Philippine Economic Briefing in Japan
08 October 2014 (Wednesday)
Sustaining Inclusive Growth through Infrastructure
and Capital Market Development
Shangri-la Ballroom, Shangri-la Hotel, Chiyoda-ku, Tokyo, Japan
Session 1: Panel Discussion on Investment Opportunities in the Philippines
Macroeconomic Outlook and Performance
I am pleased to discuss the recent performance of the Philippine economy, as well as our development plans and targets.
The Philippine economy has been performing quite well recently, both relative to our economic targets and historical performance. In 1991-2001 for instance, 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 at 6.3 percent, indicating that we are heading towards a higher and more sustainable growth path. In fact, despite the series of natural disasters that hit in the latter part of 2013, the Philippine economy expanded by 7.2 percent, even faster than the 6.8 percent growth that was achieved in 2012.
The expansion is characterized by the revival of manufacturing on the supply side, and the resurgence of investments on the demand side. This tends to support a more sustainable growth path as these productivity-inducing sectors shift potential output upward.
In the end, however, our goal is to generate more employment and reduce poverty.
Based on the latest indicators, the estimated poverty incidence among Filipinos declined by 3.0 percentage points (ppts) to 24.9 percent from 27.9 percent a year ago, while individuals in extreme poverty also declined 2.7 ppts to 10.7 percent from 13.4 percent a year ago. These gains are quite encouraging and implies that the inclusive growth strategies have been effective. However, given the urgency of the matter, we need to accelerate further these efforts in order to lift even more Filipinos out of poverty.
The recent result of the Labor Force Survey (LFS) showed gains in the labor market. Labor Force Participation rate increased by 0.5 percentage point, denoting a potential optimism that new employment can be found. Unemployment rate went down to 6.7 percent in July 2014 from 7.3 percent a year ago. Even then, this leaves about 2.8 million who are unemployed. The quality of employment also needs to be improved, although underemployment rate declined to 18.3 percent from 19.2 percent in the same period a year ago.
Moving forward, the task at hand is to sustain growth, facilitate more investments, improve competitiveness, and promote good governance.
GDP grew by 6.0 percent, in real terms, in the first semester of 2014. The slowdown could be explained as the aftermath of the devastation wrought by typhoon Haiyan in November of 2013. However, for the full year, we expect GDP growth to fall within 6.5 to 7.5 percent.
On the supply side, services will buoy the economy followed by the industry sector. The expansion of the BPO firms, upbeat domestic demand, continued strong inflow of Overseas Filipinos’ (OF) remittances, and increasing tourist arrivals will help drive a stronger services sector. Industry growth will get more support from construction while manufacturing is expected to remain robust. We expect that the agriculture sector will still need more time to recover from the damage from the natural calamities that hit the country last year.
Consumption is still expected to be the main driver of growth on the demand side, supported by the robust inflow of OF remittances and good domestic employment prospects. This will be followed by investments and net exports. Improved business confidence is also expected to boost investments in durable equipment. Government consumption will provide an additional upward push on growth, along with public and private construction, as reconstruction and rehabilitation efforts in disaster-affected areas accelerate in the third and fourth quarter. Also providing support to growth in government consumption is the expansion of social programs, such as the Conditional Cash Transfer program. Net exports are seen to continually recover due to good global economic prospects.
The Updated Philippine Development Plan identifies six key sectors that have the potential to generate high quality employment for Filipinos. These are manufacturing, agribusiness, tourism, IT-Business Process Management, logistics, and construction.
Moreover, the strategic plans and roadmaps to support the growth in each of these sectors are already in place and are being implemented.
The following are the targets for the remaining Plan period.
The economy is targeted to grow by 6.5 to 7.5 percent in 2014, 7 to 8 percent in 2015, and 7.5 to 8.5 percent in 2016. The industry sector is projected to grow the fastest, while the services sector is expected to remain robust during the period.
In terms of 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, supported by economic drivers in industry, agribusiness, and services.
All of these growth and employment targets are just means to an end. The goal is to improve the well-being of Filipinos. By this, we mean to reduce income poverty to 19 percent by 2016, and in addition, reduce the incidence of multi-dimensional poverty, from 28.2 percent in 2008 to 17 percent by 2016. This latter measure recognizes that poverty is not just about income, but about being deprived of a good quality of life. By monitoring these two indicators, we demonstrate our commitment to ensuring that economic growth will benefit all, and that a better quality of life will be experienced by the poor.
Before I end my presentation, allow me to thank our friends and partners in Japan for the unceasing support that they have given for the Philippines to realize our development goals. Domo arigatou gozaimasu, and we look forward to your continued partnership.
Session 2: Panel Discussion on Philippine Infrastructure Sector
Outlook on Philippine Infrastructure
Today’s discussion will focus on the Philippine government’s infrastructure agenda over the medium term and the significance of this agenda in ensuring a robust and sustainable economic growth towards inclusive development. We recognize that infrastructure development plays a critical role in the growth and competitiveness of the Philippines and its major economic sectors; in reducing poverty, and creating quality employment; and in ensuring the safety of people, communities, properties and livelihood in times of natural disasters and calamities.
Given all these, the government is working to step up investments in infrastructure to be at par with other competing economies and to meet the country’s future growth requirements; thus, the infrastructure agenda of Accelerating Infrastructure Development.
With adequate fiscal space for the medium term, the overall strategy of the government to accelerate infrastructure development is to increase public infrastructure spending from 2.2 percent of the Gross Domestic Product (GDP) in 2012 to at least 5.0 percent by 2016.
The strategies and action plans in the Philippine Development Plan are translated into priority programs and projects under the current Public Investment Program (PIP) being implemented within the medium term by the national government (NG), government-owned and/or -controlled corporations (GOCCs), government financial institutions (GFIs), and other government offices and instrumentalities.
For 2013-2016, the priority programs and projects for the infrastructure sector consist of 952 projects with total investment requirements amounting to about US$46.69 billion, including capital infrastructure projects, both ongoing and proposed.
Investment requirements for infrastructure development remain huge despite increased public infrastructure spending. Therefore, this will be supplemented by private sector investments through Public-Private Partnerships or PPPs.
In line with mobilizing PPPs, the government has reviewed, amended, and approved policies and legal framework involving private sector participation, such as the IRR of the Build-Operate-Transfer (BOT) Law and the Joint Venture (JV) Guidelines. Reforms in the energy sector, particularly the approval of the feed-in-tariff (FiT) rates, also aim to increase private sector participation by encouraging investments in Renewable Energy (RE) projects.
Further, the government has instituted policy reforms to improve competitiveness and geographic connectivity, such as the Pocket Open Skies Policy (EO 29), allowing foreign carriers to operate unilateral and unlimited traffic rights to airports other than the Ninoy Aquino International Airport (NAIA); and the Common Carriers Tax (CCT) Act (RA 10378), to enhance the country’s competitiveness in international travel by encouraging international air carriers to include the Philippines in their primary routes.
Alongside these policies, the government is pursuing the synchronization of planning, programming and budgeting to ensure that the programs and projects are aligned with the country’s development goals and outcomes.
Investors are encouraged to participate in the construction and implementation of various programs and projects that have been identified in a number of infrastructure-related roadmaps and master plans approved by the government. Several programs and projects in these roadmaps and master plans have no identified financing yet.
For transport infrastructure, priorities include the implementation of the Transport Infrastructure Development Roadmap for Metro Manila and its Surrounding Areas (Region III and IV-a), to improve coordination among relevant agencies on transport projects in Metro Manila and its environs in the short-term, medium-term, and long-term; the Logistics Infrastructure Roadmap for Mindanao, to improve logistics infrastructure for cost-effective linking of Mindanao’s agriculture and fishery production centers to markets within the region, the rest of the country and abroad; and the Department of Public Works and Highways (DPWH) and Department of Tourism (DOT) Convergence Plan, to provide road access to designated priority tourism destinations under the National Tourism Development Plan (NTDP).
Other approved infrastructure master plans include: the Flood Management Master Plan for Metro Manila and Surrounding Areas and the E-Government Master Plan (EGMP).
In the energy sector, the Department of Energy (DOE) sets the plans and strategies to attain 86.2-percent household electrification by 2016 and 90-percent by 2017 as espoused in the 2013-2017 Household Electrification Development Plan (HEDP), and targets 100-percent electrification of sitios by 2015 as laid out in the Philippine Energy Plan 2012-2030.
To promote energy conservation and energy efficient technologies, the Department of Energy (DOE) is implementing various activities under the National Energy Efficiency and Conservation Program (NEECP), while the National Renewable Energy Program (NREP) aims to develop specific RE technologies and help the country triple its renewable energy capacity by 2030.
In terms of basic infrastructure facilities and services, the government is working to provide clean and safe drinking water to 14 million Filipinos; construct additional 87,034 classrooms by end of 2016; provide 262,287 socialized housing units from 2014 to 2016; construct, rehabilitate and upgrade 12,295 basic health care hospitals and facilities from 2014 to 2016; and improve solid waste and wastewater management.
For ICT, the adoption of the Integrated Services Digital Broadcast-Terrestrial (ISDB-T) provides potential investment opportunities for the development of Digital Terrestrial Television (DTT) broadcast infrastructure in the country.
Finally, let me thank our friends and partners in Japan for its continued support to the Philippine government’s infrastructure program. I hope that this event will serve as a catalyst for similar activities in the future, and enable us to continue our efforts as we move forward to realize our country’s potential. Thank you.