An

Economic Agenda for the New Administra4on:

Perspec4ves from the BSP

Raising the Next Tiger

Albert Del Rosario Ins9tute
28 September 2016

DIWA C. GUINIGUNDO
Deputy Governor
Monetary Stability Sector

Outline
I. The Inheritance: A Posi4on of Strength
II. The Impera4ve of Con4nuity
III. Moving Forward: Macroeconomic Outlook

The Philippines is in a posi0on of strength

2007-2014
Average

2015

Strong growth momentum Real GDP growth (%)

5.4

5.9

6.9 (Jan-Jun)

Benign ina4on

Headline ina9on (%)

4.3

1.4

1.5

Sustained scal discipline

Fiscal balance (% of GDP)

Domes9c Liquidity (% of GDP)
(% y-o-y change)
Domes9c Credit (% of GDP)
(% y-o-y change)
Non-performing loans
(% of total loans) - U/KBs*
Capital Adequacy Ra9o
(consolidated basis) - U/KBs**
Current Account Balance (US$ Bn)
% of GDP
Gross Interna9onal Reserves (in
months of imports of goods and
services and primary income)

-1.8
52.2
13.1
51.2
14.5

-0.9
63.3
9.4
59.1
13.6

-1.7 (Jan-Jun)
63.1
(Jun)
13.1
(Jul)
60.1
(Jun)
17.7
(Jul)

2.8

1.6

1.7

(Jul)

16.9

15.8

15.8

(Mar)

7.3
3.4

8.4
2.9

0.07
0.1

(Q2)
(Q2)

9.7

10.1

10.5 (end-Aug)

34.9

26.5

26.2 (End-Jun)

9.2

5.3

5.5

Key Indicators

Ample liquidity and credit

Sound and stable
banking system

Robust external payments

posi4on
External debt (% of GDP)

External debt service burden

(% of exports of goods, receipts
of services & income)

2016
(Jan-Aug)

(End-Jun)

* Data star9ng 2012 are computed as prescribed under BSP Circular No. 772. Gross NPL represents the actual level of NPL without any adjustment for loans
treated as loss and fully provisioned. U/KBs stand for universal and commercial banks.
**Computa9on based on the combined reports of parent bank (head oce and branches) and its subsidiaries engaged in nancial undertakings but
excluding insurance; also excludes trust department; 2007-2013 gures are calculated under the Basel II regime while 2014-2016 gures are under Basel III
framework.

Dissec0ng the Philippine Economic Narra0ve

Our Values Proposi9on
Good
Governance &
Institutions
Beier
ins9tu9ons
resulted in policy
space
Emphasis on
governance
restored trust
and condence
in the public
sector

Commitment to
Reform

Resilience

Proac9ve reform
pipeline across
economic sectors
improved
eciency and
increased
produc9vity

Demonstrated
rela9ve strength
amidst external
shocks
Maintained
posi9ve
alignment
between growth
and ina9on
4

Behind PHs achievements

are long history of structural reforms
Year
1993
1994
1995
1996
1997
1998
2000
2001
2002
2003
2004
2005
2006
2007
2009
2010

Selected Structural/Policy Reforms in the Philippine Economy

Crea9on of the Bangko Sentral ng Pilipinas
Liberaliza9on of foreign bank entry
Liberaliza9on of the telecommunica9ons industry
An Act to Further Liberalize Foreign Investments, Amending for the Purpose RA7042
Priva9za9on of water services (MWSS)
Deregula9on of the oil industry; Adop9on of consolidated bank supervision
Philippine E-Commerce Act
Liberaliza9on of the power sector (EPIRA)
Ina9on Targe9ng Framework; Special Purpose Vehicle Act; PhilPass
Government Procurement Reform Act
Securi9za9on Act; Adop9on of Basel 2
Expanded value-added tax (E-VAT); Fixed Income Exchange
Wholesale Electricity Spot Market (WESM)
Risk-based bank supervision
Priva9za9on of the Na9onal Transmission Corpora9on (TransCo) and Na9onal Power
Corpora9ons (NPC) assets
Launched PPP Program; Bureau of Customs Electronic Mobile System; Zero-based Budge9ng
approach; Reinvigorated implementa9on of programs against corrupt ocials
5

Behind PHs achievements

are long history of structural reforms
Year
Selected Structural/Policy Reforms in the Philippine Economy
2011 Philippine Financial Repor9ng Standards (PFRS) 9; Phased-in migra9on to Basel III
2012 Amendments to the An9-Money Laundering Law; Amendments to Sin Tax Law
2013

Act allowing the infusion of foreign equity in the capital of rural banks (RA 10574); Revised
excise tax rates on alcohol and tobacco

2014

Liberaliza9on of Entry of Foreign Banks in PHL; Basel III Framework; Financial Consumer
Protec9on Framework; Macropruden9al measures on real estate exposure

2015

Philippine Compe99on Act; Credit Surety Fund Coopera9ves (RA10744); Lioing of BSP
moratorium for gran9ng of licenses for establishment of new banks

Credit Card Industry Regula9on Law; Amendment to Foreign Investment Restric9ons;

2016 Economic and Financial Literacy Act; Freedom of Informa9on; Further Liberaliza9on of FX
regula9ons
Other Structural Reforms in the Pipeline
Amendments to the Bangko Sentral ng Pilipinas Charter
Enactment of the Payment Systems Act
Amendments to the An9-Money Laundering Act

Track record of con0nued

ins0tu0onal strengthening

*Percentile rank, ** Inverse ranking

Source: Various third-party annual ranking reports
7

The Philippine economy ranked

rst in resilience

Economic track record decoupled from poli0cs

The Performance Wedge
Three values proposi9on
enabled economic policy to
deliver

Awful Adequate Good Great

* Source: Barber, M (2015). How to Run a Government
10%

50%

8%

45%
40%

6%

35%

4%

Oil & Rice

Price Spikes

2%

European
Debt Crisis

Tech bubble

0%

Global Financial
Crisis

Asian Financial
Crisis

Gulf Crisis

-2%

30%

25%
20%
15%

-4%

10%

-6%

5%

BOP Crisis; Debt Crisis

-8%

2015

Inflation rate (in %) - RHS*

2013

ARROYO (01-10)
Arroyo
4.78%

2011

2009

2007

2005

2003

ESTRADA

AQUINO (86-92) RAMOS (92-98) (98-01)

Aquino
Ramos
Estrada
2.45%
3.35%
3.14%

2001

1999

1997

1995

1993

1991

1989

GDP growth (in %) - LHS

1987

1985

1983

1981

1979

1977

1975

1973

1971

1969

1967

1965

MARCOS (65-86)
Marcos
3.88% average growth

0%
AQUINO (10-16)
Aquino
6.16%

19

Outline
I. The Inheritance: A Posi4on of Strength
II. The Impera4ve of Con4nuity
III. Moving Forward: Macroeconomic Outlook

10

The Impera0ve of Con0nuity

Broad-based drivers of growth
Benign ina9on environment
Firm demand condi9ons and bullish
sen9ment
Sound and stable banking system
Robust external payments posi9on

Persistent poverty and inequality

Vulnerable employment
Infrastructure boilenecks

Strengths

Weaknesses

Resurging manufacturing and industry

sectors
Improving poten9al capacity
Demographic window
ASEAN Integra9on

Subpar global growth

Monetary policy divergence
Vola9lity of commodity prices
Brexit

Opportuni9es

Threats
11

Sustained domes0c growth momentum

One of Asias fastest growing economies
Real GDP Growth (in %)

7%

Q2 2016

Firm demand condi0ons

Consumer and business sen0ments remain bullish

BES index remains posi9ve while the CES index is generally moving upward since Q3 2014 (BES/CES updated)

Source: Business Expecta9ons Survey, Q3 2016; Consumer Expecta9ons Survey, Q2 2016

14

Ina0on remains benign

Low ina0on ouJurn
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

Anchored ina0on expecta0ons

BSP Private Sector Economists' Survey

Headline and Core ina4on (%), 2006=100

8.3

Mean forecast for full year, in percent

5.0

Headline Inflation Target

Headline Inflation

2.9

4.2

4.1

3.8

3.7
4.3

4.2

3.0

3.0

3.2

3.6

2.1

3.0

2.9

2.9

1.7

1.4

2008

2009

2010

2011

2012

2013

2014

2015 Jan-Aug
2016

Jul-16

Apr-16

Jan-16

Oct-15

Jul-15

Apr-15

Jan-15

Oct-14

Jul-14

Apr-14

Jan-14

Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Food
Non-food
2.5% 1.1%

Jan-12

2017

2018

target range

2016: 1.9
1.0

Source: Bangko Sentral ng Pilipinas (BSP)

Food vs. Non-Food Ina4on

January 2012 - August 2016

Source: PSA

2016

1.5

Source: PSA

10.0
8.0
6.0
4.0
2.0
0.0
-2.0

2.0

Aug-16
Jul-16
Jun-16
May-16
Apr-16
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Feb-14
Jan-14

2007

4.0

Core Inflation

4.6
5.8

2017: 2.9
2018: 2.8

Ina4on Forecasts for the

Philippines

2016

2017

Interna9onal Monetary Fund

(average)

2.0

3.4

Ins9tute of Interna9onal Finance

(end-of-period)

1.8

2.5

AP Consensus Forecasts (average)

1.9

2.8

Sources: IMF World Economic Outlook April 2016, IIF Global Economic
Monitor June 2016, Consensus Economics, July 2016

Banking system remains sound and strong

14,000

Solid assets growth

Improved quality of loans

ASSETS GROWTH: U/KBs

TOTAL LOAN PORTFOLIO and GROSS NPL RATIO: U/KBs

December 2013 July 2016*

2007 June 2016

12,000

Levels (in PhP Bn, LHS)

10,000

Growth Rate (in %, RHS)

11,578.5

8,000

12.1

6,000
4,000

6,000

25

5,000

20

4,000

15

3,000

10

2,000

1.0

1,000

0.5

0.0

2,000

2007

2008

2009

2010

2011

2012

2013

2014

5922

30

3.0

Total loan portfolio, gross (in PhP Bn, LHS)

Gross NPL ratio (in %, RHS)

2.5
2.0

1.7

1.5

2015 Jun 2016

Source: BSP

Source: BSP

Strong capitaliza0on
CAPITAL ADEQUACY RATIO (CAR): U/KBs

In Percent (%)

2007 March 2016**

20.0
18.0

15.8

16.0
14.0

15.0

12.0

10.0
8.0

10.0
8.0
6.0
2007
Source: BSP

2008

2009
CAR solo

2010

2011

CAR consolidated

2012

2013

BSP Standard

2014

2015

Mar-16

BIS Standard

* Star'ng January 2013, gures are computed as prescribed under BSP Circular No. 772. Gross Non-Performing Loans (NPL) represents the actual level of NPL without any
adjustment for loans treated as loss and fully provisioned.
** 2007-2013 gures are calculated under the Basel II regime while 2014-2016 gures are under Basel III.

External posi0on is robust

Consistent current account surplus

Ample FX reserves
15
10

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

GIR (US$ billion; lhs)

suppor0ng the broad stability of the peso

End-Aug '15
End-Aug '16

Current Account

Q2 2016

2015

2014

100
80
60
40
20
0
2013

2012

Gross Interna4onal Reserves

2004 August 2016

Q2 2015

Capital & Fin'l Account

Balance of Payments

2011

2010

2009

2008

2007

2006

20
15
10
5
0
-5
-10

2005

Balance of Payments (BPM6)

2005-Q2 2016 (in US$ Billion)

Import Cover (months; rhs)

Seizing the opportuni0es

Average Growth Rate

(2012 Q1 2016 Q2)
Industry Sector: 7.6%
Manufacturing Sector: 7.4%

Source: PSA

18

Seizing the opportuni0es to further strengthen

the economys founda0ons
Incremental Capital-Output Ra4o

Employment Share by Class of Workers

10.0

100

8.0

27.6
32.3 31.5 31.3 30.6 30.1 29.6 28.3 28.0 28.1
50

6.0
4.0

51.1 52.2 52.4 53.3 54.5 55.2 57.2 58.4 58.0 59.3

9.5
6.4

2.0

4.2

3.5

2002 - 2009

2010 - 2016Q1

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

0.0
1989 - 1992

1993 - 2001

Total Factor Produc4vity

3.0

100

2.5
2.0

50

Wage and Salary Workers

Self-employed

Unpaid Worker

Employer in Own Family

Employment Share by Educa4onal

Aiainment
26.5 26.8 26.9 27.7 28.4 28.5 24.4 24.7 24.9 25.2
38.1 38.4 38.8 38.9 39.4 39.8 39.9 40.3 40.9 41.1

1.5
2.0

1.0

2.5

0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

0.5
0.0

0.1

0.5

1989 - 1992

1993 - 2001

Source: Latest BSP sta es9mates

2002 - 2009

2010 - 2016Q1

No Grade Completed
High School
College

Elementary
Post Secondary

Source: PSA

19

Seizing the opportuni0es in the neighborhood

Take advantage of the demographic window Maximize posi4oning in the ASEAN

Source: PSA

20

Global headwinds may dampen the momentum

Subpar global growth

Monetary policy divergence

Final Results of EU Referendum
(in % of total votes)

51.9

48.1

Commodity price vola4lity

Brexit

21

Outline
I. The Inheritance: A Posi4on of Strength
II. The Impera4ve of Con4nuity
III. Moving Forward: Macroeconomic Outlook

The Risk of Reversal?

The Curse of Sisyphus

Loss of economic condence as a pervasive global risk

Capital mobility as given
Opportunity windows as essen9ally 9me-bounded

The 10-Point Economic Agenda

MACROECONOMIC
POLICIES

LAND

ADMINISTRATION &
MANAGEMENT

TAX

REFORM

HUMAN CAPITAL
DEVELOPMENT

COMPETITIVENESS
AND EASE OF
DOING BUSINESS

SCIENCE,

TECHNOLOGY &
ARTS

INFRASTRUCTURE
SPENDING

SOCIAL PROTECTION
PROGRAMS

RURAL

DEVELOPMENT

RESPONSIBLE

PARENTHOOD AND
RH LAW

Sound fundamentals provide basis

for an op0mis0c and condent outlook

Philippines poised to aiain strong domes4c growth

Indicators

Projec4ons
2016

GDP Growth (%, 2000=100)

6.0 7.0 a/

Headline Ina4on (%, 2006=100)

2.0 4.0 a/

Merchandise Exports (% growth rate)

Per BPM6 concept

3.0 a/ c/

Merchandise Imports (% growth rate)

Per BPM6 concept

7.0 a/ c/

OF Remiiancesb/
Growth Rate (%)

4.0 c/

Balance of Payments (USD bn)

2.0 c/

Gross Interna4onal Reserves (USD bn)

84.8 d/

Approved by the DBCC on 5 July 2016.

Cash remittances coursed through banks.
c/ Approved by the Monetary Board on 26 May 2016.
d/ Approved by the Monetary Board on 30 June 2016.
a/
b/

25

There is ample monetary policy space

Current monetary policy
selngs remain
appropriate
Risks to future ina4on
appear to be broadly
balanced

Ina4on will rise
moderately and seile
within target range for
2016-2017.

As of 5 August 2016 (11 August 2016 MB Mee9ng)

As of 6 September 2016 (22 September 2016 MB Mee9ng)

26

26

BSP remains commiJed to its mandate

On price stability: Safeguard the ina9on target in line with our
primary mandate
Interest rate corridor (IRC) system

Short-term
Market Rate

Term Deposit Facility

Overnight
Lending
Rate

Policy Rate

Overnight
Deposit
Rate

Advoca0ng for inclusive growth and prosperity

Financial inclusion

Credit Surety Fund Program

Financial consumer
protec0on

Economic and nancial

learning

28

An Economic Agenda for the New Administra4on:

Perspec4ves from the BSP

Raising the Next Tiger

Albert Del Rosario Ins9tute
28 September 2016

DIWA C. GUINIGUNDO
Deputy Governor
Monetary Stability Sector

29