SECRETARY ARSENIO M. BALISACAN
Economic Planning Secretary and NEDA Director-General
52nd ANNUAL MEETING OF THE PHILIPPINE ECONOMIC SOCIETY
“Running the Last Mile: Growth and Reforms to 2016”
14 November 2014, 8:00 AM
InterContinental Manila, Makati City
A pleasant morning to everyone. First of all, I would like to thank the organizers for giving me this opportunity to discuss our priorities as we run the last mile.
Here we are; 594 days to go. Knowing that our days are numbered, the all-important question is: what will be our priorities?
I would say three tasks: (1) to significantly reduce poverty mainly through the massive generation of quality employment, (2) to sustain the gains from governance reform, and (3) to lay the groundwork for a more significant reduction of poverty. Allow me to elaborate on each of these three.
To significantly reduce poverty
In the year 2000, the Philippines, together with more than a hundred other nations agreed on a set of development goals, the first of which is to end extreme poverty and hunger. Targets were set to indicate progress, and for poverty, the target is to halve the incidence of poverty in 2015 from its level in 1990. For many countries, especially in Asia, this first MDG target has been met less than 5 years after it was set. This was not the case in the Philippines.
Using national poverty lines, poverty headcount in 1991 stood at 34.4 percent. The MDG target is to bring this down to 17.2 percent in about 25 years. If only poverty decreased by at least 1 ppt per year, then we would have more than achieved the MDG target. If poverty incidence is reduced by at least 2.1 percentage points every three years, then we would meet the MDG target. In 2006, we missed our target reduction in poverty by 3 ppts; poverty incidence should have been at 24 percent instead of 26.6. If we reset the starting point to 2006, results show that we still missed the target poverty reduction by 2.3 ppt in 2009; then resetting it to 2009, we still missed the target by 1.2 ppt in 2012.
The good news is, in the first semester of 2013, poverty headcount ratio was recorded at 3 percentage points lower than the previous year. We think that this was due to the sustained rapid growth during the period, averaging 5.9% from 2011 to 2013, even reaching 7.2% for FY 2013.
At the same time, the 4Ps increased its coverage and a number of government programs were implemented with the 4P beneficiaries as the point of convergence.
For the years 2015 and 2016, government programs will explicitly consider the spatial dimension as discussed in the PDP Midterm Update, in addition to the cross-cutting measures of improving the business climate. The spatial dimension is meant to deliberately address the constraints being faced by the poor with respect to their access to opportunities afforded by economic growth. This lesson is discussed in detail in the 2012-2013 PHDR, from which we derived the policy implication that “access,…, has a spatial dimension, and the degree to which people can benefit from the opportunities allowed by economic progress depends upon how the limits imposed by geography can be overcome.” (PDP 2011-2016 Midterm Update)
Thus, for the years 2015-2016, government will implement differentiated interventions for the poor, depending on their province of residence. Provinces were categorized into three:
Category 1 provinces are the top ten in terms of the magnitude of the poor, though the incidence of poverty may be low. In these provinces, development opportunities clearly exist, as in Cebu, Iloilo, and Pangasinan, for instance. However, pockets of poverty also exist in these provinces meaning that certain segments of the population are unable to readily participate in the growth process. It may be the case that the skill set of the poor do not match the demand of the growing sectors in the province.
Category 2 provinces are those with high incidence of poverty even if the number of the poor is low. These provinces have fewer opportunities for development; they have small populations, are less dense, and are located in remote areas. Weather-related events and armed conflict could be additional constraining factors.
Category 3 provinces are those exposed and prone to multiple hazards, such as landslides and flooding. The list is based on the Hazard Mapping and Assessment for Effective Community-Based Disaster Risk Management (READY) Project. In these provinces, the marginally non-poor can slide into poverty relatively quickly owing to shocks or natural disasters.
In each category, we have a focused and specific strategy.
• For Category 1, the objective of the interventions will be to generate more employment opportunities. This can come by way of introducing new growth drivers like agro-industry, food manufacturing, and logistics, depending on the comparative advantage of the province. Current sources of growth will continue to be supported. Recognizing that workers in the growing sectors constitute a market for other goods and services, the poor households can be organized and trained to provide for this market. In addition, improving human capital through investments in education and training (e.g. TVET) will continue to increase the employability of the work force. Introducing flexibilities in work arrangements may also be warranted.
• The strategy for Category 2 is to ensure access to basic social services (e.g., health services, basic education, water and sanitation) and to facilitate economic and physical mobility through investments in human capital and connective infrastructure while economic opportunities are being created in the area. Linkages between small producers and the supply chain of product or service providers in the more developed areas of the region will be facilitated. In areas where human security is particularly at risk because of violence or armed conflict, peace-building efforts will be earnestly pursued.
• While, for Category 3, the strategies will focus on disaster-risk reduction and mitigation, social insurance and social protection, and income diversification.
We recognize, however, that the generation of quality employment opportunities is the more robust strategy to reduce poverty, and this will come about with increases in investments. We want to increasingly shift employment from low- to high-productivity areas or sectors of the economy. This is the structural transformation of employment. In the recent economic history of East Asia, this is key to massive poverty reduction.
The PDP Midterm Update discusses in great detail the cross-cutting measures to improve the business climate. We are prioritizing certain sectors either because of its potential to drive growth in the region and/or its capacity to absorb labor. These are manufacturing, agribusiness, infra/logistics, tourism, construction, IT/BPM. For these sectors, roadmaps have been prepared clearly identifying what needs to be done to encourage expansion.
To sustain the gains from governance reform
The Aquino administration has implemented a number of governance reforms concerning revenue generation (by the Bureau of Customs and the BIR), debt management (by the Bureau of Treasury), corporate responsibility among GOCCs (by the GCG), expenditure management (by the DBM), business registration (by DTI, SEC, NCC), to name a few. In addition, we have sound macroeconomic fundamentals to show for it; credit to our economic team and the Bangko Sentral. Quite expectedly, the Philippines has started to enjoy an unprecedented level of confidence among the international business community. The investment grade status accorded by the three major credit rating agencies (Moodys, Standard and Poors and Fitch) in 2013-2014 and the improved rankings obtained by the country in several global competitiveness reports reinforce this positive assessment of the country’s over-all progress.
The task at hand is to ensure that the governance reforms are carried forward.
Concerning the management of public resources, a number of us in the Executive are cooperating with Congress in drafting a bill that will ensure fiscally responsible, transparent, accountable, efficient and effective public financial management.
Moreover, we are striving to make the the delivery of government services more efficient. Towards this end, we will be rolling out a protocol for the conduct of Regulatory Impact Assessment (RIA) on critical regulations, knowing fully well that these regulations impose a cost on doing business while the benefits are not well determined.
We are also in the final stages of rolling out the National M&E framework, to be led by NEDA and DBM. Ultimately, the objective is to improve the effectiveness of government programs to achieve the targets set out in the PDP by assiduously monitoring them and subjecting them to periodic evaluation.
Finally, to lay the groundwork for even more significant reduction of poverty
Note that this last task is related to the first two. In fact, if we succeed in the first two – reduce poverty and sustain the governance reforms, then the likelihood that we will succeed in this last task is quite high.
But what is the groundwork needed so that, beyond 2016, there will be an even more significant reduction in poverty? For this, I would like to go back to my previous research on poverty, and adopt a three-pronged but forward-looking approach. First, we need to bring the economy to a higher growth path. Second, we need to ensure that the poor can participate in the growth process. Third, we need to build resilience among individuals and communities.
Let me get to the first point:
In 1991-2001, the economy grew an average of 2.9 percent which increased to 4.8 percent during the 2001-2010 period. Presently, under the Aquino administration, we witnessed an even higher average growth rate of 6.3 percent. Looking at the sources of growth in recent years, we have reason to say that we are heading towards a higher growth path. With good business climate, resulting from transparent, accountable and efficient governance, we can sustain a higher growth path by investing in technology and innovation, ensuring a level playing field and by expanding logistical capacity.
One of the reasons for the weak investor sentiment in the country is the persistence of bottlenecks in the infrastructure sector. The country’s infrastructure facilities and systems continue to lag behind those of our counterparts in the Southeast Asian region. According to the World Economic Forum’s latest Global Competitiveness Report (2014-2015), the Philippines ranked 91st out of 144 countries in terms of the overall quality of infrastructure, way behind Malaysia (25), Thailand (48), and Indonesia (56).
Under the Aquino administration, spending for infrastructure has been increased from 2.1% of GDP in 2012 to 2.5% in 2013, with the aim of raising it further to around 5% of GDP by 2016. The NEDA Board has already approved Php 1.06 trillion worth of projects, including 23 PPP projects worth $11.73. Eight of these PPP projects have already been awarded.
We have also identified problems in implementing infrastructure projects that could be addressed by legislation. Thus, the proposed Amendments to the Build-Operate-Transfer Law and Amendments to RA 8974 – An Act to Facilitate the Acquisition of Right-of-Way, Site or Location for National Government Infrastructure Projects and for Other Purposes.
Government is also producing physical framework plans covering major areas in the country. This will make the public infrastructure program more predictable, and the private sector can then plan accordingly. To date, we already have the transport road map for Metro Manila and its surrounding environs, with the support of JICA. We will complete the framework plans for Visayas and Mindanao in the next two years. For this purpose, we are also advocating the passage of the National Land Use Act, which aims to institutionalize land use planning as a means for the rational and just allocation, utilization, management, and development of our country’s land resources; and to provide policies and mechanisms for determining and evaluating appropriate land use.
In order to further increase investments, we need to reduce, if not eliminate, barriers to entry. We have proposed amendments to the law on Cabotage in order to address some of our inefficiencies in shipping logistics. We are also supporting various bills filed in Congress that are meant to reduce restrictions for foreign investments. There is also the proposed competition policy that seeks to level the playing field to encourage new entrants.
Enabling the poor to participate in the growth process
Beginning this school year, the Aquino administration has expanded the scope and coverage of the CCT program. The scope has increased to 4.09 million families while the coverage has expanded to include family members of high school age. This also implies that children beneficiaries who will be finishing elementary will continue to receive regular cash assistance from government. Note that this move was in response to a PIDS study, Reyes , which suggests that deepening assistance to current beneficiaries (rather than expanding coverage) can take into account the K to 12 program and increase beneficiary children’s future wages by 40% than if they were to only reach elementary.
A massive reform in our education system is the Kto12. As many of you know, this has been proposed long ago, but since it entails huge public and private costs, it has not been acted upon until now. But this is a necessary move to prepare our children for the new environment – more globalized, more integrated. Concerning the ASEAN Economic Community, for instance, when we discuss about qualification standards, the issue that always comes up is that our graduates lack at least two years of formal education when compared to their ASEAN counterparts. The Kto12 addresses this issue, and at the same time, provides more opportunities for students to learn skills and acquire knowledge.
As expected, there are some who clamor for the postponement of the Kto12 citing various reasons. We intend to continue to address the cause of this resistance, which at bottom, is related to the potential displacement of college instructors during the initial years of offering Grades 11 and 12. As it stands, the DOLE has drawn up a program to re-tool college instructors so they might teach high school students. DepEd has also allowed non-education graduates to teach Kto12 subjects. CHED and DOLE are in constant dialogue with tertiary education institutions to determine how best to prepare them for SY 2016-2017, the first time that year 11 will be introduced.
Another major effort by the Aquino administration to equalize development opportunities is to pursue lasting peace with the Bangsamoro. As you know, the Bangsamoro lags behind in all indicators of incomes and outcomes. And this feeds into discontent, unrest and ultimately, conflict. However, we also realize that these deprivation cannot be adequately addressed unless there is peace in the area. In 2012, the Framework Agreement on the Bangsamoro was signed between the leadership of the MILF and the government. This paved the way for more dialogues on how to bring about lasting peace. Right now, the Bangsamoro Basic Law is already in Congress for deliberation. More than two weeks ago, we witnessed history in the making, as former MILF combatants now talk about normalization, and onto development. They have drawn up a Bangsamoro Development Plan, which includes a transition phase that began this year. The intent is to install the Bangsamoro political entity by 2016. If we succeed, and we know that we still need to bring in the other groups, then we will have achieved a major breakthrough in our pursuit of inclusive development.
Finally, to build resilience among individuals and communities
Our country is visited by at least 20 typhoons a year. Last year, the strongest typhoon to ever make landfall in recorded history, hit the Philippines; just as when we were delivering 6-7 percent growth in our GDP. Looking back, and considering the experiences of other countries like Japan with the tsunami, US with hurricane Katrina and others, we know that there is nothing we can do to prevent these natural calamities. We can only mitigate the impact, and we are doing this by investing in disaster preparedness, promoting income diversification and coming up with an enhanced protocol for disaster reconstruction that is outcome-oriented and conforms to the “build back better” principle.
The Aquino administration has invested heavily in technology and equipment that will enable our meteorologists to warn us about impending typhoons way ahead of time. We have also come up with an early warning system that will be perfected in time, and then widely disseminated. Most LGUs already have a disaster protocol in place corresponding to the warning. Over the next two years, we will be investing in disaster resilient evacuation structures, not schools, that will be used for the purpose.
Another big investment is the geohazard maps, and for the most disaster-prone areas, these are drawn to a scale of 1:10,000. These are important tools in land use planning and will make for more resilient communities.
Income diversification and social protection will be priority programs in the next two years. Social linkages will be encouraged as well. For instance, our staff from NRO VIII greatly appreciated the help given to them, especially because it meant that they did not have to join the long queues just to get provisions.
This is still a tall order, no slack time in the next two years. But with an inspiring leadership and a motivated bureaucracy, we know it can be done. Over the next two years, we target GDP growth to average about 7 to 8 percent. For this year, we think that the low end of our target could still be met. Industry sector is projected to grow the fastest, while services is expected to remain robust during the period.
We likewise target a substantial improvement in the labor and employment situation in the country. Our goal is to reduce the unemployment rate from 7.0 percent in 2012 to 6.6 percent in 2016. We are also committed to improving the quality of employment, and this will be reflected as a reduction of underemployment rate from the current 20 percent to about 17 percent in 2016.
Income poverty is targeted to be reduced to 19 percent by 2016.
Indeed, good governance plus good economics is what brings about inclusive growth and sustainable development.
And speaking about legacy, before my term is over at the NEDA, we intend to come up with the first inter-generational report. This report will draw up scenarios of growth and development spanning the next forty (40) years. It will take into account population dynamics and external developments. For instance, did you know that in the next five years, we could be among the upper middle income countries? And in the next 15 to 20 years, we could escape the so-called middle income trap? What will it take? In brief, we need to retain or surpass our relative standing globally in terms of per capita income growth and improvements in competitiveness. This requires consideration of the second derivatives.
We plan to map out these scenarios in the inter-generational report. Needless to say, we welcome all offers of help especially from our esteemed colleagues from PES and our development partners. And on that note, I end this address.
Thank you for your kind attention.