This Time is Not Entirely Different: The Philippine Economic Growth Story

1. This Time is Not Entirely Different: The Philippine Economic Growth Story Amando M. Tetangco, Jr. Ateneo de Manila University Katipunan Avenue, Quezon City

2. Scanning the Operating Environment • A Position of Strength • The Way Forward

3. Scanning the Operating Environment • A Position of Strength • The Way Forward

4. This time is different: Key risks and challenges ahead IMF 2019 Growth Projections, as of January-2019 (Difference from October 2018 WEO Update projections ,in percentage points) Eurozone 1.6% ( 0.3) World 3.5% (0.2) US 2.5% (unchanged) Japan 1.1% ( 0.2) China 6.2% (unchanged) India 7.5% (0.1) ASEAN 5 5.1% (0.1) Source: IMF. World Economic Outlook, October 2018 with updates in January 2019.

5. This time is different: Key risks and challenges ahead Great Divergence Brexit Rise of protectionist policies US and China Trade Tension

6. This time is different: Key risks and challenges ahead Uncertainty over pace of US Fed policy normalization Infrastructure gaps

7. Trade tensions: Impact on PH economy (possible direct effects) • US and China are major export destinations and import sources for the Philippines Percent Distribution of Philippine Goods Exports, by Country of Destination Percent Distribution of Philippine Goods Imports, by Source Country Source: PSA

8. Trade tensions: Possible indirect effects • Real income loss for the world economy IMF simulations indicate global GDP would fall by more than 0.8 percent in 2020 compared to baseline • Rise in policy uncertainty could trigger financial market volatility and slow investment and trade • Trade and global supply chain disruptions • Higher import prices, lowering consumer welfare

9. Higher global crude oil prices: Latest developments • Global crude oil prices remain elevated, driven mainly by geopolitical tensions and production disruptions Source: Bloomberg

10. Scanning the Operating Environment • A Position of Strength • The Way Forward

11. Sustained economic boom 1980-1989 Average g.r.: 2.0% 1990-1998: 3.9% 1999-2011: 4.5% 2012-2017: 6.6%

12. Broadening growth drivers Source: Philippine Statistics Authority (PSA)

13. Philippines one of fastest-growing economies in Asia • PH economy expected to remain one of the fastest-growing economies in the region and in the world in 2019. Sources: International Monetary Fund (IMF) World Economic Outlook, October 2017 and IMF Regional Economic Outlook: APD, October 2018 World Bank (WB) Global Economic Prospects, January 2019 Asian Development Bank (ADB) Asian Development Outlook Supplement, July 2018

14. Higher growth potential Incremental Capital-Output Ratio Total Factor Productivity Source: Latest BSP staff estimates Employment Share by Class of Workers Employment Share by Educational Attainment Source: PSA

15. Manageable inflation environment Headline Inflation (2012=100)

16. Monetary policy outlook: inflation expected to revert to within target in 2019 and 2020 Sources: BSP, AP Consensus, Oxford Economics and ADB Source: BSP

17. Supportive liquidity and credit conditions Credit-liquidity dynamics reflect expanding economy

18. Sound Banking System Philippine banks remain adequately capitalizedproviding buffers to mitigate shocks. Quality of assets and loan portfoliossustain improvement. Non-Performing Loans (Gross) and Non-Performing Assets Ratios of UKBs (in percent) End-Dec 2018: GNPL ratio: 1.3 % NPA ratio: 1.2 % End Sept- 2018: CAR (solo): 15.2 % CAR (consolidated): 15.8 % Source: BSP

19. Adequate Buffers Against Global Headwinds Resilient foreign direct investments Sustained structural flows from remittances and BPOs Overseas Filipinos' cash remittances and BPO revenues (USD bn) Non-residents' direct investments,by instrument (USD bn, net) *2017 and 1H 2018 BPO data based on BOP concept *2017 and Jan-Sep 2018 BPO data based on BOP Concept Ample cushion from external headwinds FX reserves (USD bn) and months of import cover Source: BSP

20. Current account dynamics reflect a growing economy Strong growth in goods imports led to narrowing of current account; impact tempered by sustained receipts from traditional sources Components of the Current Account – Quarterly (in US$ billion) Source: BSP

21. Current account dynamics reflect efforts to support expansion of PH’s potential capacity Source: IMF WEO Database, October 2018

22. A flexible peso acts as an automatic stabilizer • Current peso movement reflects a confluence of factors from both external and domestic environment. Source: BSP and Bloomberg

23. Portfolio flows registered net inflows Source: BSP

24. Manageable external debt profile indicates resilience against external shocks • Manageable external debt position and largely medium to long term obligations provide adequate buffer against global headwinds. External debt (US$ bn) and external debt/GDP (%) Short-Term US$13.5 bn 17.6% Private Sector US$36.9 bn 48.2% No interest US$871 mn 1.4% Medium & Long-Term US$62.9 bn 82.4% Public Sector US$39.5 bn 51.8% Fixed US$37.0 bn 58.8% Variable US$25.0 bn 37.8% Source: BSP

25. Scanning the Operating Environment • A Position of Strength • The Way Forward

26. Future-proofing PH’s growth through structural reforms • 25 years of policy reformspromote high, inclusive and sustainable growth

27. Strengthened Institutions Results of entrenched reforms are positively recognized by various independent third-party assessors +35 +24 +29 +16 +45 +12 +16 +2 +12 28th to 40th* 115th to 70th 134th to 99th 148th to 124th 66th to 50th CCC to BB 48 to 67 ** 44th to 56th* 85th to 56th* 2011 to 2017 2013 to 2017 2011 to 2019 2011 to 2018 2010 to 2018 2011 to 2017 2011 to 2019 2010 to 2018 2012 to 2017 Transparency International Corruption Perception Index World Bank Control of Corruption WGI World Economic Forum Human Capital Index Heritage Foundation Index of Economic Freedom EIU Political Risk Country Risk Report International Budget Partnership Open Budget Survey World Bank Ease of Doing Business World Economic Forum Global Competitiveness Ranking World Bank Regulatory Quality WGI *Percentile rank, ** Score out of 100 Source: Various third-party annual ranking reports

28. Strengthening credit profile Multiple credit rating upgrades of the Philippines since 2010: A show of faith in PH’s prospects globally

29. Advancing digital financial inclusion National Strategy For Financial Inclusion (NSFI) Vision Coordination Collaboration Raising awareness and understanding *Joined in 2018

30. Advancing digital financial inclusion Private Sector Support for NSFI Promotion of Access Financial Education Data and Monitoring Advocacy

31. Advancing digital financial inclusion BSP Initiatives to promote financial inclusion • Democratized access to a transaction account • Circular 992 • Basic Deposit Account • Expansive network of low-cost touch points • Circular 942 • Cash agents • Efficient retail payment system • Circular 980 • NRPS • (PESONet, InstaPay) Strong cybersecurity, sound market conduct, financial and digital literacy

32. State of financial inclusion Bank Deposits: Number of accounts, depositors and amount (2011-2017) Number and reach of MBOs (2011-2017) • Democratized access to a transaction account • Circular 992 • Basic Deposit Account • Expansive network of low-cost touch points • Circular 942 • Cash agents

33. Moving forward

34. This Time is Not Entirely Different: The Philippine Economic Growth Story Amando M. Tetangco, Jr. Ateneo de Manila University Katipunan Avenue, Quezon City