Ernesto M. Pernia, PhD

Socioeconomic Planning Secretary

NordCham Economic Briefing 2020

Mayuree Ballroom, Dusit Thani Manila, Makati City

January 31, 2020, 12:30 – 2:30 PM

Mr. Bo Lundqvist, President, NordCham Philippines;

Mr. Joona Selin, Executive Director, NordCham Philippines;

Members of the NordCham Philippines;

Dr. Dan Steinbock, Founder, The Difference Group;

Mr. Alejandro Jalon of the Oxford Business Group;

Ladies and gentlemen;

A pleasant good afternoon to all of you.

First off, I would like to thank NordCham for inviting me to speak before you today, and greet all of you a Happy New Year. I’d like to add an old yet apropos Latin dictum: “Recedant vetera nova sint omnia, i.e., let old things recede and let everthing be new.”

Unfortunately, this new year has begun with two unwelcome phenomena – an old phenomemon, the Taal Volcano eruption and a new phenomenon which is the onset of the Novel Coronavirus. Fortunately, the Taal Volcano seems to have simmered down, yet we now have to face the coronavirus with equanimity, coupled with precaution and preparedness.

I believe that we are all not only resilient but it is also in our culture – in our nature, in fact – to unite and support one another in trying times, like in the wake of the volcanic eruption.

Speaking of resilience, the Philippines remains one of the best-performing major economies in Asia in recent years, posting a GDP growth performance of 6.4 percent in the fourth quarter of 2019 from 6.3 percent in the last quarter of 2018.

Compared with other economies in the region that have already released their GDP growth rates in the fourth quarter, the Philippines likely ranked second behind Vietnam’s 7.0 percent, but higher than China’s 6.0 percent.

On the demand side, growth was driven by the ramping up of government spending after the budget delay in the first half of 2019. Public construction significantly increased by 34% in fourth quarter of 2019, with the completion of projects of the Department of Public Works and Highways (DPWH), payment for the acquisition of right-of-way, and construction of government buildings.

On the supply side, the 7.9 percent growth in the services sector was mainly driven by the acceleration in public administration and defense, trade, and other services. However, this was partly tempered by the slowdown in agriculture. In particular, there were production declines in corn, sugar and banana, primarily because of delayed planting and harvesting season due to the El Nino phenomenon in the first half of 2019.

Livestock growth also moderated, following the strict implementation and monitoring of movements of live animals between provinces, as local government authorities worked to avert the spread of the African Swine Fever. On the upside, improved output was recorded for coconut and the fishing subsector, as higher demand in some regions induced some ponds to resume operations. Good weather conditions also allowed better fish catch and more fishing trips by fisherfolk.

The fourth quarter of  2019 growth outturn brings the full-year 2019 economic growth to 5.9 percent, the slowest in eight years, and slightly below the low-end of the target range of 6.0-6.5 for 2019.

We have seen our economy facing several challenges right at the start of 2019, as the budget impasse led to delays in the implementation of government programs and projects. Adding to the problem was the election ban on certain, mostly infrastructure, projects.  Therefore, we are thankful that our colleagues in Congress and in the Department of Budget and Management ensured the timely passage of the 2020 General Appropriations Act, and also approved the validity extension of the 2019 fiscal program – both of which are critical to our efforts to spur economic growth. The unspent portion of the 2019 budget has been extended until the end of the year, which gives us more funds to spend in 2020.

Despite the challenges in the early 2019, we have been enjoying an uninterrupted growth over the past 21 years, leaving behind the boom and bust cycle that plagued our economy for decades.

This is why we are confident that the Philippine economy will continue to rise this year, as we work to improve the investment climate through key policy reforms.

Headline price inflation is seen to stay well within the government’s target for 2020 between 2 and 4 percent. Inflation for 2020 is likely to settle at  2.9 percent. Consumer sentiment has also been improving based on Bangko Sentral ng Pilipinas surveys as of fourth quarter of 2019.

Streamlining of government processes is being consistently pushed to support private investments, both domestic and foreign. The government is seriously implementing the Ease of Doing Business Act and the Efficient Government Service Delivery Law.

The recent upgrade of the country’s credit rating to BBB+, the highest in Philippine history, by Standard & Poor’s Global Ratings will further benefit the investment climate in this country.

BSP also decided to lower its key policy rates by a total of 75bps last year. This provides additional support to the business sector as it lowers borrowing costs, bringing the overnight reverse repurchase rate  to 4 percent.

The growth in the wholesale & retail trade and other services will benefit from the growth of e-commerce and aggressive tourism promotion. The sector is also expected to benefit from the growth of real estate and renting and business activities, as well as the entry of a third player in the telecommunications sector. Importantly, the sector will be further boosted by the passage of the Amendments to the Trade Liberalization and Public Service Acts, besides the Foreign Investments Act.

In fact, before you is a slide on the emerging key legislations in the next two and halfyears which include those three bills I have just mentioned. We also want to see the passage into law of the following bills: remaining tax reform packages, Department of Water, Department of Disaster Resilience, National Land Use Act, among others.

On the external front, the International Monetary Fund revised its global growth projections downward to 3.3 percent this year, attributed to persisting social unrest, trade uncertainties, rising geopolitical tensions between countries, and worsening climate-related disasters, such as bushfires, typhoons, and flooding across the world.

Therefore, we need to sustain our strong macroeconomic fundamentals to withstand external shocks, and promote growth over the medium-term. We should also diversify our products and markets, as well as establish and improve new and existing trade relations with strategic partners.

Growth has not just trickled down to the poor; it has indeed palpably spread to them, so the good news is that the Philippines is well on track to meet the Philippine Development Plan’s target of reducing poverty incidence to 14 percent of the population by mid-2022. In fact, we’re already pretty close to achieving that target. Poverty incidence dropped to 16.6 percent as of in 2018 from 23.3 percent in 2015, implying a 2.3 percentage points drop in poverty rate per annum. This implies that, by the end of this administration, the poverty rate may be down to around 11 percent.

To further improve the lives of our people, we need the private sector to support the utilization of technology – especially as we are in the midst of the Fourth Industrial Revolution or Industry 4.0. We in the government recognize our primary role of providing an enabling environment for the private sector so that industries can flourish. Therefore, key legislations have been recently enacted that will provide further impetus to the STI ecosystem to advance in the Philippines – these are the Philippine Innovation Act and the Philippine Innovative Start-up Act.

Moreover we are fast-tracking the implementation of the PhilSys ID that will greatly facilitate transactions with the government and with the private sector. To markedly benefit from the National ID will be the poor and marginalized sectors of our society.

Let me emphasize that the government is paying closer attention to the agricultural sector, which continues to lag behind in recent years. We have embarked on programs to modernize production and engage farmers in the higher value chain. We, however, recognize the continuing vulnerability of the sector. For this, we need development financing institutions to innovate and come up with instruments to help our farmers build resilience, increase productivity, and diversify income sources.

Banks should not only see the risks to their own businesses; rather, they should see the potentials of the agriculture sector that they can help unleash through well-thought-out collaboration and strategic assistance.

Let me take this opportunity to inform you that we are currently undertaking the midterm update of the Philippine Development Plan 2017-2022. We expect to present it to the NEDA Board within the coming weeks and publish it online before the end of the 1st quarter of this year.

The PDP midterm update will provide us guidance for the rest of the Plan period. Hence, I call on everyone from the public and private sectors, as well as our friends from the foreign Chambers, including NordCham of course, to unite and work together to reach our development goals. Let us keep in mind that what we do today will determine the realization of our long-term vision of having a strongly rooted, comfortable, and secure life for all, now and in the future.

Thank you and good afternoon once again.