PROSPECTS FOR THE PHILIPPINE ECONOMY 2017

Bernardo M. Villegas, Ph.D. (Harvard)University Professor, UA&P

THE GLOBAL SCENARIO• U.S. Economy facing a Possible Recession• EU, except Spain, growing very slowly• BREXIT will aggravate EU problems• Japan in perpetual stagnation• China slowing down: possible hard landing• Emerging markets, especially Russia and Brazil, facing heavy debt burdens• The ASEAN Economic Community (AEC) assuming growth leadership

together with India and Sri Lanka• Continuing turmoil in the Middle East and North Africa• Oil prices recovering but ceiling of US$50-$60 dollar per barrel • Moderate depreciation of Philippine peso• Demographic winter of developed countries, including Northeast Asia

ENGINES OF GROWTH FOR THE PHILIPPINE ECONOMY

Young Population BPO Industry Infrastructure Domestic Tourism OFWs

Public-Private Partnerships

Agriculture Manufacturing

2017 – 2022

President Rodrigo Duterte’s10-Point Socioeconomic Agenda

1. Continue and maintain current macroeconomic policies, including fiscal, monetary, and trade policies.

2. Institute progressive tax reform and more effective tax collection, indexing taxes to inflation.

3. Increase competitiveness and the ease of doing business.4. Accelerate annual infrastructure spending to account for 5% of

GDP, with Public-Private Partnerships playing a key role.5. Promote rural and value chain development toward increasing

agricultural and rural enterprise productivity and rural tourism.

6. Ensure security of land tenure to encourage investments, and address bottlenecks in land management and titling agencies.

7. Invest in human capital development, including health and education systems, and match skills and training.

8. Promote science, technology, and the creative arts to enhance innovation and creative capacity.

9. Improve social protection programs, including the government's Conditional Cash Transfer program.

10. Strengthen implementation of the Responsible Parenthood and Reproductive Health Law.

President Rodrigo Duterte’s10-Point Socioeconomic Agenda

ASEAN Foreign Direct Investment net inflows

Country 2013 2014 2015 Share to total2015

Brunei Darussalam 725.5 568.2 171.3 0.1 Cambodia 1,274.9 1,726.5 1,701.0 1.4 Indonesia 18,443.8 21,810.4 16,916.8 14.0 Lao PDR 426.7 913.2 1,079.2 0.9 Malaysia 12,297.4 10,875.3 11,289.6 9.3 Myanmar 2,620.9 946.2 2,824.5 2.3 Philippines 3,859.8 5,814.6 5,724.2 4.7 Singapore 60,379.6 74,420.3 61,284.8 50.7 Thailand 15,936.0 3,720.2 8,027.5 6.6 Viet Nam 8,900.0 9,200.1 11,800.0 9.8

Total 124,864.5 129,995.1 120,818.8 100.0ASEAN 6 111,642.0 117,209.0 103,414.2 85.6CLMV 13,222.5 12,786.1 17,404.6 14.4ASEAN 6 consists of Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand, while CLMV comprises Cambodia, Lao PDR, Myanmar and Viet Nam.Source: ASEAN Secretariat as of October 2016

Value in US$ million; share to total in percent

FIRST METRO INVESTMENT CORPORATION | www.firstmetro.com.ph7

FDI ON UPTREND

2,007.2

3,215.43,737.4

5,739.6 5,835.3

4,689.0

5,875.0

-

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

2011 2012 2013 2014 2015 9M2016 9M2016

Mill

ions

Net FDI (US$)

Source: Bangko Sentral ng Pilipinas (BSP)As cited in the Annual Economic and Capital Markets Briefing of First Metro Investment Corporation titled Riding the Wings of Change, January 5, 2017

FIRST METRO INVESTMENT CORPORATION | www.firstmetro.com.ph

WIDE FISCAL SPACE TO SUPPORT EXPANSION

0.9

-2.1

1.8

7.8

0.71.8

-0.2

2.3

-1.0-2.6

-3.4-2.3

-4.5-2.8

-4.2-3.3

(6.0)

(4.0)

(2.0)

-

2.0

4.0

6.0

8.0

10.0

Philippines Indonesia Malaysia Thailand Vietnam ASEAN BRICS PIGGS

Current Account balance (% of GDP) Budget deficit (% of GDP)

COUNTRYBLOCK

AVERAGES

In %

Sources: World Bank Open Data, The Economist Economic and Financial Indicators

As cited in the Annual Economic and Capital Markets Briefing of First Metro Investment Corporation titled Riding the Wings of Change, January 5, 2017

FIRST METRO INVESTMENT CORPORATION | www.firstmetro.com.ph

INFRA SPEND: WILL DU30 DELIVER?

Sources: Department of Budget and Management, PSAAs cited in the Annual Economic and Capital Markets Briefing of First Metro Investment Corporation titled Riding the Wings of Change, January 5, 2017

FIRST METRO INVESTMENT CORPORATION | www.firstmetro.com.ph10

SUFFICIENT RESERVES TO WEATHER FOREX VOLATILITY

9.9x

6.5x5.5x

7.4x

1.9x

6.2x

11.4x

1.6x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

Philippines Indonesia Malaysia Thailand Vietnam ASEAN BRICS PIGGS

Total reserves/monthly total imports

Sources: World Bank, International Debt Statistics 2017As cited in the Annual Economic and Capital Markets Briefing of First Metro Investment Corporation titled Riding the Wings of Change, January 5, 2017

FIRST METRO INVESTMENT CORPORATION | www.firstmetro.com.ph11

LOWEST EXTERNAL DEBT TO GNI IN THE REGION

22.0

37.0

66.3

35.2

42.5 40.6

29.9

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Philippines Indonesia Malaysia Thailand Vietnam ASEAN BRICS

In %

Sources: World Bank, International Debt Statistics 2017As cited in the Annual Economic and Capital Markets Briefing of First Metro Investment Corporation titled Riding the Wings of Change, January 5, 2017

Macroeconomic Forecasts

2014 2015 2016 2017f

Inflation Rate (Ave % change) 4.1 1.4 1.6 3.5

Peso-Dollar Rate (Year-end) 44.62 46.75 49.81 50.00 - 52.00Gross Int'l Reserves ($B) 79.6 82.5 81.5 90.0GDP Growth Rate 6.1 5.9 7.1 (3rd Qtr.) 7.5

Industry Sector 7.9 5.6 8.6 9.2Services Sector 5.9 6.4 6.9 7.3

f-forecasts*Various Sources

Financial Forecasts

2014 2015 2016 2017f

Inflation Rate (Ave % change) 4.1 1.4 1.6 3.5Peso-Dollar Rate (Year-end) 44.62 46.75 49.81 50.00 – 52.00

91 day T-bill rate (% p.a.) 1.4 2.1 1.6 3.5

10-year T-bond rate (% p.a.) 3.7 3.8 3.5 5.0

PSEi Level 7,230 7,400 6,841 8,000f-forecasts*Various Sources

Agribusiness Business Process Outsourcing Creative Industries Infrastructures (Airports, Power, Roads and Rail, Seaports, Telecoms,

Water) Manufacturing and Logistics Mining Tourism, Medical Travel and Retirement

Source: Arangkada Philippines 2010: A Business Perspective, Joint Foreign Chambers

Seven Key Industries

THANK YOU.