PHILIPPINE ECONOMIC BRIEFING “Midterm Update of the Philippine Development Plan 2011-2016” Philippine International Convention Center, Pasay City 18 March 2014

Good morning, ladies and gentlemen.

I am pleased to present to all of you the government’s roadmap for inclusive growth.

I will start by discussing the recent economic performance and achievements so far.  Then I will proceed to the challenges that need to be addressed in order to sustain the growth momentum and eventually achieve inclusive growth. Corresponding to the challenges, I will then present the salient features of the Philippine Development Plan Midterm Update, and then the prospects for the Philippine economy in 2014 and beyond.

The Philippine economy has been one of the bright spots in the region. Just last year, our real GDP expanded by 7.2 percent, improving from the 6.8 percent achieved in 2012. These results were realized despite the uncertain global environment, as well as natural disasters that the country has experienced since 2011.

Averaging the growth rate per decade, which broadly corresponds to significant policy changes in the country, we find that from an average growth rate of 2.9 percent in the 1990s, growth rate accelerated to 4.8 percent for the first decade of 2000; and finally, 7.2 percent last year.

The changes in the composition of growth over time supports our summation that the high growth rate can be sustained. 

On the demand side, the 7.2 percent growth was mainly contributed by household spending, followed by fixed capital formation. This is primarily due to stronger growth in investments in durable equipment and construction.

Moving on to the supply side, we see that while Services continue to be the major contributor to growth, the contribution of Industry has been increasing over the years.  In 2013, it was responsible for 3 percentage points of the total 7.2% growth rate.

Our strong macroeconomic fundamentals marked by low and stable inflation, favorable interest rates, sustainable and resilient fiscal and external positions, and a stable financial sector are among the reasons behind our economy’s remarkable performance.

In spite of the achievements in the aspects of economy and governance, we recognize that we still need to do more to achieve inclusive growth. In particular, the proportion of the population deemed poor based on official poverty lines has remained high from 2003 to 2009, despite modest economic growth.  In 2012, poverty declined to 25.2 percent but we had another setback last year as a result of extreme disasters that happened in the latter half.

Data also show that the rate of employment generation has not kept pace with the labor force such that there is still a large stock of the unemployed. More than the quantity, we are also concerned about the creation of high-quality and remunerative jobs that provide adequate income for the Filipino workforce.

We are aware of the downside risks to growth going forward, some of which can be beyond our control, like natural disasters and political instability in other parts of the world.

At the same time, we are mindful of opportunities that can support and even allow us to surpass our growth targets. Our emerging middle class and the growing proportion of our working-age population provide an important source of dynamism for growth.  Prudent fiscal management and our upgrade to investment grade have reduced the cost of capital.  We have also achieved significant strides towards peace in the South. Moreover, we are part of a region that is becoming a significant player in the world economy. All these increase our attraction as an investment destination.

We took stock of the lessons we have learned in the past 3 years.

Our achievements, so far, justified our emphasis on good governance, macroeconomic and political stability as the platform for economic growth.  At the same time, we know that we need to do much more.  In particular, our growth strategies need to take cognizance of spatial and sectoral dimensions to ensure inclusivity.

Corresponding to the lessons and taking note of the risks and opportunities to growth, we have identified strategies that we will emphasize in the remaining Plan period. Most of these have already been identified in the original Philippine Development Plan. But we know that the benefits may not immediately be felt by the poor. For this reason, the updated PDP will deliberately address the constraints faced by the poor. 

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 the growing sectors did not require the goods or services that the poor can provide.  Worse, migrants were being attracted into these cities or provinces, but they too, were unable to participate in the growth process. These provinces, which we have labeled as Category 1, have very high numbers of the poor, although the incidence of poverty is not very high. 

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. 

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.

For Category 1, the interventions should be aimed at increasing investments to create more growth opportunities. We will begin with the growth sectors present in these provinces, like IT-Business Process Management, tourism, construction, manufacturing, agri-business and logistics. We then need to improve the skill sets of these poorest families and undertake more aggressive employment facilitation for better job-skills match especially concerning the poor. 

The strategy for Category 2 is to provide basic social services that promote economic and physical mobility, while economic opportunities are being created in the area. Small agriculture-based enterprises linked to the supply chain in the nearby developed areas should be encouraged. In areas where human security is particularly at risk because of violence or armed conflict, peace-building efforts should be earnestly pursued.

Building resilience is the main strategy for Category 3 provinces. These include disaster-risk reduction and mitigation, social insurance and social protection, and income diversification.

Also supportive of our targets for the rest of the medium term are the priority programs and projects which are expected to substantially contribute to the attainment of the development objectives.

The total estimated public investments are about Php 4.2 trillion. More than half is for infrastructure development, followed by social development (21%), agriculture and fisheries (15%), and sustainable and climate resilient environment and natural resources (5%).  Majority will be started before and perhaps finished by 2016, but some may extend beyond the Aquino administration.

Most of the investment targets, 80%, are proposed to be funded by the national government (NG) at PhP2.7 trillion.  This fund source includes proceeds from official development assistance (ODA) loans and grants. 

With these strategies, we strive to sustain our economy’s growth over the medium term.

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.

Industry sector is projected to grow the fastest, while services is expected to remain robust during the period.

On the supply side of the economy, growth will be driven by a number of sectors, most especially manufacturing, construction and logistics, agri-business, tourism and IT-BPO.

On the other hand, the demand side of the economy will be buoyed by the following growth drivers:  fixed capital formation, both coming from public and private sectors, household consumption and stronger exports, including export of services.

Ultimately, the goal is to achieve inclusive growth. 

Our target is to reduce the unemployment rate from 7.0 percent in 2012 to at most 6.7 percent in 2016. More importantly, we are 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.

The growth drivers that we have identified are expected to generate high-quality remunerative jobs.

We also aim to reduce income poverty to 18 to 20 percent by 2016, which admittedly, will fall short of the Millennium Development Goals (MDGs) target of 17 percent by 2015.  This new target takes into consideration the slow response of poverty to economic growth beginning 2006 and the setback in 2013 due to the wide-scale destruction resulting from natural and man-made disasters.

The updated Plan will also monitor the incidence of multi-dimensional poverty, which measures deprivation in several dimensions, such as in health, education, water and sanitation. The target is to reduce this from 28 percent in 2008 to 16-18 percent by 2016.  This demonstrates the commitment of the Aquino administration not only to reduce poverty based on income, but also to address the deprivation that could result in future income poverty.

These targets, as well as other intermediate targets will be diligently monitored by the Cabinet through the different NEDA committees and Cabinet clusters.  This ascribes urgency to the matter and at the same time, is an acknowledgement that the goal of inclusive growth requires no less than an all of government approach, actively engaging with private sector and civil society.

Salamat at Mabuhay tayong lahat!