Malacañan Palace

Feb. 17, 2014

Good afternoon.

I am here today to discuss about the economy, its progress and challenges, and what the government is doing to ensure that economic growth materially improves the lives of the greatest number of our people.  This is also by way of providing you an overview of the Philippine Development Plan Midterm Update which spells out the government’s roadmap for inclusive growth.

Let me start by noting that we are on track with respect to our economic targets as laid out in the Philippine Development Plan: 2011-2016.  Despite the series of natural disasters that hit the country in the latter part of the year, the Philippine economy still expanded by 7.2 percent, improving from the 6.8-percent growth achieved in 2012.  This creditable performance was supported by strong macroeconomic fundamentals marked by low and stable inflation, favourable interest rates, sustainable fiscal and external positions and a stable financial sector.

The country was one of the best performers among Asian economies during the period.  In fact, our credit rating has been upgraded to investment grade for the first time in our history as a nation.  This is an affirmation of the confidence of the international business community in us.  This has been reinforced by improvements in the Philippines’ ranking in several global competitiveness indices such as the International Finance Corporation’s Ease of Doing Business (from rank 140 in 2009 to 108 in 2013) and the Global Competitiveness Report (from 75 in 2011 to 59 in 2013).

In terms of the composition of growth, it is worthy to note the increasing contribution of fixed capital formation from 2 percentage points in 2012 to 2.4 percentage points in 2013 on the demand side.  Equally notable on the supply side is the acceleration of the manufacturing subsector in 2013 as it provided more than three-fourths of the industry’s growth. Both these developments augur well for the growth of quality employment going forward.

All these is not to diminish the challenges that remain.

Although our investment to GDP ratio of 21.1 percent in 2013 is not too far from our PDP goal of 22 percent by 2016, this is still way below what our ASEAN neighbors have achieved.  Although our unemployment rate has been kept within the targeted range of 6.8-7.2 percent, a bigger challenge is reducing the underemployment rate, which is still close to 20 percent.  An even bigger challenge is bringing down the poverty rate to 16.6 percent by 2016 from its level in 2012 of 25.2 percent.

In taking stock of the first three years of the PDP implementation, the following lessons became clear.

First, good governance is an effective platform upon which strategies should be implemented. Second, macroeconomic and political stability fuels positive expectations that lead to growth. Third, economic growth is necessary but not sufficient for poverty reduction. Fourth, development strategies need to have spatial and sectoral dimensions to ensure inclusive growth. Lastly, disasters can negate the gains and even push back development.

Let me now describe the salient features of the updated Plan.

Overall, the ultimate goal of the updated Plan is inclusive growth.  Accomplishments will be measured primarily in terms of economic growth, to an average of 7-8 percent until 2016, reduction in unemployment to 6.5-6.7 percent in 2016 and the incidence of income poverty to 18 to 20 percent.  In addition, we are committed to quality of life targets: raise the quality of employment and overall quality of life.  The former will be reflected as a reduction of underemployment to about 17 percent in 2016 and the latter, as a reduction of the incidence of poverty in its multidimensional features to 16-18 percent.

Multidimensional poverty incidence, unlike income poverty, looks at deprivation in various dimensions – health, education, access to water, sanitation, secure housing, etc.  This indicator can then track the supposed outcomes of the different human development strategies, which impact on future income poverty.

I should note that in our reports on the Philippine economy, unfortunately, the focus has been on income poverty. But we should know that, as it is now understood in the international community, poverty is a multidimensional concern. And we would like to measure poverty reduction in that context.

Accelerating job creation requires building up of capital. Investments must continually rise for the economy to continue to grow and this requires a stable and predictable market environment. Thus, we should maintain positive expectations of consumer and business sectors through macroeconomic stability, a strong financial system, and a healthy external sector. At the same time, we need to raise productivity and sustain growth in the agriculture, industry, and services sectors. Investing in research and development is crucial in this respect. Emphasis will be given towards income diversification and agriculture and industry linkages.

Reducing the cost of doing business in the country will continue to be a priority, consistent with the platform of good governance, and in order to encourage more investments. This requires addressing infrastructure bottlenecks, improving connectivity and increasing the availability of highly trainable and skilled labor.

Substantially bringing down poverty takes a long time, as experiences of other countries have shown.  In the case of the Philippines, there is the added challenge of geoclimatic shocks.  We believe that the key is to directly address the constraints faced by the poor, set against a backdrop of rapid and sustained growth.  These constraints operate in a highly diverse, fragmented and hazard prone environment.

Some cities or provinces have been experiencing economic growth, but the poorest families are being left behind perhaps because the growing sectors do not require the goods or services that the poor can provide.  Worse, migrants are being attracted into these cities or provinces, but they too, are unable to participate in the growth process.  These provinces, which we have labeled as Category 1 provinces, have very high numbers of the poor, although the incidence of poverty is not very high: Zamboanga del Sur, Cebu, Pangasinan, Negros Occidental, Camarines Sur, Leyte, Iloilo, Sulu, Quezon, and Davao del Sur.

We need to improve the skill sets of these poorest families, undertake more aggressive employment facilitation for better job-skills match especially concerning the poor.  These strategies will require what we call narrow targeting, meaning that the beneficiary should be known by name.  For this reason, we will make use of the data from the National Household Targeting System of the Department of Social Welfare and Development (DSWD) which identifies the poor households in these provinces by name.  At the same time, growth and employment opportunities in these provinces need to increase even more.  We will begin with the growth sectors present in these provinces, then focus on providing auxiliary and ancillary services that could be provided by the poorest families in the province.  Based on our growth experience, these sectors could be IT-Business Process Management, tourism, construction, manufacturing, and logistics.

Meanwhile, some provinces are being left out of the growth process altogether.  These are very sparsely populated and remotely located.  Furthermore, these provinces are confronted with weather disturbances and armed conflict that reinforce the state of under-development.  These provinces have a very high proportion of the population who are poor.  These are the Category 2 provinces: Lanao del Sur, Maguindanao, Eastern Samar, Apayao, Zamboanga del Norte, Camiguin, Saranggani, North Cotabato, Masbate, and Northern Samar.

Government strategies in these provinces include provision of basic social services that promote economic and physical mobility partnered with opportunities. Increasing small businesses that are agriculture-based and are more connected to service providers in more developed areas of the region should be promoted. This is a way of creating jobs and ensuring incomes. In areas where there is armed conflict, peace-building efforts should be pursued.

Category 3 consists of thirty (30) provinces that are exposed and prone to multiple hazards, such as landslides and flooding.  In these provinces, the marginally non-poor people can quickly slide into poverty due to shocks or natural disasters. The objective, therefore, is to make them resilient especially to the impact of natural disasters.  These involve updating the geohazard maps, land use plans and even their local development plans.  Residents also need to be trained on disaster response.  Resilient structures that could serve as evacuation centers also need to be constructed in each of these vulnerable LGUs.

Finally, we acknowledge that the overall development of the country is ultimately a product of the dynamism of the private sector.  The role of government is to set the necessary policy and regulatory framework and provide public goods and services to catalyze private initiative and encourage efficiency improvements.

The Plan emphasizes the government’s facilitative role in promoting competition and making it easy for firms and entrepreneurs, regardless of size, to do business in the country.  At the same time, government will intervene strategically where the private sector cannot be relied upon to deliver the goods, services and facilities needed by the poor and marginalized.

The updated Plan specifies indicators of efficiency and effectiveness to measure success.  The real measure of efficiency is the extent to which private effort has been steered towards the direction laid out in the Plan; effectiveness is the extent to which the well-being of Filipinos has been improved. In effect, we recognize that the implementation of the updated PDP calls for convergence of agency programs and coordination among agencies at different levels as well as the private sector and development partners to be able to make a significant impact.
Salamat at mabuhay tayong lahat.

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