Analysis of the Philippine Economy for the year 2013.
2013: A Bakers Dozen as a New Start for the Philippine Economy Ronilo M. Balbieran1 Senior Research Associate Research, Education, and Institutional Development Foundation, Inc. You would have realized at this time, as you read this article, that the world did not end last December 21, 2012 as predictions had it. We now have the inevitable predicament to face the new year with more practical and applicable predictions and forecasts relevant to our personal, professional, spiritual, and economic life. This article would try to contribute on our ability to assess the new year of 2013 as regards business and economic activities and opportunities the Philippines await. The Good News: Faster Growth, Supported with More Savings, More Resources, With Stable Prices, Led by a Determined Political Will FASTER GROWTH: We began to end the year of 2012 (and of the world) with nothing but reports of economic growth apparently exceeding the forecasts of the government as well as international institutions such as the World Bank, International Monetary Fund, and the Asian Development Bank. The economy grew by 7.1% in the third quarter of 2012, against the third quarter performance last year. This is measured through the Gross Domestic Product, a measure of total domestic production. The report was a turn-around for the deceleration of the growth from first quarter of 6.4% to 6.0%. Combined with a series of bright prospects from data and information about factors that support economic growth, there is a consensus to upgrade the forecast of the Philippine economy in 2012 and 2013. Consequently, the credit rating of the country has been raised already to an almost investment grade level.
The author would like to acknowledge the guidance, insights, and inputs of Dr. Emilio Antonio, Jr. and Dr. Victor Abola, Dr. Enrico Basilio, and Prof. Ma. Cherry Lyn Rodolfo.1
GDP Quarterly Growth Rate (year-on-year)10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
SUPPORTED with More Savings and More Resources (Public and Private): Started more than a decade ago, the savings rate of the Philippines climbed up due to fast and massive inflows of dollars from the remittances of Overseas Filipino Workers (OFWs) and Filipino companies abroad, and recently, further reinforced by the dollar revenues from Business Process Outsourcing (BPOs) and Tourism. Whereas 20 years ago, the countrys savings rate barely passed the 20% of GDP, lagging behind those of the Asian neighbors which are at least 30% of GDP. But now, national savings account for almost 40% of GDP surpassing many neighbor countries already.
OFW Remi ances (in $ million)25,000
089 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 19 19
The savings of the country is so huge the banks are forced to offer to clients and avail of the money-parking facility of the BSP called the Special Deposit Account (SDA). The SDA was meant to stabilize the potential increase in money supply by mopping-up the excess money from the economy that might push prices up.
The dollar reserves of the country, on the other hand, is at its all-time high both as a value at almost $ 82 billion, and in terms of number of months of import it can cover which is about 12 months or one year, enabling the Bangko Sentral ng Pilipinas (BSP) to commit a loan of $ 1 billion to IMF as a contribution to the recovery of Europe. The amount of dollar reserves is a measure of how the country throughout the years is able to receive more dollar income than what it gives out as dollar expenses, thereby accumulating the annual surpluses from dollar transactions. Consequently, it will also be the muscle of the BSP to have control over speculation of the exchange rate, and the management of the currency towards a more competitive environment for investments and trade.
Dollar Reserves of the Philippines (in Months of Import Cover)13 12Number of Months of Import Cover
11 10 9 8 7 6 5 4 3 2 1 0 90 -1 91 92 93 94 95 96
As of Oct 2012 = $ 81.7 billion Months of Import Cover = 11.8 months Short-term Liabili es = negligible
Gross Int'l reserves Net Int'l Reserves
Source: Recent data from BSP; 2000 and earlier from Presentations of Dr. Emilio Antonio, Jr.
Lastly, the National Government has been experiencing easy and cheap access to both domestic and international resources for its social and economic spending plans. Funds from domestic banks oversubscribing treasury bills and treasury bonds even at rates significantly sliding over the years. WITH DIVING INTEREST RATES: Interest rate is the price of money. With the massive growth of financial resources of both the private and public sector, supply of money exceeds demand making interest rate substantially go down. This is indeed the time to plan our personal and business investments. STABLE PRICES: The reports of further slide of interest rate brought about by expansion of peso savings and dollar reserves, together with very tempered increase in consumer prices pushed spending both in consumer items as well as private investments. DIRECTED BY POLITICAL WILL: The Aquino administration promised a good governance-led management. It took the government some time since 2010 in trying to fix deficient, if not corrupt, practices in different agencies that delayed many important and crucial projects such as airports, school buildings, trains, housing and toll roads that would have further boosted the economy. But having
adjusted in its battle against corruption and the Tuwid na Daan slogan, the government has already gained momentum in terms of spending for construction projects. It has adopted the policy of directly helping the poor by providing them significant direct allocation through the conditional cash transfers (CCT) that will ease their hunger as they try to be more productive through employment or entrepreneurship. Issues and Challenges: Much More Room for Growth HUGE SAVINGS NOT FULLY TRANSLATED TO INVESTMENTS. The Philippine economy should be growing by at least 7% since 2011 with all the resources that it has. But it has not grown relatively slower in the past two years. Since, much of the private money are in BSP (more than Php 2 trillion), around 15% of the national income are actually sleeping, and incidentally, there is also a 15% gap between 40% Savings rate and a 20% Investment rate. This is a significant opportunity cost for the economy that needs to grow faster, longer in order to have real impact on poverty alleviation. This is translated to the lack of investment loans, lack of circulation of money and income, and lack of expansion in the purchasing power of the people. This was precisely the reason why in the first State of the Nation Address (SONA) of the President, he emphasized the importance of Public-Private Partnership (PPP) Program to capitalize on the domestic resources of the private sector in pumping up the infrastructure spending that would not have been as fast and as big under the regular timeframe and budget of the National Government. The size of excess savings of the private sector is almost as big as the annual national budget of the whole government. Though government is to be praised in its effort to increase public spending, especially in infrastructure in the recent quarters, it faced substantial delays in the big ticket items such as ports, airports, highways, buildings which are all lined-up as priorities of the PPP Program. These PPP projects, when rolled out, should have been the trigger for banks to get their money out of BSP and lend to private constructions companies, which will in turn, pump prime the money to the economy.
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%1990 1992 1994 1996
Savings and Investments as % of GDP
Source: BSP, NSCB. Notes: Computation of Savings uses GNI as the measure of Income.
TOO MUCH APPRECIATION OF THE PESO: In the last decade, the peso-dollar rate has been on a downward trend. While this topic can be a subject of never-ending debate, there are a few ideas that can already be introduced here without much discussion. One, the an appreciation is a manifestation of an healthy economy. That the economy has more access to dollar revenues that it pays for dollar expenses. However, it is not automatic on the reverse analysis that the economy will continue to grow if there is continued peso appreciation. This is because of the following: 1. Impact on the purchasing power of OFW remittances Policy bias on appreciated currency may be helpful if most of the national revenues have imported intermediate cost items, or if the imports are mostly intermediate goods. This situation is true decades before. But now, the dollar revenues of the country are boosted by OFW remittances that have no imported cost items. In short, the country receives more than $ 20 billion that is fully translated to purchasing power in the domestic economy. Thus, a Php 1appreciation translates automatically to an evaporation of the Php 20-billion purchasing power of these.
OFW Remi ances Dollar Growth vs Peso Growth
60.0% $ growth 40.0% Php growth
0.0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004