The 2015 Budget

Recent Economic Performance, Growth

Assumptions and Targets
ARSENIO M. BALISACAN
Secretary of Socioeconomic Planning
DBCC Briefing to Congress
House of Representatives
6 August 2014
Outline

I. Recent Economic Performance

II. Development Challenge

III. PDP Midterm Update 2014-2016

IV. Macroeconomic Assumptions and Risks

0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
I. RECENT ECONOMIC PERFORMANCE

The Philippine economy has been growing robustly
Source: Philippine Statistics Authority and National Economic and Development Authority.
Philippine Real GDP at 2000 Prices (Millions Php)
(1960 to 2013)
Real GDP growth
3.7% (2011)
6.8% (2012)
7.2% (2013)
A
q
u
i
n
o

a
d
m
i
n
i
s
t
r
a
t
i
o
n

0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
1991-1995 1996-2000 2001-2005 2006-2010 2011-2013 FY 2013 Q1 2014
AFF Industry Manufacturing Service
Source: PSA
Average Contribution to Growth (ppt)
Supply Side: Manufacturing is increasingly picking up
as a major growth driver...
2.2%
3.6%
4.6%
5.0%
5.9%
7.2%
5.7%
I. RECENT ECONOMIC PERFORMANCE
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
1991-1995 1996-2000 2001-2005 2006-2010 2011-2013 FY 2013 Q1 2014
HFCE GFCE CF Net Exports Stat D
7.2%
Source: PSA
Average Contribution to Growth (ppt)
Demand side: Investment is increasingly becoming a major
growth driver
2.2%
3.6%
4.6%
5.0%
5.9%
5.7%
I. RECENT ECONOMIC PERFORMANCE
2013 Q1 2014 Q1
GDP Growth 7.7% 5.7%
By Industrial Origin
Share to
GDP
Growth
Rate
Share to
GDP
Growth
Rate
Agriculture 11.1 3.2 10.6 0.9
Industry 33.4 11.3 33.3 5.5
Of which: Manufacturing 23.5 9.5 23.7 6.8
Services 55.5 6.5 56.0 6.8
By Expenditure
Household Final Consumption 68.4 5.5 68.5 5.8
Govt Final Consumption 11.5 10.0 11.1 2.0
Capital Formation 21.6 49.8 22.0 7.7
Of which: Fixed Capital 23.1 17.3 24.3 11.2
of which: Public Construction 1.6 36.6 1.8 22.3
Private Construction 7.2 33.3 6.4 (6.0)
Durable Equipment 12.1 10.4 13.9 21.6
Changes in Inventory -1.4 72.5 -2.2 (63.6)
Exports 43.3 (10.6) 46.2 12.6
Imports 45.8 2.8 46.8 8.0
Source: PSA
Growth moderated in Q1 2014 as the country is still reeling
from the impact of Typhoon Yolanda..
I. RECENT ECONOMIC PERFORMANCE
Sound macroeconomic fundamentals supported this remarkable
performance.
Sustainable fiscal and external position
Low and Stable Inflation
Favorable Interest Rate and Sound Banking
System
* end-May 2014, **Jan- July 2014, *** end-Dec 2013
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
Headline Inflation
Low-end Target
High-end Target
Note: Actual inflation figures are based on the 2006 CPI series.
*Jan - July 2014
I. RECENT ECONOMIC PERFORMANCE
0
5
10
15
20
0
1
2
3
4
5
6
7
8
9
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
NPL Ratio, LHS*
Real interest
rates, RHS**
CAR, RHS***
24.1
21.5
2.8
3.5
-
1.0
2.0
3.0
4.0
5.0
6.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2005 2006 2007 2008 2009 2010 2011 2012 2013
External Debt to GDP ratio, rhs
Current Account to GDP ratio**, lhs
Source: Labor Force Survey, Philippine Statistics Authority

*- Estimates for April 2014 & April 2013 excludes Leyte; employment generation for April 2013 cannot be computed as PSA did not
provide for April 2012 (less Leyte) data
8
II. DEVELOPMENT CHALLENGE
Creation of quality employment remains a big challenge.
Indicator
Ave
2010
Ave
2011
Ave
2012
Ave
2013
Apr
2013*
Apr
2014*
Labor Force Level (000) 38,893 40,006 40,426 41,022 40,056 41,589
Employment Level (000) 36,035 37,192 37,600 38,118 37,011 38,665
Wage and salary workers
(% share to total employment)
54.5 55.2 57.2 58.4 57.6 57.5
Unemployment Level (000) 2,859 2,813 2,826 2,905 3,046 2,924
Unemployment Rate (%) 7.3 7.0 7.0 7.1 7.6 7.0
Underemployment Level (000) 6,762 7,163 7,514 7,371 7,096 7,030
Underemployment Rate (%) 18.8 19.3 20.0 19.3 19.2 18.2
9
II. DEVELOPMENT CHALLENGE
28.8 28.6
27.9
24.9
0
10
20
30
40
2006 2009 2012 2013
Source: Philippine Statistics Authority
First Semester Poverty Incidence (%)
The latest poverty statistics reveal that poverty incidence improved
to 24.9 percent in the first semester of 2013, down from 27.9 percent
for the same period in 2012. This translates to about 2.5 million
people lifted out of poverty.
Key Strategies
III. UPDATED PDP 2014-2016
Spatial and sectoral focus in development strategies
Disaster-risk reduction through preparedness, prevention and
mitigation, income diversification, social protection and insurance
Efforts toward improving competitiveness and human capital
Fiscal prudence and sound macroeconomic fundamentals
Transparency, accountability, regulatory efficiency
Key sectors
Growth sectors Strategic plans and roadmaps
Manufacturing Industry roadmaps focus on increasing linkages
Agribusiness Programs to increase linkage between
agriculture, and industry and services
Tourism Tourism Development Program and tourism
cluster destinations
IT-BPM Next Wave Cities
Logistics National Logistics Plan
Construction Core Infrastructure Investment Program
III. UPDATED PDP 2014-2016
Facilitates massive
employment generation
Significantly reduces
poverty
Government
budget that
Sectoral dimension
Spatial dimension
Positive
action with
III. UPDATED PDP 2014-2016
The proposed 2015 budget will help us move towards
inclusive growth
IV. MACROECONOMIC ASSUMPTIONS
2013
(Actual)
2014
(Year to date)
2015
(Target)
2016
(Target)
Inflation (2006-based):
3.0
4.3
(Jan-Jul)
2.0-4.0 2.0-4.0
Dubai crude oil (US$/bbl)
105.52
105.29
(Jan-Jun)
90-110 90-110
Exchange rate (Php/US)
42.45
44.34
(02 Jan-01 Aug)
42-45 42-45
364-Tbill rate (%)
0.72
1.31
(Jan-Jul)
2.0-4.0 2.0-4.0
LIBOR, 6 mos. (%)
0.41 0.3285
(Jan-Jun)
1.0-2.0 1.0-2.0
Exports (Goods): Nom (US$ bn)

Growth (%)
44.7
-3.6
10.89
6.6 (Q1)
51.3
8.0
56.4
10.0
Exports (Services): Nom (US$ bn)

Growth (%)
21,790
6.6
4,833
9.4 (Q1)
28,943
15.3
33,220
14.8
Imports (Goods): Nom (US$ bn)

Growth (%)
63.3
-3.1
14.96
4.1 (Q1)
75.8
10.0
84.9
12.0
Imports (Services): Nom (US$ bn)

Growth (%)
14,968
5.0
3,819
28.2 (Q1)
21,237
13.3
24,320
14.5
Natural disasters (e.g., typhoons, prolonged monsoon rains,
El ino, now with 70% probability, earthquakes);
Excessive volatility in capital flows;
Possible spike in commodity prices (e.g., petroleum,
electricity);
Sustainability of recovery in the Euro area, US, and Japan;
Geo-political tensions in the Middle East and also between
Russia and Ukraine;
Further economic slowdown in large emerging economies of
Asia, particularly China and India; and
Delays in infrastructure projects
IV. RISKS
The government is ready to put in place measures to
guard against risks to growth:
ANNUAL PLAN TARGETS
Indicators
Baseline
(2013)

2014

2015

2016
Rapid and sustained economic growth
Gross domestic product (%) 6.8 6.5-7.5 7.0-8.0 7.5-8.5
Massive creation of quality employment
Unemployment rate (in %) 7.0 6.8 6.7 6.6
Underemployment rate (% of
employed)
20.0 19.0 18.0 17.0
Poverty reduction
Poverty Incidence (% of
population)
25.2 24.0 22.5 19.0
The 2015 Budget
Recent Economic Performance, Growth
Assumptions and Targets
ARSENIO M. BALISACAN
Secretary of Socioeconomic Planning
DBCC Briefing to Congress
House of Representatives
6 August 2014