WB presentation for the online course "Localizing Poverty Reduction Targets"

1. Making growth work for the poor
A window of opportunity to eradicate extreme poverty
and boost shared prosperity within one generation
Louie Limkin
The World Bank Group in the Philippines
June 9, 2015

2. Contents
1. Jobs challenge
2. Underlying causes
3. Window of opportunity
4. Growth is becoming more inclusive
5. Working it out

3. An enormous jobs challenge.

4. Caused by decades of bad policies,
underpinned by centuries of extractive institutions

5. Strong macroeconomy: instead of short-term
stabilization, we can now focus on the long-term
-10
-5
0
5
10 Real GDP per capita (2000 prices) growth
Percent
Sources: National Statistics Office (NSO), WDI, World Bank staff estimates
Note: Red line at 2.5 percent (long run average)
-9
-6
-3
0
3
6
Current account balance
PercentofGDP
Sources: WDI, Department of Budget and Management (DBM)
Notes: The red line is at -3 percent. Current account balance has a series break in 1977 and in 2005.
0
5
10
15
20
Percent
CPI inflation
Sources: Philippine Statistics Authority, Bangko Sentral ng Pilipinas
Notes: The red line is at 5 percent.
5.2 5.3 5.4
5.0
6.0
6.5
0
1
2
3
4
5
6
7
Percent
GDP growth rate (average, 2000-2012)
Source: PSA

6. A history of successful reforms that
made a big difference = 5 million direct jobs
0
50
100
150
200
250
PHPbillion Telecommunications revenues
Sources: Securities and Exchange Commission (SEC)
0
2
4
6
8
10
12
14
16
USDbillion
BPO sector total revenues
Source: Business Processing Association of the
Philippines (BPAP)
0
5
10
15
20
25
Millions
Air transport, passengers carried
Source: WDI
Note: Data include passengers of both domestic and international
flights.
0
20
40
60
80
100
Millions
Mobile phone subscriptions
Source: WDI
ndicators

7. Growth is becoming more inclusive.
Sustained economic growth has begun to translate
into stronger job creation and faster poverty reduction.
 Sustained one million job creation from April 2014 to January
2015.
 Unemployment declined to 6.6 percent from 7.5 percent a
year ago.
 Stronger impact of growth on poverty, from a historical growth
elasticity of poverty of -0.24 to -0.9 in 2012-2014.
 In the long-term, sustaining growth of 6 percent per year is
enough to double per capita income within 1 decade, raise it
by 5 times in 2 decades, and multiply it by 11 times in 3
decades, but only if reforms are accelerated.
 This means poverty can potentially be eradicated within one
generation!

8.  Covers 4.4 million poor households
 Uses a household survey, National Household Targeting
System (NHTS), to identify the poor: 11.9 mill households
enumerated; second round about to commence with 15.3
mill households to be enumerated (75% of all
households).
 Meant to address intergenerational poverty
 Incentivizes and expands access to health and education
services by the poor
 Fiscal cost: 0.5% of GDP in 2015
Example: CCT Program

9. Meeting the poverty target is achievable.
From 2012 to 2014, growth elasticity of poverty improved
significantly to -0.90 from -0.24 in the previous decade.
 If this trend is sustained, with high growth, the government’s 2016 poverty target
of 18-20 percent is attainable.
 In the long-term, sustaining growth of 6 percent per year is enough to double per
capita income within 1 decade, raise it by 5 times in 2 decades, and multiply it by
11 times in 3 decades, but only if reforms are accelerated.
 This means poverty can potentially be eradicated within one generation!
0
5
10
15
20
25
30
35
40
USDthousands
Per capita income projection
at 6 percent growth
Sources: WDI, WB staff computations
3.3k in
2013
7k by
2023
16k by
2033
35k by
2043!
15
17
19
21
23
25
27
2012 2013 2014 2015 2016
Povertyincidence
Poverty projections through 2016
2016 poverty target
Per capita growth at 4.2 percent
Per capita growth at 5.7 percent
Sources: PSA, WB staff estimates
Note: Ɛ refers to the growth elasticity of poverty.
Non pro-
poor
growth
Pro-
poor
growth
Ɛ = -0.24
Ɛ = -0.90
Ɛ = -2.02

10. Low spending and investments are
consequences of weak absorptive capacity
and ultimately revenue collection
10
10
2.5
4.3
Investment deficit
(percent of GDP)
Infrastructure Social services
3.8
3.0
Tax revenues needed to fund the
investment deficit (percent of GDP)
Tax administration reform Tax policy reform

11. Therefore, increasing investment requires
raising tax revenues efficiently and equitably,
and improving spending efficiency
11
 Financing these investments would have to come from a
combination of tax policy and administration reforms.
 Reforms should aim to broaden the tax base and reduce
tax rates to make the tax system simpler, more
efficient, and more equitable.
 Higher revenues do not necessarily mean higher tax
rates as tax administration can be improved substantially.
 Improving transparency and accountability of public
spending is crucial if people are to contribute more in
taxes.

12. Fiscal reforms need to be complemented by
economic reforms, particularly those that
enhance competition
12
Essential reforms to lower prices, raise productivity, and
create more jobs include:
 Continuing to liberalize the key sectors of the economy that
directly impact poor Filipinos, such as rice and shipping
 Further opening up the economy to foreign competition
 Strengthening regulatory capacity
 Crafting and implementing a clear competition policy

13. 13
But only if we all work it out.

14. Thank you.