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Meeting with Canon Institute of Global Studies19 February 2019
Tokyo, Japan
Breaking the Cycle
DIWA C. GUINIGUNDODeputy Governor
2
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Real GDP Growth(1950-2018)
GDP (In PhP Bn; lhs)
Real GDP growth rate (in Percent; rhs)
Breaking the boom-bust cycle
The Philippine economy has sustained 80 consecutive quarters of positive growth, breaking theboom-bust cycle
For 2012-2018, the domestic economy has posted an average GDP growth of 6.5 percentannually, against a challenging domestic and global economic landscape
1990-1998:3.9%
1999-2011:4.5%
2012-2017:6.6%
1980-1989Average g.r.:
2.0%
3Source: Philippine Statistics Authority (PSA)
Sustained expansion has been broad-based
3.3 4.0 4.8 4.0 3.80.7
2.9
5.7
2.5 40.7
0.9
0.81.4
-1.2-4.5
-0.6-2.9
-5
0
5
10
15
2000-2009 2010-2017 2016 2017 2018
Private ConsumptionInvestmentGovernment ConsumptionNet Exports
Contribution to GDP Growth: Demand Sidein percentage points
0.4 0.1 -0.1 0.3 0.1
1.2 2.4 2.8 2.5 2.3
2.8
3.84.2 3.9
3.8
-1
0
1
2
3
4
5
6
7
8
2000-2009 2010-2017 2016 2017 2018
Agriculture, Fishery, and Forestry Industry Services
Contributions to GDP Growth: Supply Sidein percentage points
3.3 3.6
1.40.6
1.5
0.7
2.8
4.3
1.9
2.2
0.3
0.6
0.3
0.4
0.4
0
1
2
3
4
5
6
7
8
2000-2009 2010-2017 2016 2017 2018
Construction
Durable Equipment
Others
Components of Gross Capital FormationContribution to GDP growth in percentage points
0.1 0.1 0.0 0.0 0.0
0.8
1.7 1.62.0
1.1
0.2
0.5 0.80.3
1.0
0.20.3
0.10.2
-1
0
1
2
3
2000-2009 2010-2017 2016 2017 2018
Mining & QuarryingManufacturingConstructionUtilities
Industry Sub-SectorsContribution to GDP growth in percentage points
Reaping dividends from broadening growth drivers
4
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 2019Asian Development Bank (ADB) Asian Development Outlook Supplement, July 2018
PH economy expected to remain one of the fastest-growing economies in the region and in theworld in 2019.
IMF, WB, and ADB project PH economy to grow between 6.5-6.9 percent in 2019, broadly in linewith the NG’s growth targets
PH to sustain economic boom
6.2
6.6
6.7
6.5
0.0 2.0 4.0 6.0 8.0
IMF
ADB
WB
20
18
(Act
ual
)2
01
9
ASEAN-5 : Growth Projections 2019
ASEAN-5
Indonesia
Thailand
Malaysia
Vietnam
Philippines
7.10.5 (Q32018) 3.3 (Q32018)
5.2 (Q32018)
5
More than 25 years of purposeful policy and structural reforms promote high, inclusiveand sustainable growth
Future-proofing PH’s growth through structural reforms
Selected Structural/Policy Reforms in the Philippine Economy (1993-present)
1993 Creation of the Bangko Sentral ng Pilipinas
1994 - 2001
Harmonization of the BSP’s Business Expectations Survey (BES) with International Practices; Liberalization of foreign bank entry and the telecommunications industry; Privatization of water services (MWSS); Deregulation of the oil industry; Passage of the Philippine E-Commerce Act; Liberalization of the power sector; Introduction of Tariff Reform Program (TRP) III; Accession to the World Trade Organization (WTO)
2002 Adoption by BSP of Inflation Targeting Framework
2003-2009Launch of the BSP’s Consumer Expectations Survey (CES); Passage of the Securitization Act; Adoption of Basel II; Passage of E-VAT; Establishment of the Wholesale Electricity Spot Market (WESM); Full implementation of risk-based bank supervision; Privatization of the National Transmission Corp. and National Power Corporation
2011-2015Adoption of phased-in migration to Basel III; Liberalization of entry of foreign banks in the Philippines; Implementation of macroprudential measures on real estate exposure; Passage of the Philippine Competition Act
2016-2017
Adoption by BSP of Interest Rate Corridor (IRC) Framework; Credit Card Industry Regulation Law; Amendment to Foreign Investment Restrictions; Economic and Financial Literacy Act; Freedom of Information; Further Liberalization of FX regulations; Implementation of Interest Rate Corridor; Financial Inclusion Steering Committee; Implementing Rules and Regulations of the Philippine Competition Act; Designated Casinos as Covered Persons under the Anti-Money Laundering Act
2018Tax Reform for Acceleration and Inclusion (TRAIN) Law Package 1; Ease of Doing Business Act, National ID System; Amendment to the Foreign Investment Negative List (FINL)
Other Structural Reforms in the
Pipeline for2019-onwards
Amendments to the Bangko Sentral ng Pilipinas Charter (For President’s signature)Replacing Quantitative Restrictions (QR) on Rice with Tariffs (For President’s signature)Corporate Income Tax and Incentives Reform Act (TRAIN Package 2)Amendments to Bank Secrecy LawsExemption of Small Scale Miners from Payment of Income and Excise Tax on Sale of Gold to BSP
6
Multiple credit rating upgrades of the Philippines since 2010:
A show of faith in PH’s prospects globally
Philippine Credit Rating
BBBRe-affirmed BBB rating
with stable outlook17 July 2018
BBBRe-affirmed BBB rating and
upgraded outlook to “positive”26 April 2018
Baa2Re-affirmed Baa2 rating
with stable outlook20 July 2018
BBB Re-affirmed BBB rating with stable outlook 18 December 2017
BBB+Re-affirmed BBB+ rating
with stable outlook 26 April 2018
From “junk” grade to “investment” grade since 2010
7
Philippines 1st in resilience among selected emerging markets
Source: Center for Global Development, 2015
8
Strengthened institutions to support reform momentum
Results of entrenched reforms are positively recognized by
various independent third-party assessors
148th to 124th
+24
2011 to 2019
World Bank
Ease of Doing
Business
134th to 99th
+35
2010 to 2018
Transparency
International
Corruption
Perception Index
115th to 70th
+45
2011 to 2019
Heritage Foundation
Index of Economic
Freedom
28th to 40th*
+12
2011 to 2017
World Bank
Control of Corruption
WGI
66th to 50th
+16
2013 to 2017
World Economic Forum
Human Capital Index
CCC to BB
+2
2010 to 2018
EIU
Political Risk
Country Risk Report
44th to 56th*
+12
2011 to 2017
World Bank
Regulatory Quality
WGI
48 to 67 **
+16
2012 to 2017
International Budget
Partnership
Open Budget Survey
*Percentile rank, ** Score out of 100Source: Various third-party annual ranking reports
85th to 56th*
+29
2011 to 2018
World Economic Forum
Global Competitiveness
Ranking
9
Source: Staff estimates as of 25 January 2019
Source: PSA
Employment Share by Class of Workers Employment Share by Educational Attainment
Unlocking higher growth potential
Expanding further PH’s productive capacity to allow it to keep up with robust demand
Incremental Capital-Output Ratio Total Factor Productivity
10
Unlocking higher growth potential
11
Monetary action plus NG non-monetary measures to help manage inflationary pressures
Recent inflation outturns driven by supply-side factors
Sources: BSP, PSA, IMF, and ADB
Growth and inflation forecasts Market rates have adjusted to BSP policy hikes
Inflation momentum slows down further
2018 2019
ROP Official Targets
Real GDP, % (October 2018) 6.5-6.9 7.0-8.0
Inflation, % 2.0-4.0 2.0-4.0
BSP Forecast, % (2012-based)* - 3.1
IMF (October 2018)
Real GDP, % 6.5 6.6
Inflation, % 4.9 3.9
ADB (December 2018)
Real GDP, % 6.4 6.7
Inflation, % 5.3 4.0
*7 February 2019 MB Meeting
-0.7
-0.5
-0.3
-0.1
0.1
0.3
0.5
0.7
0.9
1.1
Oct
-17
No
v-1
7
De
c-1
7
Jan
-18
Feb
-18
Mar
-18
Ap
r-1
8
May
-18
Jun
-18
Jul-
18
Au
g-1
8
Sep
-18
Oct
-18
No
v-1
8
De
c-1
8
Jan
-19
BSP
PSA
Seasonally-adjusted Headline Inflation (%), 2012=100
12
Source: BSP
Source: BSP
Inflation expected to revert to within target in 2019 and 2020
Inflation (%) 13 Dec 2018 MB Meeting
7 Feb 2019MB Meeting
2019 3.2 3.1
2020 3.0 3.0
1.0
2.0
3.0
4.0
5.0
6.0
Jan-
17
Feb-
17
Mar
-17
Apr
-17
May
-17
Jun-
17
Jul-1
7
Aug
-17
Sep-
17
Oct
-17
Nov
-17
Dec
-17
Jan-
18
Feb-
18
Mar
-18
Apr
-18
May
-18
Jun-
18
Jul-1
8
Aug
-18
Sep-
18
Oct
-18
Nov
-18
Dec
-18
Jan-
19
BSP Private Sector Economists' SurveyMean forecast for full year, in percent
2019: 3.8
2020: 3.62021: 3.7
Jan. 2016 to Feb. 2018: 2006=100Mar. 2018 to Jan. 2019: 2012=100
Based on the forecasts provided by 25 respondents.
Inflation Forecasts (in %, 2012-based)
Forecasters 2019 2020
AP Consensus (January 2019)
3.9 3.5
Oxford Economics Country Economic Forecast
(January 2019)4.0 4.0
Asian Development Bank Asian Development Outlook
(December 2018)4.0 n. a.
Sources: AP Consensus, Oxford Economis and ADB
13
Supportive liquidity and credit conditions
Source: BSP
Credit growth consistent with expanding economic activity
13
Solid demand for loans across key economic sectors
SectorsShare to Total Loans
(Net of RRP)
Contribution to Loan Growth
(Net of RRP)
Financial and Insurance Activities 9.5 2.6
Electricity, Gas, Steam and Airconditioning Supply; and, Water Supply,
Sewerage and Waste Management12.2 1.6
Real Estate Activities 16.8 1.9
Agriculture, Forestry and Fishing 2.3 0.4Wholesale and Retail Trade, Repair of Motor Vehicles and Motorcycles;
Transportation and Storage; and Information and Communication20.9 3.2
Manufacturing 12.8 1.7
Other sectors 17.6 3.1
Households 7.9 1.1
Total 100.0 -
Growth of Universal and Commercial Bank Loans (December 2018) - 15.6
1. Financial Intermediation = Financial and Insurance Activities
3. Real Estate, Renting and Business Activities = Real Estate Activities
4. Agriculture, Hunting & Forestry = Agriculture, Forestry and Fishing
2. Electricity, Gas and Water = Electricity, Gas, Steam and Airconditioning Supply; and, Water Supply, Sewerage and Waste Management and Remediation Activities
5. Trade, Transportation, Storage and Communication = Wholesale and Retail trade, Repair of Motor Vehicles and Motorcycles; Transportation and Storage; and, Information
and Communication
Notes: The reclassification of industries starting in the June 2015 data is based on the 2009 PSIC. Changes in the names of the industries are as follows:
14
PH banks remain effective intermediators of loanable funds
Source: BSP
Quality of assets and loan portfolios sustainimprovement.
Philippine banks remain adequatelycapitalized providing buffers to mitigateshocks.
0
2
4
6
8
10
12
14
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
No
v '18
Non-Performing Loans (Gross) and Non-Performing Assets Ratios of UKBs (in percent)
GNPL Ratio NPA Ratio
End-Nov 2018:GNPL ratio: 1.3 %
NPA ratio: 1.3 %
5
10
15
20
25
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
Sept '1
8
Capital Adequacy Ratio of UKBs (in percent)
CAR (consolidated basis)
CAR (solo basis)
End Sept- 2018:CAR (solo): 15.2 %
CAR (consolidated): 15.8 %
15
4.0 3.7 2.7
6.05.7 6.2
-1
0
1
2
3
4
5
6
7
8
9
10
11
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Jan-Nov2017
Jan-Nov2018Equity and investment fund shares Debt
22.1
16.4
28.1
26.1
0
5
10
15
20
25
30
BPO revenues Remittances
*2017 and Jan-Sep BPO data based and BOP Concept
73.1 76.4
23.3 2…0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0 External debt (US$ bn) and external debt/GDP (%)
External Debt External Debt Ratio
Source: BSP
Sustained structural flows from remittances and BPOs
79.282.1
7.0
7.2
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
0.0
20.0
40.0
60.0
80.0
100.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-19
FX reserves Import cover (RHS)
FX reserves (USD bn) and months of import cover
Ample cushion from external headwinds
Overseas Filipinos' cash remittances and BPO revenues
(USD bn)
Improved Debt Profile
Adequate buffers against global headwinds
Resilient Foreign Direct InvestmentsNon-residents' direct investments, by instrument
(USD bn, net)
16
Manageable external payments position another buffer against external headwinds
Source: BSP
Strong growth in goods imports led to narrowing of current account;impact tempered by sustained receipts from traditional sources
-2.9
2.0
-1.9
-6
-4
-2
0
2
4
6
8
10
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Q1
2018
Q2
2018
Q3
2018
Components of Balance of Payments - Quarterly (in US$ billion)
Capital & Fin'l Account Current Account Balance of Payments
13.5
-27.0
5.5
7.1
1.6
-2.9
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
-5.0
-3.0
-1.0
1.0
3.0
5.0
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
Q1
20
18
Q2
20
18
Q3
20
18
Tho
usa
nd
s
Goods Exports (RHS) Goods Imports (RHS) BPO Receipts (RHS) OF Cash Remittances (RHS) Travel receipts (RHS) Current Account Balance (LHS)
Components of the Current Account – Quarterly (in US$ billion)
17
Source: IMF WEO Database, October 2018
Current account dynamics reflect efforts to support expansion of PH’s potential capacity
-5
0
5
10
15
20
25
30
Savings and Investments in the Philippines 2000-2017
CA Balance (as % of GDP) S-I Gap (as % of GDP)
Total investment (as % of GDP) Gross national savings (as % of GDP)
18
Peso trend consistent with macro fundamentals
Source: Bloomberg
Current peso movement reflects a confluence of factors from both external anddomestic environment.
19
The Mega-Currents
Uncertainty over pace of US Fed policy normalization
Infrastructure gaps
Rising protectionist policies
Global economic slowdown
Disruptive technology
20
Robust monetary, financial, and external sectors are expected to continueto lend support to economic growth over the near and medium term
Philippine economy poised to sustain its growth momentum
a/ Approved by the DBCC on 16 October 2018.b/ Cash remittances coursed through banks.c/ Approved by the Monetary Board on 6 December 2019.
*Inflation forecasts as part of macroassumptions for the national budget.
r – revised; n.a. – not available
Indicators
Actual Projections
2016 2017 2018 2019 2018 2019
GDP Growth (%, 2000=100) 6.9 6.7 6.2 n/a. 6.5 – 6.9 a/ 7.0 – 8.0 a/
Fiscal Balance (% of GDP) -2.4 -2.2 -3.0 (Jan-Sep) n/a -3.0 a/ -3.2 a/
Headline Inflation (% forecasts, 2012=100)
1.3 2.9 5.24.4
(Jan)4.8-5.2 a/ 3.0 – 4.0 a/
Goods Exports, per BPM6 concept (% growth rate)
-1.1 21.4 -0.9 (Jan-Sep) n/a 1.0 a/ 6.0 a/
Goods Imports, per BPM6 concept (% growth rate)
17.7 18.013.2 (Jan-
Sep)n/a 10.0 a/ 9.0 a/
OF Remittances b/
Amount (USD bn)Growth Rate (%)
26.95.0
28.14.3
(Jan-Nov)26.13.1
n/a 28.9 c/
3.0 c/
29.8 c/
3.0 c/
Balance of Payments (USD bn) -0.4 -0.9 -2.3 n/a -5.5 c/ -3.5 c/
Gross International Reserves (USD bn)
80.7 81.6 78.5 82.1 (Jan) 76.0 c/ 77.0 c/
21
Key take-aways
The Philippine economy has sustained 80 consecutive quarters ofpositive growth, breaking the boom-bust cycle of the past.
The Philippine economy is expected to remain one of the fastest-growing economies in the region and in the world in 2019-2020.
Sustained commitment to pursue NG’s infrastructure and reformagenda will support high, inclusive and sustainable growth
The Philippine economy has built domestic sources of resilience to helpcushion against external and domestic challenges.
The BSP remains watchful and vigilant, ready to address any potentialthreats to its monetary and financial stability objectives.
Breaking the Cycle
DIWA C. GUINIGUNDODeputy Governor
Meeting with Canon Institute of Global Studies19 February 2019
Tokyo, Japan