THE PHILIPPINE ECONOMY
SUSTAINING RESILIENCE THROUGH
TRANSFORMATIONAL REFORMS
BENJAMIN E. DIOKNO, PHDGOVERNOR
BANGKO SENTRAL NG PILIPINAS
EUROMONEY INVESTMENT FORUM24 SEPTEMBER 2019
Metric 2013 2019/Latest
Credit Ratings• Moody’s• S&P• Fitch
Baa3/positive
BBB-/stable
BBB-/stable
Baa2/stable
BBB+/stable
BBB/stable
Real GDP Growth Rate (%) 7.1 5.5 (H1)
GDP Per Capita* (USD) 2,768 3,298 (annualized)
GNI Per Capita * (USD) 3,364 3,955 (annualized)
Inflation Rate (2012 = 100) (%) 2.6 3.0 (Jan-Aug)
Fiscal Balance (as % of GDP) -1.4 -0.5 (Jan-Jun)
Tax Revenue (as % of GDP) 13.3 15.6 (Jan-Jun)
Sustained Strengthening of Macroeconomic Fundamentals
Source: BSP’s Selected Economic and Financial Indicators, Department of Finance (DOF), Bureau of Treasury (BTR)
*at current pricesp/ preliminary
Metric 2013 2019/Latest
General Government Debt (as % of GDP) 39.3 36.0 (end-Dec 2018)
National Government Interest Payments (as % of Revenues) 18.8 12.8 (Jan-Jul)
Gross International Reserves (USD bn) 83.2 86.0 (end-Aug)
Overseas Filipinos’ Cash Remittances (USD bn) 23.0 17.2 (Jan-Jul)
Foreign Direct Investments (USD bn) 3.7 3.6 (Jan-Jun)
External Debt (as % of GDP) 28.9 23.8 (end-Jun) p/
Non Performing Loans (as % of total loans, U/KBs) 2.1 1.6 (end-Jul)
Capital Adequacy Ratio (%, U/KBs) 17.7 15.9 (end-Jun)
Sustained Strengthening of Macroeconomic Fundamentals
Source: BSP’s Selected Economic and Financial Indicators, Department of Finance (DOF), Bureau of Treasury (BTR)
*at current pricesp/ preliminary
Selected Structural/Policy Reforms in the Philippine Economy (1993-present)
1993 Creation of the Bangko Sentral ng Pilipinas
1994 - 2001
Harmonization of the BSP’s Business Expectations Survey (BES) with International Practices; Liberalization of foreign bank entry and the telecommunications industry; Privatization of water services (MWSS); Deregulation of the oil industry; Passage of the Philippine E-Commerce Act; Liberalization of the power sector; Introduction of Tariff Reform Program (TRP) III; Accession to the World Trade Organization (WTO)
2002 Adoption by BSP of Inflation Targeting Framework
2003-2009
Launch of the BSP’s Consumer Expectations Survey (CES); Passage of the Securitization Act; Adoption of Basel II; Passage of E-VAT; Establishment of the Wholesale Electricity Spot Market (WESM); Full implementation of risk-based bank supervision; Privatization of the National Transmission Corp. and National Power Corporation
2011-2015Adoption of phased-in migration to Basel III; Liberalization of entry of foreign banks in the Philippines; Implementation of macroprudential measures on real estate exposure; Passage of the Philippine Competition Act
Pursuit of Transformational Reforms Towards Inclusive Growth
Selected Structural/Policy Reforms in the Philippine Economy (1993-present)
2016-2017
Adoption by BSP of Interest Rate Corridor (IRC) Framework; Credit Card Industry Regulation Law; Amendment to Foreign Investment Restrictions; Economic and Financial Literacy Act; Freedom of Information; Further Liberalization of FX regulations; Implementation of Interest Rate Corridor; Financial Inclusion Steering Committee; Implementing Rules and Regulations of the Philippine Competition Act; Designated Casinos as Covered Persons under the Anti-Money Laundering Act
2018Tax Reform for Acceleration and Inclusion (TRAIN) Law Package 1; Ease of Doing Business Act, National ID System; Amendment to the Foreign Investment Negative List (FINL)
2019Amendments to the Bangko Sentral ng Pilipinas Charter; Rice Liberalization Act ; An Act Increasing the Excise Tax on Tobacco Products, Tax Amnesty Act, Extended Maternity Leave Law, Universal Healthcare Law, Revised Corporation Code, Islamic Banking Law
Other Structural Reforms in the Pipeline
Corporate Income Tax and Incentives Reform Act (CITIRA - Package 2), Increase in excise tax for alcohol and e-cigarettes (Package 2+), property taxation system (Package 3), passive income and financial intermediary tax reform (PIFITA - Package 4) , Amendments to Bank Secrecy Law, Amendments to Warehouse Receipt Law, Amendments to Agri-Agra law, Amendments to the Foreign Investments Act, Financial Consumer Protection Act
Pursuit of Transformational Reforms Towards Inclusive Growth
9.5
6.44.2 3.9
1989 - 1992 1993 - 2001 2002 - 2009 2010 - Q1 2019
0.0 0.5
2.0 1.9
1989 - 1992 1993 - 2001 2002 - 2009 2010 - Q1 2019
Expanding Productive Capacity to Support Growth Momentum
Incremental Capital-Output Ratio
Source: BSP, PSA
Trend Total Factor Productivity
Robust labor dynamicsEmployment share by educational attainment
2.0 4.1 8.0
32.8 25.826.0
38.4 41.941.6
26.8 26.7 23.0
0.0
20.0
40.0
60.0
80.0
100.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-19No Grade Completed Post Secondary Elementary (with SPED) High School College
7
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18 Oct-18 Mar-19 Aug-19
Philippine Headline Inflation (%, 2012=100)January 2015 – August 2019
Peak: 6.7% (Sep. 2018)
Latest (2019):1.7% (Aug 2019)
3.0% (Jan-Aug 2019)
Sources: BSP, PSA, Oxford Economics, IMF, and ADB
Latest forecasts indicate favorable inflation environment in the policy horizon
2019 2020 2021
ROP Inflation Target, % 2.0-4.0 2.0-4.0 2.0-4.0
BSP (Aug 2019) 2.6 2.9 2.9
IMF (April 2019) 3.8 3.3 3.1
ADB (July 2019) 3.0 3.5 -
Oxford Economics (July 2019) 3.0 3.0 -
Maintaining a Manageable Inflation Environment
BSP private sector economists' survey Mean forecast for full year, %
Various third party forecasts
Inflation momentum further eases
1.0
2.0
3.0
4.0
5.0
6.0
Jan
Feb
Mar
Ap
rM
ay Jun
Jul
Au
gSe
pO
ctN
ov
De
cJa
nFe
bM
arA
pr
May Jun
Jul
Au
gSe
pO
ctN
ov
De
cJa
nFe
bM
arA
pr
May Jun
Jul
2019 2020 2021 target range
2020: 3.12021: 3.1
Jan. 2016 to Feb. 2018: 2006=100Mar. 2018 to Jul. 2019: 2012=100
2019: 2.8
Manageable External Payments Position
Balance of Payments
Balance of Payments Components – Quarterly (USD bn)
Source: BSP
1.0
-7.0
-5.0
-3.0
-1.0
1.0
3.0
5.0
7.0
9.0
11.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Q2
Capital and Fin'l Account Current Account Balance of Payments
9.4 8.7
1.3 2.1
4.7 6.4
2010 2011 2012 2013 2014 2015 2016 2017 2018
Remittances Tourism receipts BPO revenues
1.1
9.8
5.8
3.6
2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-Jun 2018p/
Jan-Jun 2019p/
Structural Sources of Foreign Exchange
OF remittances, BPO revenues and tourism receipts enjoy sustained growth over the years
Overseas Filipinos' (OF) cash remittances, Tourism Receipts, and Business Process Outsourcing (BPO) Revenues (as % of GDP)
*BOP ConceptSource: BSP
Foreign Direct Investment inflows remain resilient
Net Foreign Direct Investment (FDI) Flows* (USD bn)
18.5
86.0
4.6
7.5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 end-Aug2019
International reserves Import cover
Solid Buffers Against External Headwinds
Ample level of reserves
International reserves (USD bn) and months of import cover
Source: BSP
61.6
81.3
59.7
23.8
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q2 2019/p
External Debt External Debt Ratio
Solid Buffers Against External Headwinds
Low external debt burden underscores the health of external finances
External debt (USD bn) and external debt/GDP (%)
Source: BSP
2,195
9,3264.4
1.6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jul-19
Total Loans Outstanding (in PHP bn) NPL, Gross ratio (in %)
16.715.3
17.615.9
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jun-19
Solo basis Consolidated basis
BSP Regulatory Requirement: 10%
International Standard: 8%
Sound and Stable Banking System an Anchor for Greater Economic Activity
Strong capitalization well above international norms
Capital Adequacy Ratio (%) of U/KBs
Improving quality of loan portfolio
Total Loans Outstanding (PHP bn) and NPL ratio (%) of U/KBs
Sound and Stable Banking System an Anchor for Greater Economic Activity
Credit is channeled towards productive sectors
Outstanding Loans of U/KBs
SectorsJul 2019(PHP bn)
Share to Total(Net of RRPs,%)
Growth (%)
Loans to Productive Sector 7,537.0 87.6 9.8
Real Estate Activities 1,544.6 18.0 18.1
Wholesale and Retail Trade, Repair of Motor Vehicles, Motorcycles 1,123.1 13.1 4.5
Manufacturing 1,041.5 12.1 1.6
Electricity, Gas, Steam and Air-Conditioning Supply 971.7 11.3 13.8
Financial and Insurance Activities 834.3 9.7 19.1
Construction 338.0 3.9 38.2
Information and Communication 321.2 3.7 6.2
Transportation and Storage 271.9 3.2 7.5
Agriculture, Forestry and Fishing 196.5 2.3 13.6
Others 894.1 10.4 (3.6)
Loans to Household Consumption 756.8 8.8 23.0
Loans to Residents 8,293.8 96.4 10.9
Loans to Non-Residents 311.1 3.6 15.4
Total Loans to Residents and Non-Residents 8,604.9 100.0 11.1
Investment Grade
March 2013: Upgraded to BBB - / StableResilient economy, improvements in fiscal management,weak governance standards
June 2011: Upgraded to BB+ / StableProgress in fiscal consolidation and a track record of macro stability and favourable prospects
July 2012: Upgraded to BB+ / StableIncreasing fiscal flexibility, signs of improving growth prospects
May 2013: Upgraded to BBB- / StableStrengthening external profile, moderating inflation, and declining reliance on foreign currency debt
May 2014: Upgraded to BBB / Stable
Medium-term longevity of fiscal and
growth gains achieved through a broad
range of reforms
October 2012: Upgraded to Ba1 / StableFiscal revenue buoyancy despite deteriorating global demand, enhanced growth prospects and stable financial system
October 2013: Upgraded to Baa3 / PositiveSustainability of economic performance, ongoing fiscal and debt consolidation and improved governance
December 2014: Upgraded to Baa2 / StableOngoing debt reduction, aided by improvements in fiscal management and continued favourable prospects for strong economic growth
Fitch
Moody’s
S&P
Source: S&P, Fitch, Moody’s
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
A-
BBB+
BBB
BBB-
BB+
BB
BB-
December 2017: Upgraded to BBB / StableStrong and consistent macroeconomic performance, underpinned by sound policies supporting high and sustainable growth rates
April 2019: Upgraded to BBB+/StableStrong economic growth trajectory, solid government fiscal accounts, low public indebtedness, and sound external settings
Rating Upgrades Reflect Stronger Fundamentals and Institutions
National Retail Payment System
50 participating institutions
39 participating institutions
BSP’s Continued Pursuit of Strategic Reforms Underpin Stability of the Banking System
Inclusive FinanceLeverage on Technology Capital Market Reforms
Growth Momentum to be Sustained
2018 Actual2019 2020 2021 2022
Projections1/
Real GDP Growth (%) 6.2 6.0-7.0 6.5-7.5 7.0-8.0 7.0-8.0
Fiscal Deficit (% of GDP) 3.2 3.2 3.2 3.2 3.2
Inflation (%, average) 5.2 2.7-3.5 2.0-4.0 2.0-4.0 2.0-4.0
Dubai Crude Oil (USD/bbl) 69.4 60-75 60-75 60-75 60-75
Exchange Rate (PHP/USD) 52.7 51-53 51-55 51-55 51-55
364-Day T-bill Rate (%) 5.1 5.5-6.5 5.0-6.0 5.0-6.0 5.0-6.0
Balance of Payments (USD, bn) 2/ -2.3 3.7 N/A N/A N/A
Current Account (USD, bn) 2/
% of GDP-8.7-2.6
-10.1-2.8
-11.6-2.9
N/A N/A
OF Cash Remittances (USD, bn) 2/
% growth28.93.1
29.83.0
N/A N/A N/A
Merchandise Exports (% growth)Per BPM6
0.3 2.0 6.0 6.0 6.0
Merchandise Imports (% growth)Per BPM6
11.9 7.0 8.0 8.0 8.0
Gross International Reserves (USD, bn) 2/ 79.2 83.0 84.0 N/A N/A
Sources: 1/ DBM – 176th Development Budget DBCC Approved Macroeconomic Assumptions approved on 18 July 2019 2/ Assumption approved by the MB 13 June 2019NA: Not Available p/: preliminary
17
Impact of US Fed rate adjustments
Infrastructure gaps
Ratcheting up of trade tensions
Global economic slowdown
Disruptive technologies
Extreme weather events
Policy uncertainty and geopolitical tensions (e.g. US-Iran, Brexit,
etc.)
Risks and Challenges
The Philippine economy is expected to remain one of the fastest-growing economies in the region and in the world.
The government is committed to its infrastructure and reform agenda,which will support high, inclusive and sustainable growth
The Philippine economy has built domestic sources of resilience tohelp cushion against external and domestic challenges. The BSP willcontinue to maintain sufficient buffers to shield the economy fromadverse shocks.
Key Takeaways
The BSP will continue to enhance our stress tests, early warning tools,and micro and macroprudential policies to ensure that the financialsystem remains innovative, stable, and supportive of economic growth.
The BSP will to continue to undertake bold and purposeful reforms tomake the financial system more efficient, dynamic, and truly inclusive.
The BSP will remain committed to its core mandate of price stability, andstands ready to use any of its monetary tools, if and when necessary, tomanage inflation.
The BSP shall stay on track and carry out the objectives of its othermandates of financial stability, and efficient payments and settlementssystem.
Key Takeaways