GETTING INCLUSIVE GROWTH AND COMPETITIVENESS RIGHT

ARSENIO M. BALISACAN Socioeconomic Planning Secretary National Economic and Development Authority

10th Management Association of the Philippines Breakfast Dialogue with Pres. Aquino Cabinet 2 September 2013

Outline
I. Recent Economic Performance II. The Development Challenge III. Strategies to Sustain Growth and Increase Competitiveness IV. Prospects/Outlook and Target

Recent Economic Performance

The Philippine economy has been growing robustly.

PHGDPGrowthRates
6.5% 4.6% 3.2% 3.0% 3.8% 6.3% 7.3% 7.1% 7.7% 7.5%

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Q1 2013

Q2 2013

Supply Side
ShareinGDP(%)
2012 70 60 50 40 30 20 32 10 11.1 0 Agri,Fishery andForestry Industry Manufacturing Services 9.4 32.7 22.1 21.8 2013Q2

GrowthRate(%)
2012 2013 Q2

Real GDP Growth

Agri, Fishery and Forestry
56.9 57.9

6.8%

7.5%

2.8

(0.3)

Industry
Manufacturing

6.8 5.4 7.6

10.3 10.3 7.4

Services

Source:NSCB

Demand Side
ShareinGDP(%)
2012 80 70 60 50 40 30 20 10 10.3 13.1 0 Household Gov't Final Final Consumption Consumption Capital Formation Public Construction Private Construction Exports Imports 18.5 17.4 1.8 2.9 6.4 5.7 70.4 67 48.4 47.1 47.6 45.6 2013Q2

GrowthRate(%)
2012 6.6 2013 Q2 5.2

Household Final Consumption Govt Final Consumption

Capital Formation Public Construction Private Construction

12.2

17.0

-3.2 29.8 11.5 8.9 5.3

13.2 31.1 9.0 (6.5) (3.0)

Exports Imports

Source:NSCB

Sound macroeconomic fundamentals supported this remarkable performance.

Low and Stable inflation
9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 2005 2006 2007 2008 2009 2010 2011 2012 2013*
*Jan July2013 Note:Highand lowend targetsarebased onBSPpublication on Inflation TargetingdatedMarch2013;Actual inflation figuresarebased on2006CPIseries.

Favorable interest rate and sound banking system

9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2005 2006 2007 2008 2009 20.0 15.0

HeadlineInflation LowendTarget

NPLRatio,LHS Realinterestrates,RHS 10.0 CAR,RHS

5.0 0.0 2010 2011 2012

Sustainable fiscal and external position

80 70 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013* 0 0.5 1 1.5 2 2.5 3 3.5 4

60.0 50.0 40.0 30.0 20.0 10.0 0.0

6.0 5.0 4.0 3.0 2.0 1.0 0.0

NGDebttoGDP,LHS
* As of Q1

FiscalBalance toGDP,RHS
* As of Q1

Our competitiveness ratings also increased

Global Competitiveness Index Report
Country Singapore Malaysia Brunei Thailand Indonesia Philippines Vietnam Cambodia 2012-2013 GCI Ranking 2 25 28 38 50 65 75 85 2011-2012 GCI Ranking 2 21 28 39 46 75 65 97

Source: Global Competitiveness Index 2012-2013, World Economic Forum

The Development Challenge

Employment creation remains a big challenge

Ave 2012 Indicator
Labor Force Level (000) Employment Level (000) Wage and salary workers (% share to total employment) Unemployment Level (000) Unemployment Rate (%) Underemployment Level (000) Underemployment Rate (%)

Ave 2013
(Jan & Apr)
40,870 37,880 58.8 2,990 7.3 7,593 20.0

Ave 2010
38,893 36,035 54.5 2,859 7.3 6,762 18.8

Ave 2012
40,432 37,607 56.8 2,825 7.0 7,509 20.0

(Jan & Apr)

40,435 37,587 55.5 2,848 7.0 7,165 19.1

Source: Labor Force Survey, National Statistics Office 10

More needs to be done to achieve inclusive growth.....

2011
FirstSemesterPovertyIncidence AmongPopulation(%)
40 35 30 25 20 15 10 5 0 S12006 S12009 S12012 FY2015 16.6 28.8 28.6 27.9

14.3 12.8 8.9 64.0

2012
RegNCR,IIIandIV 14.4 OtherLuzon Visayas 12.7 Mindanao 8.8

64.1

In terms of logistics, there is still more room for improvement

Overall Customs Infrastructure International Rank Shipments Logistics Tracking and Timeliness quality Tracing and competence

1 29 Malaysia 38 Thailand Philippines 52 59 Indonesia 53 Vietnam 101 Cambodia 109 Laos 129 Myanmar
Singapore

1 29 42 67 75 63 108 93 122

2 27 44 62 85 72 128 106 133

2 26 35 56 57 39 101 123 116

6 30 49 39 62 82 103 104 110

6 28 45 39 52 47 78 111 129

1 28 39 69 42 38 104 118 140

Source: World Bank (Connecting to Complete: Trade Logistics in the Global Economy)

Sustaining Growth and Improving Competitiveness

Lessons Learned:
Midterm Assessment of PDP 2011-2016 Implementation
Good governance has proven to be an effective platform upon which strategies should be implemented. Macroeconomic (fiscal, financial, external) and political stability fuels positive expectations that lead to growth. Economic growth is necessary but not sufficient for poverty reduction. Growth strategies need to have spatial and sectoral dimensions to ensure inclusivity. Disasters can negate the gains and even push back development.
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Guiding Principles
Efficiency (catalytic; government intervention facilitates and not substitutes for private action) Equity (broadening opportunities through connectivity, human capital investments) Feasibility (doable within the Plan period)

Desired Outcomes
Rapid increase in employment opportunities to significantly reduce the stock of unemployed persons Significant reduction in poverty incidence to come as close as possible to the MDG
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We will do more to pursue inclusive growth...

Good Governance (Property Rights, Regulatory Efficiency, Alignmentof policies) National Security, and Ecological Integrity INCLUSIVEGROWTH(MASSIVEEMPLOYMENT CREATION,REDUCEDPOVERTYINCIDENCE)

POSITIVEACTIONwithSpatialandSectoral Dimensions (e.g.,economicandsocialprograms) Market demand

Rapidandsustainedgrowth
jobs Investments

Science, technology, innovation Educationand skillsetofthe workforce

Boost competitiveness

Improveaccess tofinancing
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Infrastructure

MacroeconomicStability
(fiscal,monetary,external,financial)

Sustaining growth and improve competitiveness

Maintain Macroeconomic stability Investments in:
Infrastructure Human capital Governance
Infrastructure to GDP Ratio Share of Social Spending to Total Budget Governance Reforms/Strategies 1. Ensuring high quality public service delivery; 2. Curbing corruption; 3. Strengthening the rule of law; and, 4. Enhancing citizens access to information and participation in governance.

Positive Actions that consider sectoral and spatial dimensions

Infrastructure development focusing on connectivity between regions/provinces, esp. transport and power New growth drivers outside NCR (agri/agribusiness, tourism, IT/BPM in next wave cities, public housing, manufacturing, infra/logistics) Investment in human capital to improve the competitiveness/ productivity of current and future stock of the labor force Provision of social protection against income and employment shocks for the most vulnerable Improved resilience to natural disasters

Achieving the Target of P4.7 Trillion* Investment Plans

Source:PublicInvestmentProgramasofMay31,2012

Strategic Core Investment Projects 2013-2016

Source:HighlightsoftheRevalidated20112016PIPMay31,2013FirstDraft

Funding Source Breakdown 2011-2016 Total : P 4,737,125.65 million

Source:PublicInvestmentProgramasofMay31,2012

Infrastructure Development:
Increase in NG infrastructure spending from 2.4% in 2012 to 5% of GDP by 2016
6.0 5.0
4.1 5.0

4.0 3.0 2.0 1.0 0.0 2011 2012 2013 2014 2015 2016
1.6 3.0 2.4 2.6

Source: NEDA Staff calculations; DBM (actual data) * 2011 and 2012 are actual figures

Prospects/Outlook and Target

We strive to get growth going in 2013 and beyond

2012
Actual

2013 Q2
Actual
7.6 1.4 10.6 7.1

2013
Outlook
6.0-7.0 3.5-4.5 6.4-7.5 6.3-7.3

2014
Target
6.5-7.5 3.2-4.2 7.4-8.5 6.7-7.6

GDP Agriculture Industry Services

Source:NEDAasapprovedintheDBCC

6.8 2.8 6.8 7.6

Growth Drivers Supply Side

Strong performance of agri-based manufacturing, and recovery of semiconductor and electronics Robust public and private construction Buoyant domestic and local tourism Continued strong growth of wholesale and retail trade Real estate, particularly housing Greater productivity in agriculture and rebound of the fisheries subsector

Growth Drivers Demand Side

Higher public construction and investments in power generation Robust private investment in construction and durable equipment Strong household consumption due to better employment opportunities, strong remittance inflows, and low and stable inflation Increased tourist arrivals and more demand for business process management Improvement of external trade conditions

We also remain vigilant against the following near-term global and domestic risks to growth...
Weather disturbances (e.g., Typhoons, prolonged monsoon rains) Delays in the implementation of infrastructure development projects, particularly power Excessive capital inflows/outflows Uncertainty of economic recovery in the Euro area and Japan Tapering of monetary stimulus in the US Further economic slowdown in BRIC, particularly China Possible spike in commodity prices (e.g., petroleum)

while taking advantage of opportunities

Improvement in the global economic environment
- Sustained consumption growth in emerging markets Demographic transition - Rising middle-income class, continued growth of working-age population Increased economic integration of ASEAN member countries - Open flow of goods, services, labor, technology, finance More financial resources available - Fiscal space - Investment credit-rating
*Luncintel,GlobalIndustrialApplicationPaperIndustry20122017:Trend,Profit,andForecastAnalysis

GETTING INCLUSIVE GROWTH AND COMPETITIVENESS RIGHT

ARSENIO M. BALISACAN Socioeconomic Planning Secretary National Economic and Development Authority

10th Management Association of the Philippines Breakfast Dialogue with Pres. Aquino Cabinet 2 September 2013