macroeconomic projections of the philippines - … macroeconomic... · • overview of the...

Macroeconomic Projections of the Philippines

Ira C. CamaraoDepartment of Finance

UNESCAP, Bangkok, Thailand

December 8 ‐10, 2015

• Overview of the Philippine Development Plan

•Initial Framework of Macroeconomic Projections

•Proposal of Next Year’s Annual Budget

•Methodologies

•Moving Forward

Structure

National Economic Development Authority(NEDA) Board implements a Medium TermDevelopment Plan (MTDP) during the ArroyoAdministration(2004‐2010) and now currentlyknown as Philippine Development Plan (PDP)under the Aquino Administration (sustainable andinclusive growth through institutions and human capital)

• Identifies and sets the goals (economic and social development and growth) of the country

• Six year plan•Annually Reviewed

Philippine Development Plan

Chairperson: President of the PhilippinesVice‐Chairperson: NEDA (Socioeconomic Planning) Secretary

Members:Secretary of Budget and Management, Secretary of Interior and Local Government Secretary of FinanceSecretary of AgricultureSecretary of Public Work and HighwaysSecretary of Environment and Natural ResourcesSecretary of Transportation and CommunicationsSecretary of EnergySecretary of Science and TechnologySecretary of Trade and InvestmentSecretary of TourismSecretary of EducationSecretary of HealthSecretary of Labor and EmploymentGovernor or (Deputy Governor) of Bangko Sentral ng PilipinasChairman of the Housing and Urban Development Coordinating Council (Vice President)Chairman of Metro Manila and Development AuthorityGovernor of Autonomous Region for Muslim MindanaoPresident of the Local Authorities of the PhilippinesChairperson of the Mindanao AuthorityOffice of the President

•Presidential Communications Development and Strategic Planning Office•Cabinet Secretary•Presidential Management Staff

Composition of the NEDA Board

Crafting of the PDP•NEDA initially identifies and sets the socioeconomicplan

•Asks the different ministries to formulate roadmaps inachieving this goals.

•Different Ministries are then clustered or grouped•Development Budget Coordination Committee (DBCC)• Infrastructure Committee (Infra Comm)• Investment Coordination Committee (ICC)•Social Development Committee (SDC)•Committee on Tariff Related Matters (CTRM)•Regional Development Committee (RD Comm)•National Land Use Committee (NLUC)

Approval PDP by the NEDA BoardPublication of PDP

1. In Pursuit of Inclusive Growth2. Macroeconomic Policy3. Competitive Industry and Services Sector4. Competitive Agriculture and Fisheries Sector5. Accelerating Infrastructure Development 6. Towards a Resilient and Inclusive Financial Sector 7. Good Governance and the Rule of Law8. Social Development9. Peace and Security10.Conservation, Protection, and Rehabilitation of the Environment and Natural Resources

Contents of the PDP

Development Budget Coordination Committee (DBCC)

CHAIRPrepares the

expenditure program of the National Government

DEPT. OF BUDGET & MANAGEMENT

VICE-CHAIRFormulates the

revenue program, the borrowing program, and estimates the

consolidated public sector financial

position

DEPT. OF FINANCE

MEMBERDetermines the initial framework of the national

income accounts and estimates GNP and GDP

NATIONAL ECONOMIC & DEVELOPMENT

AUTHORITY RESOURCE INSTITUTION

Provides projections on foreign exchange

rate, and trade statistics (imports and

exports) , crude oil prices and inflation

BANGKO SENTRAL NG PILIPINAS

OFFICE OF THE PRESIDENTMEMBEROversight

Executive Technical Board

Initial Framework for Macroeconomic Projections

Inputs

BSP•Inflation•Interest Rate• FOREX•Trade on Goods•Dubai Crude Oil•Gross International Reserves•OFW Remittances

PROJECTIONS

NEDAEstimated Initial Macroeconomic Parameters

(GDP )

Approved PDP

Annual Path Model

Initial Framework for Macroeconomic Projections or Targets


Estimated Initial GDP

DOFProjects the revenue

program

•Tax Revenues•Income •Goods and Services

•Non‐Tax Revenue•Fees and Charges•BTr Income•Proceeds from Privatization

DBMProjects the

disbursement and priority sector

•Debt•Major InfrastructureProjects

•Provisions of basic services

PDP

CONDITIONBudget Deficit target 2%

BSP Projections

DOF determines:• the Borrowing /Financing Compositionand Debt Sustainability

•New Measures•AdministrativeImprovements



Medium Term Fiscal Program is set at the ETB Level

Medium Term Fiscal ProgramINPUT

Inputs


PROJECTIONS

NEDA

•Projections GDP

Annual Path Model

Initial Framework for Macroeconomic Projections

Medium Term Macroeconomic Parameters / Assumptions is set at the

ETB Level

Medium Term Macroeconomic Assumptions

Medium Term Fiscal Program

ETB

Development Budget Coordination Committee (DBCC)

Cabinet

President


Medium Term Fiscal and Expenditure Program

Medium Term Macroeconomic Parameters

Basis of Setting the Annual Budget

Approval of the DBCC, Cabinet and President

Process or Setting the Proposed Annual Budget for

the Next Fiscal Year

Inputs


PROJECTIONS

NEDA

Projected GDPn

•PDP•Latest Macroeconomic Parameters•Latest Medium Term Expenditure

Program

Annual Path Model

Annual Budget Setting for the Next Fiscal Year


Once the GDP growth of last year is released

Projected GDPn

DOFDetermines the revenue program

‐Set the tax target‐Bureau of Internal Revenue (BIR)‐ Bureau of Customs (BOC)

‐ Set the non‐tax target

DBMAdjusts the

expenditure program to align to DBCC’s target deficit

•Debt•Major InfrastructureProjects

•Provisions of basic services

PDP, Budget Submission of the Different Ministries

CONDITIONBudget Deficit target 2%

Revised Revenue Program

BSP Projections


Adjusted Expenditure Program

DOF determines:• the Borrowing /Financing Compositionand Debt Sustainability

•New Measures•AdministrativeImprovements


Adjusted Expenditure ProgramINPUT

Inputs


PROJECTIONS

NEDA

•Projections GDP

Annual Path Model

Proposed Annual Budget

Submission to Congress

DBCC conducts consistency checks

If Projected GDPn causes no further adjustments in the

fiscal (revenue and expenditure) program


President’s Approval

Methodologies

NEDA’s Annual Path

• Is a static model in Excel format that uses the elasticities from theNEDA Quarterly Macroeconometric Model in its equations. Thismodel has been in use since mid‐1990s and has been adjustedover the years.

• In generating the projections or targets, the model also needsindicator projections as inputs. These include medium termmacroeconomic assumptions particularly inflation, exchangerate, Dubai crude oil price, exports, imports, and OF remittancesas well as medium term expenditure program.


• It is also used in generating the annual projections for growth ofboth production and demand side components of the NationalIncome Accounts.

Note: While this model serves as the main tool for estimatinggrowth projections, NEDA also does preliminary forecastingusing non‐structural (e.g. ARIMA forecasting) and structural(Quarterly Growth Indicator System) methodologies. Theresults from these other methodologies serve as guide inrefining the NEDA Annual Path.


• GDP is basically computed from the supply side, but changes inthe demand side also affect the sub‐sectors in production, viaprivate consumption expenditures; government consumption;public and private construction, breeding stocks, changes instocks and exports of goods and services.

• The NEDA Annual Path basic projection is in Peso and real terms.Thus, these determinants are converted into local currency (ifnot in Peso) and adjusted for inflation (based on BSP’s forecast).

GDP = Agriculture + Industry + ServicesGNP = GDP + Net Factor Income from AbroadGDP is Gross Domestic ProductGNP is Gross National Product

Sector DeterminantsSupply SideAgriculture Forecast of the Department of Agriculture and impact of

changes in Dubai crude oil pricesIndustry Sum of its subsectors

Mining and Quarrying Outlook for the subsectorManufacturing Domestic demand elasticity and exports elasticityConstruction Elasticity for both public and private construction (demand

side)Electricity, Gas, and Water Elasticity of oil prices

Services Sum of its subsectorsTransportation, Communication and

StorageElasticity of oil prices and outlook for the subsector

Trade Elasticity of oil prices and outlook for the subsectorFinance Outlook for the subsectorOwnership of Dwellings and Real Estate Elasticity of oil prices, inflation, and outlook for the

subsectorPrivate Services Elasticity of oil prices, inflation, and outlook for the

subsectorGovernment Services Expenditures on Personal Services and Allocation to Local

Government Units from the DBM Expenditure Program

Net Factor Income from Abroad Outlook for OFW deployment, overseas Filipino remittances, exchange rate

Determinants of the NEDA’s Annual Path

Expenditure Item DeterminantsDemand SidePrivate Consumption Expenditures (PCE) Growth in Agriculture, growth in total construction, inflow

of compensation (OFW), inflation rate, oil pricesGovernment Consumption Total Current Operating Expenditures net of interest

payments and subsidy from the DBM Expenditure ProgramGross Domestic Capital Formation (or Investments)

Sum of its subitems

Public Construction Infrastructure and other Capital Outlays from the DBM Expenditure Program

Private Construction Elasticity of oil prices on industryDurable Equipment Elasticity of oil prices on industryBreeding Stocks Outlook for the expenditure itemChanges in stocks Outlook for the expenditure item

Exports Sum of its subitemsGoods BSP projections on Merchandise Exports (BOP concept)

Services Outlook for the expenditure itemImports Sum of its subitems

Goods BSP projections on Merchandise Imports (BOP concept)

Services Outlook for the expenditure item

Net Factor Income from Abroad Outlook for OFW deployment, overseas Filipino remittances, exchange rate

Determinants of the NEDA’s Annual Path

NEDA’s Annual PathModel Limitations•GNP and GDP can only be computed from the supply side. This explains why NEDA is onlyreleasing the supply side projections for the Development Budget Coordination Committee(DBCC)’s internal use. NEDA is not that confident with its demand side projections (another factoris statistical discrepancy which is impossible to project).

•The specialists adjust the results based on other hard indicators that do not enter the models.

•The specialists adjust the results based on his/her own evaluation of the sectors (i.e. from newclippings, government program, etc.)

•The DBCC and Executive Technical Board principals also give instruction for adjustments, based ontheir judgment.

General Sources of Forecast Errors•Data revisions•Sudden, unanticipated shocks•Forecasting technique

Latest updatesGiven the release of the 2000‐based/revised National Income Accounts, NEDA estimated 2000‐based economic growth assumptions for the medium‐term and was submitted to the DBCCSecretariat on June 23, 2011 for review by the principals. Due to time limitations however, the2000‐based projection still used elasticities in the annual path that were derived from 1985‐basedhistorical data.

DOF’s Revenue Program

• Projects Tax Revenue program by major collecting agency (BIR,BOC) and by type of tax using the approved macroeconomicassumptions.

• Revenue Programming by type of tax of BIR:Analyze the tax effort trend (starting 1986 historical series)Revenue projections by type of tax thru elasticity approach:

• GDPn is used a as proxy to the tax base

Corporate and Individual Income Taxes, Gross Receipts Tax,Documentary Stamp Taxes, and other percentage taxes

VAT forecast also uses elasticity, but GDPn is adjusteddownwards for non‐agricultural exports (VAT‐ 0% rate)

Percent change in tax revenue(Under an unchanged tax system) Elasticity of tax revenue =Percentage change in the tax base

DOF’s Revenue Program

Projections for Excise Tax use the actual volume ofremovals of each major excise product (alcohol,tobacco, petroleum products and miscellaneousitems). The actual volume of removals * GDPr growth *excise tax rate.

•Revenue Programming for BOC:•Import growth, Exchange Rate, Tariff rate and dutiablevalue of imports

• Non‐Tax Revenues is managed by the Bureau of Treasury.

Other DBCC Offices

DBM’s Expenditure Program is based on trend and accounting analysis

BSP•Monetary Policy Framework

•Inflation Targeting•Macro‐prudential tools

Moving forward

NEDA conducted:

1. A multi‐sectoral workshop on SDG Indicators last October withthe following objectives:

•Examine whether the initial list of indicators are relevant tothe Philippines

•Identify indicators which are not included in the list but aredeemed to be relevant and crucial for program planning inthe Phil and achieving the SDG targets

• Assess whether data on the indicators are available fromexisting data sources

•Prioritize the indicators that should be part of the coreindicators to be monitored by the Philippines.

Moving forward

2. An inter‐agency capacity building for the National Government toformulate a long‐term development plan or vision (Philippines 2040) tofacilitate the country’s attainment of sustainable development. This willserve as guide for the formulation of Medium and Short Term Plans.

This formulation is through training of the capacity building in developingthe Threshold 21 model for the Philippines. This training was conducted byDr. Qu of the Millennium Institute. He trained Philippine technical team onbasic skills on using vensim software and running the T21 model andsimulating long‐term scenarios. The team has also validated datarequirements and initial parameters of the model to enhancecustomization of the model according to country’s development context.

First Phase: August 2015Second Phase: last week of October to 1st Week of Nov.Third Phase: January 2016

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