ERNESTO M. PERNIA, PhD
Socioeconomic Planning Secretary
Philippine Economic Briefing
September 18, 2018 | Bangko Sentral ng Pilipinas Assembly Hall
Ladies and gentlemen, good afternoon.
Allow me to thank the organizers of this event for inviting me today. I find this an excellent opportunity to share with you the exciting growth story of the Philippines. You are all part of this story. And we enjoin all of you to continue supporting us in our endeavors so that the fruits would be felt by our countrymen.
I will start with the recent economic performance of our country and prospects for growth over the medium-term.
I will then share with you some of the government’s priority policy reform agenda—programs and projects—all of which are at the core of our socioeconomic development strategy.
Our economy has been on a strong footing, growing by an average of 6.4 percent in the last eight years, the strongest since the mid-1970s. In 2017, real GDP grew by 6.7 percent, from the previous year’s 6.9 percent. Such performance was within our growth targets of 6-7 percent for 2016 and 6.5-7.5 percent for 2017.
For the first half of 2018, the economy grew at a respectable rate of 6.3 percent, slower than the 6.6 percent in the first half of the previous year. This is due to prudent and judicious policy decisions for the environment, made by the government for long-term, sustainable, and resilient development.
In comparison to the economic performance of our neighbors in Asia, the Philippines followed India (8.0%), Vietnam (7.1%) and China (6.8%), and was ahead of Indonesia (5.2%), Thailand (4.8%), Malaysia (4.9%), and Singapore (4.2%).
The economy is also undergoing structural transformation as growth is increasingly being driven by investments vis-à-vis consumption on the demand side, and by the industry sector – manufacturing, in particular – relative to the service sector on the supply side. In other words, the sources of economic growth have broadened and diversified.
Moreover, our economy’s total factor productivity (TFP) has risen sharply, close to 3 percent, now the highest in ASEAN.
These three points about our economy, namely—consistently high growth, structural transformation, and high TFP suggest that economic development is sustainable and capable of creating quality or more gainful jobs.
It is also worthy to note that investment spending or capital formation accelerated by 16.4 percent in the first semester of 2018 – a silver lining amid above-target inflation over the last few months.
Manufacturing resurgence is likely to continue as foreign investors are recognizing the potential of the Philippines as a manufacturing hub.
To note, more than a third (35.5%) of actual foreign net equity investments in 2017, and almost half in the first five months of 2018 went to manufacturing, from only 13% in 2016.
Total net Foreign Direct Investments in 2016 was US$8.3 billion, rising to US$10 billion in 2017, and US$5.8 billion in the first half of 2018, growing by 42.4 percent.
While inter-regional disparity within the country remains a critical issue, higher economic growth was recorded in many regions last year. The region with the highest growth rate, the Cordillera Administrative Region, grew 12.1 percent in 2017 because of the rebound in construction and manufacturing sectors and recovery in agriculture. The runners-up were Central Luzon at 9.3 percent growth in 2017 because of robust construction spending, and the Davao Region, up 10.9 percent due to the boom in private construction.
The latest Labor Force Survey conducted last July 2018 suggests upbeat employment numbers, particularly the continued decline of unemployment rate to 5.4% from 5.6% last year. However, the bigger issue that we need to understand better and address is underemployment at 17.2%.
The manufacturing sector—the largest contributor to employment among the industry subsectors during the period—registered a growth of 4.1 percent in July 2018 round of the Labor Force Survey, resulting in additional employment of 142,000. It is worth noting that the shares of industry (19.4%) and manufacturing (9%) to total employment are the highest in a decade.
IMF projections indicate that the Philippines will remain one of the best-performing economies in the region in 2018 and 2019. The IMF projects the Philippine economy to grow by 6.7% in 2018, next to India projected to grow by 7.3%.
Global sentiment also remains upbeat relative to 2017. In its July 2018 outlook update, the IMF forecasts global growth to pick up to 3.9% in 2018 and 2019, from 3.7% in 2017.
Despite a positive outlook, we remain vigilant and are prepared to take the necessary policy measures to respond to potential downside risks to growth, both on the external and domestic fronts.
Looking at the bright side, the Philippines still has much-untapped potential in terms of economic growth.
Our country has one of the youngest populations in Asia with a median age of 24.1 in 2015, well below the world’s (29.6), Asian (30.3), and Southeast Asian (28.5) (median age based on the UN report on World Population Prospects 2017).
In comparison with its Asian peers, the Philippines has yet to enter its demographic dividend window. In terms of dependency, the Philippines had the highest ratio in Southeast Asia in 2015 at 58.2 percent. However, the ratio is expected to decline in the next few years as the working age population steadily grows, and will be lower than Singapore and Thailand by 2035.
The country is expected to be the last major Asian economy to benefit from the demographic dividend window between the years 2025 to 2070.
If not properly addressed, we would need to wait until at least 2050 to benefit from the demographic dividend, or possibly even miss it altogether. For this reason, we need to fully implement the RPRH Law that includes the family planning program and investment in the youth’s human capital.
Maximizing the demographic dividend will ensure that the economy will expand even faster beyond the country’s medium-term plan, and thus achieve our long-term vision goal, or what’s referred to as AmBisyon Natin 2040.
Allow me now to discuss the Public Investment Program for 2017-2022, updates on the Infrastructure Flagship Projects and our Build, Build, Build Program’s potential impact on the economy.
To boost investment-led economic growth, some 4,490 infrastructure programs, activities, and projects on transportation, water resources, energy, information and communications technology (ICT), social and other public infrastructure, with total investment requirement of PhP7.74 trillion. These will be rolled out within the medium-term.
These infrastructure projects will be funded with the best possible funding sources, or an optimal mix of financing from public and private sources, besides official development assistance.
This aggressive infrastructure spending is expected to boost the economy by stimulating production of output in different industries, contributing as much as PhP1.4 Trillion gross value added, or about 5.3 percent of the country’s GDP, by 2022. Likewise, it is projected to generate additional employment, both direct and indirect, reaching about 1.9 Million by 2022. This will greatly contribute in achieving the PDP target to reduce the unemployment rate in the country from 5.5 percent in 2016 to around 3-5 percent in 2022.
Based on our Public Investment Program (PIP) 2017-2022, some 98 interregional and 4,231 region-specific programs and projects will be distributed across the regions. Furthermore, 161 infrastructure projects nationwide in scope will be rolled out for implementation within the plan period. It may be noted that the ARMM then has the most number of projects in the PIP 2017-2022 (with 1,340 projects listed).
This slide shows the distribution of infrastructure investments under the Public Investment Program by region relative to their respective Gross Regional Development Products or GRDPs. It may be noted that the infrastructure investment to GRDP ratio of all regions in Mindanao register higher than the national average of 6.28 percent.
With respect to the Infrastructure Flagship Projects, our latest count has 44 of the 75 Infrastructure Flagship Projects (IFPs) already in the implementation stage, 24 in the development (pre-investment study) phase, and 7 are for review. Thirty-two (32) Flagship Projects are expected to be completed within this Administration. While the remaining 43 projects will be completed beyond 2022, we expect to commence their implementation during this Administration’s term.
My colleagues in the infrastructure cluster will discuss these flagship projects in detail. For now, let me show some of the flagship projects’ economic internal rate of return(EIRR), which indicates how economically viable an investment in a project is. The yardstick we follow is that a project must hurdle the social discount rate of 10% to pass the test.
For Mindanao Railway, for example, the EIRR we computed is at 12.2%.
The Estrella – Pantaleon Bridge has an EIRR of 16.1%.
For the New Cebu International Container Port, the EIRR is at 20.1%
The Panguil Bay Bridge Project, which aims to connect Tangub City in Misamis Occidental and Tubod in Lanao del Norte, has an EIRR of 21.4%
The Clark International Airport Expansion project has an EIRR of 20.6%.
Ultimately, what we are trying to say here is that we in the government rigorously vet the viability of projects, and the government must work hand in hand with the private sector in implementing the ambitious Build, Build, Build Program.
Let me conclude by saying that we have not reached our growth potential yet. Our growth trajectory can only continue to rise.
We are committed to pursue the policy reforms spelled out in the Philippine Development Plan 2017-2022, and earnestly implement the needed programs and projects, keeping in mind our goal of a comfortable and secure life for Filipinos and residents in the country.
Thank you, and good afternoon.