TESDA Financing Options Prof. B. Diokno

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Slide of Prof. Benjamin Diokno during the 8th HRSD Mindanao conference in Zamboanga City. August 13-15, 2009

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  • ‘ The global economic crisis will be with us for a generation, not just a year or two, because it is really a transition to sustainability.’ This is according to Jeffrey Sachs, professor of economics and director of the Earth Institute of Columbia University.
  • The next few slides are meant to show that the economic slowdown in the Philippines is broad-based. In the short-run it is also elections-based.
  • As of June 2009, the consensus forecast is that the Philippine economy will grow by about 0.4% -- much less than its revised target of 0.8% to 1.8%
  • When Mrs. Aquino took power in 1986, the tax-to-GDP ratio was in the neighborhood of 11%. The tax effort has improved after the 1986 tax reform program. Th risk, however, is that the next President may be facing what Mrs. Aquino faced in 1986.
  • Unemployment, poverty incidence, and hunger are interrelated in the absence of a strong social protection program. According to SWS survey results, hunger tends to grow as unemployment rises. The most recent survey results show that one of 4 households have experienced hunger. This phenomenon appears unacceptable for an economy that is supposed to be growing rapidly.
  • Finally, what are some of the reforms that need to be addressed by the next government?
  • Finally, what are some of the reforms that need to be addressed by the next government?
  • TESDA Financing Options Prof. B. Diokno

    1. 1. TESDA Financing Options Benjamin E. Diokno DioknoIEJAP Economic Update
    2. 2. Long-term impact of the global economic crisis DioknoIEJAP Economic Update
    3. 3. What the next President will inherit <ul><li>A domestic economy that has slowed sharply and a world economy that is facing a slower, new ‘normal’ long-term growth potential. </li></ul><ul><li>A more fragile fiscal house characterized by large deficits, huge public debt, and sputtering tax-to-GDP ratio </li></ul><ul><li>A weaker education system; a public health system that needs radical reform; a dilapidated public infrastructure system </li></ul><ul><li>Higher incidence of poverty, joblessness, and hunger </li></ul>DioknoIEJAP Economic Update
    4. 4. Overview of the Philippine economy <ul><li>The structure of the economy has not changed significantly; the services sector dominates </li></ul><ul><li>The fastest growing sector is the services sector. But the slowdown which started in 2008 is broad-based. In Q1 2009, the industrial sector contracted by 2.1%. </li></ul>DioknoIEJAP Economic Update
    5. 5. Aggregate demand slowed in 2008 and 2009 <ul><li>The economy is consumer-driven; capital formation is low and falling </li></ul><ul><li>Personal consumption plummets, capital formation dives, public construction contracting by 4.4%. The slowdown in 2008 and Q1 2009 was across-the-board </li></ul>DioknoIEJAP Economic Update
    6. 6. Economic growth has slowed sharply DioknoIEJAP Economic Update
    7. 7. Economic Growth: Below Target Except for 2004 and 2007, both election years
    8. 8. 2009 GDP Forecasts Emerging consensus is that the Philippine economy will barely grow by 0.4% DioknoIEJAP Economic Update Institution Growth Rate (%) Revised Growth rate(%) GOP [June 2009 rev] 6.1-7.1 0.8-1.8 ADB 3.5 2.5 World Bank [June 2009] 3.0 -0.5 IMF [June 2009 rev] 2.25 -1.0 Moody’s [April 13 th rev] 3.3 2.0 Fitch [June 2009 rev] 2.5 0.1 S&P [June 2009 rev] 2.2 1.0-1.5 Economist Intel Unit 1.8 -1.9 UBS AG [June 2009 rev.] 1.8 0.5 Standard Chartered 0.7 0.7 Consensus 0.4
    9. 9. Weaker, low-yielding tax system Tax-to-GDP ratio risks reverting to low levels seen during the Marcos final years DioknoIEJAP Economic Update
    10. 10. Fiscal House in Disarray GMA run large deficits from 2001-04; huge deficits have reemerged in recent years Fis DioknoIEJAP Economic Update
    11. 11. High and Rising Public Debt As the world economy recovers, interest rates would rise, leading to higher debt service DioknoIEJAP Economic Update
    12. 12. A ballooning national government debt <ul><ul><li>In 2000, the national government outstanding debt was P2.0 trillion. This soared to P4.2 trillion in December 2008, or by P2.2 trillion during Mrs. Arroyo’s watch. </li></ul></ul><ul><ul><li>The next President will be faced with a monumental national government public debt of P4.5 to P4.8 trillion pesos. Higher debt service means either lower spending for essential public services, or higher taxes, or both. </li></ul></ul>DioknoIEJAP Economic Update
    13. 13. An educational system that requires radical reform <ul><ul><li>Declining enrollment rate </li></ul></ul><ul><ul><li>Falling quality of instruction </li></ul></ul><ul><ul><li>Worsening quality of citizenry </li></ul></ul>DioknoIEJAP Economic Update
    14. 14. School attendance has declined to alarming levels DioknoIEJAP Economic Update
    15. 15. Worsening Unemployment <ul><li>It’s unemployment stupid: the focus of government intervention should be on job creation and job preservation. </li></ul><ul><li>Even before the global economic crisis, the Philippines’ employment situation was in a critical state: in 2007, there were on average, 2.7 million unemployed and 6.8 million underemployed. In addition, about 1.3 million young Filipinos join the labor force every year. </li></ul>DioknoIEJAP Economic Update
    16. 16. It’s unemployment, stupid Diokno I Economic Briefing 071709 Year/Survey Unemployed in thousand Underemply in thousand Unemploymt rate (%) Underemploy rate (%) Jan 2009 2,855 6,238 7.7 18.2 April 2009 2,830 6,622 7.5 18.9 2008(Aver) 2,716 6,574 7.4 19.3 January 2,675 6,368 7.4 18.9 April 2,914 6,625 8.0 19.8 July 2,750 7,275 7.4 21.0 October 2,525 6,028 6.8 17.5 2009(Aver) 2,653 6,757 7.3 20.1 January 2,850 7,214 7.8 21.5 April 2,692 6,378 7.4 21.5 July 2,824 7,327 7.8 22.0 October 2,246 6,109 6.3 18.1
    17. 17. Wide gap between the promise and reality To create 10 million jobs over 6 years (approx 1.5m annually) DioknoIEJAP Economic Update
    18. 18. Worsening poverty <ul><li>Poverty worsened in recent years –from 2003 to 2006. But with higher core and food inflation rates in 2008 combined with rising unemployment and underemployment, poverty is expected to worsen in 2009. </li></ul><ul><li>At current expectations of slow recovery and assuming ‘business as usual’, it is highly unlikely that the MDG goal of reducing poverty by half by 2015 will be met. </li></ul><ul><li>In the meantime, poverty reduction has been quite rapid in other Asian countries. </li></ul>DioknoIEJAP Economic Update
    19. 19. Unemployment-hunger link With weak social protection, hunger incidence deepens as unemployment rises DioknoIEJAP Economic Update
    20. 20. Philippines: long-term economic reforms <ul><li>Diversify exports. This should have been done many years ago. But with changing consumer behavior in developed countries, export diversification has become imperative. The focus should be on reviving the contracting manufacturing sector. </li></ul><ul><li>Revisit the labor export policy. An unwanted consequence of the large OFW remittances is that crucial policy reforms have been deferred or ignored. The next administration should also consider the social costs of the labor export policy. </li></ul><ul><li>Modernize the agricultural sector. It is the responsibility of the state to feed its people. More resources should be allocated for the sector, and that funds budgeted are used properly and not stolen. </li></ul>DioknoIEJAP Economic Update
    21. 21. Philippines: long-term economic reforms <ul><li>Adopt and implement a strong population management program. The next President should show political will on this issue. He should provide sufficient resources to allow parents a choice in determining the family size by making available to them modern methods of family planning. </li></ul><ul><li>Reform the tax system and the budget process. The next President will be faced with a looming fiscal crisis. He might consider the following measures: higher taxes on consumption, lower taxes on income; better allocation and more efficient use of public resources; and adopt a multi-year budget framework. </li></ul>DioknoIEJAP Economic Update
    22. 22. TESDA Budget, FY 2004-2009 Rising in nominal terms-- MOOE rose sharply in 2007 but stagnating while U N rises DioknoIEJAP Economic Update
    23. 23. … and shrinking in % of total budget and constant in % of GDP DioknoIEJAP Economic Update
    24. 24. Alternative TVET financing schemes On efficiency grounds, those who benefit from the TVET system should contribute more DioknoIEJAP Economic Update Financing Sources A B C D Budgetary support     User charges     Out-of-pocket expenses    Private sector support    Official assistance by benefitting countries 
    25. 25. Thank you! <ul><li>Benjamin E. Diokno, Ph.D. </li></ul><ul><li>School of Economics, U. of the Philippines </li></ul><ul><li> [email_address] </li></ul>Diokno I Economic Briefing 081309

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