macroeconomic projections of the philippines - un escap · ng pilipinas office of the president...
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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
Executive Technical Board
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
Initial Framework for Macroeconomic Projections or Targets
Executive Technical Board
Medium Term Fiscal Program is set at the ETB Level
Medium Term Fiscal ProgramINPUT
Inputs
BSP•Inflation•Interest Rate• FOREX•Trade on Goods•Dubai Crude Oil•Gross International Reserves•OFW Remittances
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
Initial Framework for Macroeconomic Projections or Targets
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
BSP•Inflation•Interest Rate• FOREX•Trade on Goods•Dubai Crude Oil•Gross International Reserves•OFW Remittances
PROJECTIONS
NEDA
Projected GDPn
•PDP•Latest Macroeconomic Parameters•Latest Medium Term Expenditure
Program
Annual Path Model
Annual Budget Setting for the Next Fiscal Year
Executive Technical Board
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
Executive Technical Board
Adjusted Expenditure Program
DOF determines:• the Borrowing /Financing Compositionand Debt Sustainability
•New Measures•AdministrativeImprovements
Annual Budget Setting for the Next Fiscal Year
Adjusted Expenditure ProgramINPUT
Inputs
BSP•Inflation•Interest Rate• FOREX•Trade on Goods•Dubai Crude Oil•Gross International Reserves•OFW Remittances
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
Annual Budget Setting for the Next Fiscal Year
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.
NEDA’s Annual Path
• 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.
NEDA’s 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
Maraming Salamat !!