0
5,000
10,000
15,000
20,000
25,000
30,000
2H10 1H11 2H11 1H12 2H12
New Launches Take -up
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Real Estate Exposure Risks are Muted
The real estate sector remains in balance
Price Increases are Justifiable in Real Terms
Secondary Market Condo Prices
Market Indicators Do Not Suggest Overheating
Residential Vacancy Rates (Makati CBD)
Source: Colliers International 2Q 2013 Market Overview
Vacancy Rates Remain Low, Demonstrating Demand is Sufficient to Meet Growing Supply
Office Vacancy Rates (Makati CBD)
Increased supply in the real estate market reflects increased
housing demand in line with growth and investment opportunities,
especially in Manila
Real estate price increases are moderate and do not resemble
the overheating witnessed prior to the Asian Financial Crisis. In
real terms, price increases are quite modest
Increasing supply is being absorbed by the market, as evidenced
by high levels of real estate pre-sales and consistent, low
vacancy rates in both the commercial and residential sectors
35
0
4
8
12
16
Premium Grade A
Grade B & Below All Grades
02468
101214161820
LuxuryOthersAll Grades
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III. Robust Improvements in Economic and Financial Metrics
- Strong External Position
Contents
36
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Source: BSP, National Statistical Coordination Board (NSCB)
Robust External Profile – A Key Sovereign Strength
Structurally strong balance of payments bolsters external finances
The Philippines enjoys a structurally positive BOP
Balance of Payments (Components, USD mn)
ROP’s current account continues to be in surplus supported by robust remittances from overseas Filipino workers (“OFWs”), substantial BPO
revenues and increasing tourism receipts
BOP surplus sustained at US$3.8 bn as of end-Sep 2013
While exports remain relatively subdued due to the global economic environment, the Philippines nonetheless posted a 7.6% yoy growth of total
exports in 2012, highlighting relative resiliency of exports despite the global uncertainty
In 2012, FDIs grew 54% to US$2.8 bn from US$1.8 bn in 2011, the sharpest rise among ASEAN countries
-202 810 115 -280
2,410 3,769
8,557
89
6,421
14,308
-5,000
0
5,000
10,000
15,000
20,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Capital and Financial Accounts
Current Account
Net Unclassified Items
Balance of Payments
BOP Statistics beginning in 2011 are based on IMF’s BPM6 BOP Statistics for 2001 to 2010 are based on IMF’s BPM5
37
11,400
9,236
1,316 2,577
2011 2012 1H 2012 1H 2013 p/
Financial Account
Capital Account
Current Account
Net Unclassified Items
Overall BOP Position
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The Republic currently enjoys a healthy
level of international reserves of USD 83.5
billion as of end-September 2013, enough to
cover 11.9 months of total imports
Since 2010, ROP’s FX reserves have
exceeded its gross external debt
Strong reserve buildup is a prudent measure
to guard against external shocks and
underscores the ability of ROP to pay back
any foreign currency denominated debt
Source: BSP
Import Cover = Number of months of average imports of goods and payment of services and income that can be financed by reserves.
International reserves provide strong buffers to any BOP problems
ROP is effectively protected against any balance of payment shocks through
adequate international reserves
FX Reserves (USD bn) and Months of Import Cover
17.1 16.218.5
23.0
33.837.6
44.2
62.4
75.3
83.8 83.5
4.0x 3.6x 3.8x
4.2x
5.8x 6.0x
8.7x
9.5x
12.1x 11.9x 11.9x
–
2x
4x
6x
8x
10x
12x
14x
16x
18x
20x
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sep-13
FX reserves (lhs) Import co ver (rhs)
Robust External Profile – A Key Sovereign Strength
38
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Strong and stable rise in remittances over the years
Overseas Filipinos’ Remittances (USD bn)
Current Account in Surplus Despite External Challenges
Strong structural support provided by remittances, tourism, and BPO
BPO – a strong driver of employment and revenues
BPO Employment and Revenues (in USD bn)
Tourism is a key area of national growth
International Visitor Receipts (USD bn)
Source: BSP, Department of Tourism , Information Technology and Business Processing Association of the Philippines
2.53.0
3.8
1.2 1.3
4.9
6.4
8.3
10.8
0
2
4
6
8
10
12
2010 2011 2012 Q1 2012 Q1 2013 2013P 2014P 2015P 2016P
1.5 2.4
3.2
4.8 6.1
7.1
8.9
11.0
13.4
0
2
4
6
8
10
12
14
16
-
100
200
300
400
500
600
700
800
900
2004 2005 2006 2007 2008 2009 2010 2011 2012
Revenues (in USD bn) RHS Employment ('000) LHS
39
8.6
10.7
12.8 14.5
16.4 17.3
18.8 20.1
21.4
13.7 14.5
0.0
5.0
10.0
15.0
20.0
25.0
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IV. Improving Investment Climate
Contents
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Source Box below Investment level is slowly but surely trending higher
Investment Levels and Investment / GDP (%)
* Based on General Appropriations Act (GAA)
Source: NEDA, BESF DBM, Department of Trade and Industry (DTI)
Infrastructure development remains a key national priority. Capital
outlays to GDP ratio is targeted to reach 5.2% by 2016.
DPWH 2013 budget for capital outlays is Php144.3 bn*. Capital
outlays as ratio to GDP is expected to reach 3.1% in 2013 under the
GAA.
Public spending will remain at the forefront of infrastructure
development – the 2013 budget’s allocation for public infrastructure
is 17.7% larger than 2012
Importantly, the Department of Public Works and Highways
(DPWH) has been designated as the principal infrastructure
agency and will be held responsible for timely implementation of
infrastructure projects – this appointment will accelerate the
completion of projects in addition to creating an expert agency to
warehouse knowledge and best practices for procurement
processes, project standards, and cost structures
Continued increase in foreign investment inflows into the PH
BOI-PEZA Approved Investments
Improving Investment Climate
National focus on making the ROP an enhanced investment destination
Combined investments registered with the Board of Investments (BOI)
and the Philippine Economic Zone Authority (PEZA) during the first half
of 2013 rose 36.6% to Php285.6 bn from Php209.1 bn in the same period
last year. Meanwhile, investments approved by PEZA for the January to
June 2013 period amounted to Php83.7 bn, posting a 91.9 % growth from
the Php43.6 bn in the same period last year.
The investments are expected to generate 70,936 jobs once these
projects go into full commercial operation. Out of these anticipated jobs,
PEZA expects higher jobs generation of 51,872 given the fact that its
projects are mostly labor intensive manufacturing ventures geared for the
exports market.
Improving Investment Climate
National focus on making the ROP an enhanced investment destination
Improving Investment Climate
National focus on making the ROP an enhanced investment destination
41
918 945
802 798
985 899
1,184 1,207 1,168
612
21.5 21.1
17.0 15.9
18.8 17.0
20.8 20.4 18.5
18.5
0.0
5.0
10.0
15.0
20.0
25.0
-
200
400
600
800
1,000
1,200
1,400
2004 2005 2006 2007 2008 2009 2010 2011 2012 1H2013
Gross Capital Formation (constant) Capital Formation as % of GDP (constant)
Year Value
(Php
Bn)
Amount of
Approved
Foreign
Investments
% Share of
Foreign
Investments
% Growth
in Foreign
Investments
2011 657.27 218.91 33.31%
2012 672.30 282.45 42.01% 29.03%
H1 2012 209.13 38.49 18.40%
H1 2013 285.59 91.91 32.18% 138.79%
An upward trend in the number of registered Regional Operating
Headquarters (ROHQ)/Regional Headquarters (RHQ)
No. of Registered ROHQs/RHQs and its Growth (%)
Notable foreign investments in 2012 and 2013 include Del Monte
Corporation’s (USA) US$60mn in Maguindanao for its 3,000-hectare
banana plantation, Holcim’s additional investment of US$400-US$450mn
for a new cement plant
Year Number of Registered
ROHQs/RHQs
% Growth
2010 20
2011 25 25%
2012 37 48%
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2011-2013 Tourism Infrastructure Program
(Php bn)
Infrastructure Development a Key Priority to Improve
Competitiveness Sustaining the growth momentum through systematic and coordinated pipeline development
DPWH Strategic Convergence Program Partner with other concerned agencies to harmonize
national infrastructure development strategies
Tourism Convergence Program:
• Infrastructure support to designated strategic Tourism
Destinations
• A total amount of Php25.34 bn was released from FY 2011-FY
2013 for the initial 202 identified tourism infrastructure projects
• Of the Php25.34 bn, Php16.44bn were funded under the DOT-
DPWH Convergence Program, while the remaining Php8.90 bn
were releases from other DPWH programs. An additional
amount of Php14.25 bn is included in the proposed DPWH FY
2014 Budget
Convergence for Agriculture Infrastructure:
• Construct Farm to Market Roads to access food production and
processing sites
• Water impounding projects to optimize water resources for
irrigation and flood management
Flood Management Program:
• Implement priority projects under the Flood Management Master
Plan for Metro Manila and Surrounding areas
• Clear waterways of Metro Manila and address drainage capacity
constraints
Integrated Transport System:
• Support for access to major airports, seaports and RORO ports
• Infrastructure support in preparation for APEC 2015 by improving
access to designated airports, convention sites, tourism
destinations
2007-2014 DPWH Investment Program
(Php bn)
PDAF (Pork Barrel)
3.25
8.81
13.28
0.0
5.0
10.0
15.0
20.0
2011 2012 2013
Php25.34 bn (FY 2011-FY 2013)
42
-
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
2005 2007 2008 2009 2010 2011 2012 2013 2014
Php184.9 bn
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Infrastructure Development a Key Priority to Improve
Competitiveness Keen investor support will complement government’s infrastructure development program
Project Name Est. Cost
(USDmn)
NLEx-SLEx Connector Road 594.42
Cavite and Laguna Side Expressway 827.44
Central Luzon Link Expressway, Phase I 347.44
Project Est. Cost
(USDmn)
Integrated Luzon Railway TBD
Line 2 East Extension 223.26
MRT 3 Capacity Expansion 104.65
Line 1 Cavite Extension 1,376.70
MRT 7 Phase I 1,546.51
Mactan-Cebu Int’l Airport 395.35
Puerto Princesa Airport Expansion Project 103.72
New Bohol Airport Development Project 166.05
Bicol International Airport Project 111.63
Makati – Manila – Pasay – Parañaque Mass
Transit System TBD
Project Name Est. Cost
(USDmn)
Tarlac-Pangasinan-La Union Expressway 269.53
Daang Hari-SLEx Link 46.74
Southern Tagalog Arterial Road (STAR), Lipa City
– Batangas City, Phase II
53.95
NAIA Expressway 360.93
High Standard Highway Network in Metro Manila & its
200 km sphere
NEDA Approved: 91.20 km
Ongoing: 119.39 km
Proposed Mass Transit Systems & Airports
Project Name Est. Cost
(USDmn)
C-6 Expressway and Global Link (South Section) 1,036.98
C-6 Extension (Flood Control Dike Expressway 985.58
Calamba-Los Baňos Expressway 241.40
Pipeline / Proposed: 117.82 km
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Revitalizing mining to promote economic development
and social growth Resource rich sector to attract investments
Mining will bring in significant revenue for the government
MPSA: Mining Production Sharing Agreement
The Philippines has 5.56 million
hectares of land with mineral
potential that is available for
applications
Metallic: 3.96mm ha
Non-metallic: 1.60mm ha
The Philippines has substantial mineral capacity
Heat Map of Philippines
Mineral Potential
A June 2012 IMF study noted that the mining sector
will provide ~$1bn revenue per year under the current
largely employed MPSA tax regime
Action to Date: EO 79 passed in July 2012
demonstrates the government’s commitment to action
within the mining sector and paves the way for further
action
Planned Legislation: Rationalization of the Mining
Fiscal Regime is one of the nine key initiatives the
government will prioritize once the 16th Congress
begins in late July. At a cabinet meeting on July 15
Secretary Purisima stated the government’s intention
to prioritize this legislation
44
Metallic
Non-metallic
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V. Mindanao - Peace Leading towards Progress
Contents
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Room for ARMM to grow with Mindanao
Per Capita Gross Regional Domestic Product
current Php prices (2012)
Mindanao: Background and Key Facts
Major agricultural contributor with strong potential for accelerated growth
Source: Mindanao Development Authority; NEDA
Mindanao: The 2nd largest island in the Philippines
Source: Mindanao Development Authority; NEDA
Mindanao: 104,530 sq km
Northern Luzon: 104,668 sq km
2012 Gross Regional Domestic
Product in current prices:
Php1,565.4 bn, approximately
15% of Philippines GDP
2012 GRDP at 2000 constant
prices Php 911.3 bn, 14% share
to Philippines GDP
Mindanao supplies over 35% of
the country’s food output
Population: 22.8m, 23.8% of
Philippines
Consists of 6 regions, 26
provinces, 33 cities
Largest city is Davao
(population 1.45m)
Mindanao is a major source of
globally competitive agri-based
products such as canned
sardines, pineapple, oil palm,
seaweed, tuna and banana
Mineral deposits valued at
USD312bn (c. 40% of the
country’s total USD840bn)
2012 ARMM Mindanao Metro
Manila Philippines
GRDP growth
(constant)
1.2 8.2 7.3 6.8
GRDP, Php bn
(current)
93.3 1,565.4 3,830.8 10,564.9
GDP per
capita, Php
27,819 68,659 312,137 110,314
Population (m) 3.35 22.80 12.27 95.8
Labor force
April 2013 (m)
1.3 8.4 5.0 40.9
Unemployment
Apr 2013 (%)
3.3 5.7 10.4 7.5
46
61,324
91,654
91,312
69,663
48,954
27,819
- 50,000 100,000
Zamboanga Peninsula
Northern Mindanao
Davao Region
SOCKSARGEN
CARAGA
ARMM
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Mindanao: From Conflict to Peace and Prosperity
Ushering in peace after over four decades of conflict
Background to the conflict in the southern Philippines
Islam spread to Mindanao in the 13th century and the Spanish called the population “Moros” after the Moors in Spain Historically, Moro and native Lumad populations were politically and economically excluded, leading to poverty and unrest Insurgent groups formed in the late 1960s, and violence ensued.
Formation of
MNLF with goal of
fighting for an
independent Moro
nation.
Violence ensued…
In hopes of achieving peace,
President Corazon Aquino
RA 6734 providing for the
creation of the Autonomous
Region in Muslim
Mindanao (ARMM)
Violence continues, and
President Joseph
Estrada’s “All Out War”
strategy leads to the
displacement of more
than 930,000 people
The MOA-AD was
drafted and later
deemed
unconstitutional by
the Supreme Court.
Negotiations broke
down with the MILF
October 15 2012 to present The
Framework Agreement on the
Bangsamoro (FAB) is signed by
Atty. Marvic Leonen and
Mohaguier Iqbal, Chairs of the
government and MILF panels
respectively
Annex on Transitional
Arrangements and Modalities
(TAM) have been signed
Timeline to peace
The Organization of
Islamic Conference was
invited to facilitate the
negotiations leading to the
signing of Tripoli
Agreement, however it
does not stop the fighting
President Gloria
Arroyo ratified the
plebiscite of RA 9054
expanding the
ARMM, this proved
unsatisfactory to both
MNLF and MILF.
President Benigno
Aquino and MILF
begin peace
negotiations
President Fidel Ramos signed
a peace agreement with the
MNLF. The Final Peace
Agreement led to the
establishment of the SPCPD*
and the election of MNLF Chair
Nur Misuari as Governor of the
ARMM.
1968 1976 1989 1996 2000 2001 2008 2011 2012
Moro Islamic Liberation Front (MILF) Formed in 1984 after Salamat Hashim split from MNLF to form the country’s
largest Muslim rebel group
The MILF initially aimed for independence from the Republic, but pursued peace negotiations and in 2010 abandoned quest for independence, current negotiations are for genuine autonomy
Moro National Liberation Front (MNLF) Founded by Nurallaj Misuari (b. 1942) in 1971 to fight for
independence from the Philippine state. The MNLF was a united front and a strong insurgent group
A peace agreement was signed in 1996, but Misuari led an uprising in 2001 and since then, the MNLF has become weak and divided; recently staged attacks in Zamboanga; but conflict has been resolved; rehabilitation of affected areas ongoing
Two main Moro insurgent groups
* SPCPD – Southern Philippines Council for Peace and Development
Source: Mindanao Development Authority; NEDA;
1987
The Jeddah Accord
was signed by the
Philippine
government and the
MNLF to continue
implementation of a
regional autonomy
47
2013
FAB Annexes on
Transitional
Arrangements and
Modalities and Wealth
Sharing were signed
in April and July,
respectively
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Mindanao is Integral to the Philippines economy
Established peace and investment will pave the way for further growth
Mindanao’s stable growth paves the way for a bright future
Gross Regional Domestic Product Growth Rate 2002-2012
(constant prices, in percent)
Agriculture dominates, but industry and services have
witnessed rapid growth in recent years
GRDP Composition by Sector (constant, Php mn)
Industry and services sectors have grown steadily accounting for 31%
and 44% of GRDP, respectively in 2012
Mindanao’s share to total government budget
Regional Share of Budget (%) The government has prioritized infrastructure spending for the whole of
Mindanao over spending on other regions
Source: Mindanao Development Authority; NEDA
Source: Mindanao Development Authority; NEDA
Source: Mindanao Development Authority; NEDA
Sector 2008 2009 2010 2011 2012 2013
NCR 4.1 3.7 3.4 3.6 6.6 6.5
Luzon 16.3 16.9 15.7 16.3 19.4 20.1
Visayas 7.9 8.1 7.6 7.7 9.2 9.6
Mindanao 10.1 10.7 9.6 10.0 12.5 12.7
Mindanao GDP Share n.a.1 14.5 14.2 14.1 n.a.2 n.a.2
48
225,650 226,468 229,968
235,301 248,726 281,888
348,811 367,396 399,475
-
200,000
400,000
600,000
800,000
1,000,000
2010 2011 2012
Services Industry AFF
5.4
4.3
6.0
4.3
5.3
7.2
4.0 3.7
4.7 4.2
8.2
3.6
5.0
6.7
4.8
5.2
6.6
4.2
1.1
7.6
3.6
6.8
0
1
2
3
4
5
6
7
8
9
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GRDP, Mindanao GDP, Philippines
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9,769
8,437
8,299
10,040
8,000 8,500 9,000 9,500 10,000 10,500 11,000
Mindanao
Visayas
Luzon
NCR
10,990
9,689
9,478
10,761
8,000 8,500 9,000 9,500 10,000 10,500 11,000
Mindanao
Visayas
Luzon
NCR
2013 Regionalized
Budget
(Php bn)
Population (mm) Allocation Per Capita
Amount (Php) Rank
Total 996.23 99.24 10,038
NCR 131.22 12.19 10,761 2
Luzon 410.47 43.31 9,478 4
Visayas 194.88 20.11 9,689 3
Mindanao 259.66 23.63 10,990 1
Regional Per Capita Budget Allocation (FY 2012)
(in Php)
Regional Per Capita Budget Allocation (FY 2013)
(in Php)
Source: DBM
Mindanao to Receive Largest Per Capita Budget Allocation
Focus on developing Mindanao reflected in the 2013 budgetary allocations
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VI. Outlook
Contents
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Healthy macroeconomic fundamentals expected to continue this year
2013-2016 Macroeconomic Parameters
ROP expects another year of robust growth in 2013
Source: 2014 BESF (Proposed), Department of Budget and Management
2012 2013 Projections
Actual Adjusted 2014 2015 2016
GNI Growth (%) 6.5 5.9-6.9 6.2-7.2 6.6-7.5 7.0-8.0
Real GDP Growth (%) 6.8 6.0-7.0 6.5-7.5 7.0-8.0 7.5-8.0
Inflation (%) 3.2 3.0 – 5.0 3.0-5.0 2.0-4.0 2.0-4.0
364-Day T-bill Rate (%) 2.0 1.0-3.0 2.0-4.0 2.0-4.0 2.0-4.0
Exchange Rate (Php/USD) 42.25 41-43 41-43 41-43 41-43
Imports Growth (%) 11.3 13.0 14.0 14.0 14.0
Exports Growth (%) 20.9 11.0 14.0 16.0 16.0
Dubai Oil Price (USD/barrel) 109.08 90-110 90-110 90-110 90-110
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2013-2014 Fiscal Program
Increasing revenues by 15.6% in 2014 to realize fiscal consolidation goals
Particulars
Levels Percent of GDP Growth
2013 2014 2013 2014 2013-2014
Program Proposed
Revenues 1,745.90 2,018.10 14.7 15.1 15.6
Tax 1,607.90 1,879.90 13.5 14.1 16.9
BIR 1,253.70 1,456.30 10.5 10.9 16.2
BOC 340 408.1 2.9 3.1 20.0
Non-Tax 136 136.1 1.1 1.0 0.1
BTR Income 57.7 56.2 0.5 0.4 (2.6)
Privatization 2.0 2.0 0 0 -
Disbursements 1,983.90 2,284.30 16.7 17.1 15.1
Current Operating Exp. 1,558.50 1,736.50 13.1 13 11.4
Interest Payments 332.2 352.7 2.8 2.6 6.2
Capital Outlays (CO) 410.9 522.9 3.4 3.9 27.3
Infrastructure 299.4 418.2 2.5 3.1 39.7
Net Lending 14.5 25.0 0.1 0.2 72.1
Surplus/(Deficit) (238.0) (266.2) (2.0) (2.0) 11.9
Memo Item: GDP 11,914.50 13,336.70
Source: 2014 BESF (Proposed), Department of Budget and Management 52
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699.4
842.8
0
200
400
600
800
1000
2013 2014Pr
Social Services
Empowerment Budget Priorities
Social spending and public investments to promote inclusive growth
Social Services continue to be the largest component of the
budget to ensure equitable and inclusive growth
Social Services Outlay in the 2013 and 2014 Budgets (Php bn)
Source: Budget Expenditures and Sources of Financing, Department of Budget Management (DBM), Presidential Communications Development and Strategic
Planning Office (PCDSPO)
20.5%
GAA
(Php bn)
Proposed
(Php bn)
Percent Share
of Total
Budget
Change
2013-2014
2013 2014 2013 2014 Amount Percent
Social Services 699.4 842.8 34.9 37.2 143.4 20.5
Economic
Services 509.2 590.2 25.4 26.0 81.0 15.9
General Public
Services 347.3 364.5 17.3 16.1 17.2 5.0
Debt Service 333.9 352.7 16.6 15.5 18.8 5.6
Defense 89.5 92.9 4.5 4.1 3.3 3.7
Net Lending 26.5 25.0 1.3 1.1 (1.6) (5.8)
Total 2,005.9 2,268.0 100.0 100.0 262.1 13.1
Conditional cash transfer program is a helping hand to Filipino families through cash grants for the health and education of
children and the health of expecting mothers. The more than USD 1bn budget for 2013 is expected to benefit 3.8 mn
households
The National Health Insurance Program makes universal health insurance coverage a reality. Philhealth provides around
40 mn of the poorest Filipino households full coverage of expenses for medical procedures, including maternity and newborn
care packages and treatment of selected catastrophic diseases. For 2014, 14.7 million poor, near poor families will receive
health insurance coverage
The K TO 12 Program is raising the standard of Filipino education. Adding two more years to the basic education curriculum
puts it at par with the education cycles around the world. Through programs like the Training for Work Scholarships, skills
learned by students will meet the demands of the labor market, encouraging innovation and industry, and ultimately opening
more doors of possibility for our nation
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2014 Proposed Budget for Inclusive Development
Tighter prioritization of the P2.268 trillion proposed budget for greater impact
Social Service 34.9%
Economic Service 25.4%
Debt Service 16.6%
Gen. Public Service 17.3%
Defense 4.5%
Social Service 37.2%
Economic Service
26%
Debt Service 15.5%
Gen. Public Service 16.1%
Defense 4.1%
2013 2014
Increasing share in the budget for Social Services sector to ensure inclusive growth
Budget by Sector, Share to Total Budget (in percent)
The 2014 proposed budget reflects the “voice and voice” for citizens – through the involvement of communities and local
governments in crafting the Budget
Increased outlay in 2014 will go to investments in Infrastructure, in Good Governance and Anti-Corruption, in Building Human
Capabilities especially of the poor, through quality education, public healthcare and housing, and in Climate Change
Adaptation Measures – all fundamental requirements for the country’s competitiveness and development
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October 2013
Good Governance is Good Economics
The Republic of the Philippines
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