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The 2014 Budget: Macroeconomic Assumptions and Growth Targets

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Presentation of Sec. Arsenio M. Balisacan during the DBCC Briefing for the House Committee on Appropriations on August 07, 2013

Presentation of Sec. Arsenio M. Balisacan during the DBCC Briefing for the House Committee on Appropriations on August 07, 2013

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  • 1. The 2014 Budget MACROECONOMIC ASSUMPTIONS AND GROWTH TARGETS Arsenio M. Balisacan Secretary of Socioeconomic Planning DBCC Hearing with Congress 7 August 2013
  • 2. I. Recent Economic Performance II. The Development Challenge III. Macro Assumptions IV. Strategies to Sustain Growth V. Risks and Opportunities Outline
  • 3. Plan Targets Halve the proportion of people who suffer from hunger Achieve universal primary education Reduce by 2/3 under-5 mortality rate Reduce by 3 quarters the maternal mortality ratio Eliminate gender disparity Halt spread of HIV & AIDS Halve the proportion of people without sustainable access to safe drinking water & basic sanitation 6.8-7.2% Unemployment Rate 7.0% (2012) 7.3% (ave. of LFS’ 2013 Jan & Apr round) Unemployment rate 27.9% (S1 2012) 28.6% (S1 2009) Poverty Rate Where are we now? 3 6.8% (2012) 7.8% (Q1 2013) GDP Growth 20.3% (2012) 23.0% (Q1 2013) Fixed Capital as ratio to GDP We are on track with respect to our economic targets; the present challenge is to improve the social indicators.
  • 4. 2012 2013 Q1 By Industrial Origin Share to GDP Growth Rate Share to GDP Growth Rate Agri, Fishery, Forestry and Hunting 11.1 2.8 11.1 3.3 Industry 32.0 6.8 33.2 10.9 Of which: Manufacturing 22.1 5.4 23.4 9.7 Services 56.9 7.6 55.7 7.0 By Expenditure Household Final Consumption 70.4 6.6 68.0 5.1 Gov’t Final Consumption 10.3 12.2 11.5 13.2 Capital Formation 18.5 -3.2 20.0 47.7 Of which: Fixed Capital 20.3 10.4 23.0 16.8 of which: Public Construction 1.8 29.8 1.9 45.6 Private Construction 6.4 11.5 6.8 30.7 Durable Equipment 10.0 8.0 12.0 9.4 Changes in Inventory (1.8) (333.8) (2.9) 51.9 Exports 48.4 8.9 44.7 (7.0) Imports 47.6 5.3 44.5 1.6 Source: NSCB Recently, the Philippine economy grew robustly.
  • 5. Source: Bangko Sentral ng Pilipinas 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 2005 2006 2007 2008 2009 2010 2011 2012 2013* Headline Inflation Low Target High Target * Jan - June 2013 only inpercent Inflation Sound macroeconomic fundamentals supported this remarkable performance. Inflation has been within target since 2010
  • 6. * As of Q1 -4 -3.5 -3 -2.5 -2 -1.5 -1 -0.5 0 0 10 20 30 40 50 60 70 80 2005 2006 2007 2008 2009 2010 2011 2012 2013* NG Debt to GDP, LHS Fiscal Balance to GDP, RHS Fiscal position is sustainable.
  • 7. 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 2005 2006 2007 2008 2009 2010 2011 2012 NPL Ratio, LHS Real interest rates, RHS CAR, RHS Financial System remains stable.
  • 8. - 1.0 2.0 3.0 4.0 5.0 6.0 0.0 10.0 20.0 30.0 40.0 50.0 60.0 2005 2006 2007 2008 2009 2010 2011 2012 2013* External Debt to GDP ratio, rhs Current Account to GDP ratio**, lhs 0 2 4 6 8 10 12 14 - 20.0 40.0 60.0 80.0 100.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*** GIR (lhs, US$bn) months worth of imports (rhs) Short term external debt cover** (rhs) inbillion US$ US$81.3 bn 11.8 5.9 Source: Bangko Sentral ng Pilipinas * As of March 2013; ** Figures for 2012 and 2013 are based on BPM6 compilation; ***As of June 2013 External position remains favorable.
  • 9. Indicator Ave 2010 Ave 2012 Ave 2012 (Jan & Apr) Ave 2013 (Jan & Apr) Labor Force Level (‘000) 38,893 40,432 40,435 40,870 Employment Level (‘000) 36,035 37,607 37,587 37,880 Wage and salary workers (% share to total employment) 54.5 56.8 55.5 58.8 Unemployment Level (‘000) 2,859 2,825 2,848 2,990 Unemployment Rate (%) 7.3 7.0 7.0 7.3 Underemployment Level (‘000) 6,762 7,509 7,165 7,593 Underemployment Rate (%) 18.8 20.0 19.1 20.0 Source: Labor Force Survey, National Statistics Office 9 But employment creation remains a big challenge.
  • 10. • Good governance has proven to be an effective platform upon which strategies should be implemented. • Macroeconomic (fiscal, financial, external) and political stability fuels positive expectations that lead to growth. • Economic growth is necessary but not sufficient for poverty reduction. • Growth strategies need to have spatial and sectoral dimensions to ensure inclusivity. • Disasters can negate the gains and even push back development. 10 Lessons Learned: Midterm Assessment of PDP 2011-2016
  • 11. POSITIVE ACTION with Spatial and Sectoral Dimensions (e.g., economic and social programs) Boost competitiveness Improve access to financing Macroeconomic Stability (fiscal, monetary, external, financial) Science, technology , innovation Education and skill set of the workforce Infrastructure Investments Rapid and sustained growth jobs Market demand INCLUSIVE GROWTH (MASSIVE EMPLOYMENT CREATION, REDUCED POVERTY)Good Governance (Property Rights, Regulatory Efficiency, Alignment of policies) National Security, and Ecological Integrity 11 Hence we need to do more to attain inclusive growth...
  • 12. Guiding Principles in updating the PDP • Efficiency (catalytic; government intervention facilitates and not substitutes for private action) • Equity (broadening opportunities through connectivity, human capital investments) • Feasibility (doable within the Plan period)
  • 13. • Government budget that – Facilitates massive employment generation – Helps to significantly reduce poverty • Positive action with – Sectoral dimension – Spatial dimension The proposed 2014 budget will help us move towards inclusive growth...
  • 14. 2012 Actual 2013 YTD 2013 2014 Inflation (2006-based): Target 3.2 2.9 (Jan-Jun) 3.0-5.0 3.0-5.0 Dubai crude oil (US$/bbl) 109.1 104.20 (2 Jan-17 Jul) 90-110 90-110 Exchange Rate (Php/US) 42.2 41.55 (2 Jan – 24 Jul) 41-43 41-43 364-Tbill rate (%) 2.0 0.7 (Jan- Jun) 1.0-3.0 2.0-4.0 LIBOR, 6 mos. (%) 0.7 0.45 (2 Jan-25 Jun) 0.5-1.5 0.5-1.5 Merch Exports : Nom (US$ bn) Growth (%) 46.3 20.9 11.2 7.9 (Jan-Mar) 51.4 11.1 58.6 14.0 Services Exports: Nom (US$ bn) Growth (%) 18.6 4.2 5.1 6.3 (Jan-Mar) 21.6 16.3 25.1 15.9 Merch Imports : Nom (US$ bn) Growth (%) 61.5 11.3 13.9 -8.2 (Jan-Mar) 69.5 13.0 79.2 14.0 Services Imports: Nom (US$ bn) Growth (%) 14.7 16.9 3.3 0.5 (Jan-Mar) 17.2 17.1 20.2 17.2 Monetary and External Assumptions for 2013-2014
  • 15. 2012 2013 Q1 2013 2014 Actual Actual Assumption Assumption GDP 6.8 7.8 6.0-7.0 6.5-7.5 Agriculture 2.8 3.3 3.5-4.5 3.2-4.2 Industry 6.8 10.9 6.4-7.5 7.4-8.5 Services 7.6 7.0 6.3-7.3 6.7-7.6 Source: NEDA as approved in the DBCC We assume that growth will continue in 2013 and beyond.
  • 16.  Strong performance of agri-based manufacturing, and recovery of semiconductor and electronics  Robust public and private construction projects  Buoyant domestic and local tourism  Continued strong growth of wholesale and retail trade  Real estate particularly housing  Greater productivity in agriculture and rebound of the fisheries subsector Growth Drivers - Production
  • 17.  Higher public construction and investments in power generation  Robust private investment in construction and durable equipment  Strong household consumption due to better employment opportunities, strong remittance inflows, and low and stable inflation  Increased tourist arrivals and more demand for business process management  Improvement of external trade conditions Growth Drivers - Expenditures
  • 18. • Infrastructure development focusing on connectivity between regions/provinces, esp. transport and power • New growth drivers outside NCR(agri/agribusiness, tourism, IT/BPM in next wave cities, public housing, manufacturing, infra/logistics) • Completion of asset reform, particularly individual titling of lands under CARP/CARPer • Investment in human capital to improve the competitiveness/ productivity of current and future stock of the labor force • Provision of social protection against income and employment shocks for the most vulnerable • Improved resilience to natural disasters The budget will support positive actions with sectoral and spatial dimensions.
  • 19.  Possible spike in commodity prices (e.g. petroleum, agricultural products)  Weather disturbances (e.g., El Nino and typhoons)  Delays in the implementation of infrastructure development projects, particularly power  Excessive capital inflows /outflows  Uncertainty in the Euro area  Fiscal risks in US and Japan  Further economic slowdown in BRIC, particularly China We also remain vigilant against the following near-term global and domestic risks to growth...
  • 20. Improvement in the global economic environment Sustained growth in emerging markets Improvement in demographic conditions  Increasing income, continued growth in population, rising middle income class *Luncintel, Global Industrial Application Paper Industry 2012-2017: Trend, Profit, and Forecast Analysis More financial resources available Fiscal space Investment grade credit rating Increased integration of the ASEAN Economic Community  Well integrated ASEAN financial system …while taking advantage of opportunities
  • 21. MACROECONOMIC ASSUMPTIONS AND GROWTH TARGETS Arsenio M. Balisacan Socioeconomic Planning Secretary DBCC Hearing with Congress 7 August 2013