Philippines Macroeconomic UpdatesDecember 2016

2

Table of Contents

� Policy Agenda 3

� Favorable Macroeconomic Trends 7

� Firm Institutional Foundations through Structural Reforms 21

� Infrastructure Development 25

� Sound and Strengthening Government Finances 31

� Strong External Position 42

� Sound Financial System 48

� Economic Outlook 52

� The President and the Economic Team 62

� About the Investor Relations Office 65

Policy Agenda of the Duterte Administration

4

Vision for the Philippines

� Sustain economic growth of at least 7% every year for one generation� Shift the source of growth from consumption to investment� Massively invest in

� Health� Infrastructure� Education� Life-long training� Social protection� Research and development

� Tax policy reforms� Lower personal income tax and corporate tax� Index oil excise tax to inflation� Levy tax on sugary and fatty products� Expand the VAT base� Reform property taxes

� Economic reforms: secure property rights, enhance competition, improve food security, simplify regulations, andrelax foreign ownership restrictions

� The National Economic and Development Authority (NEDA) is coordinating the formulation of the PhilippineDevelopment Plan (PDP) for the period 2017-2022. The proposed PDP Framework will be anchored on the country’slong-term vision or the AmbisyonNatin2040 and will translate the President’s 0-10 Socioeconomic Agenda intoconcrete plans, strategies and programs.

Vision for the

Philippines

� By 2022� Poverty rate reduced from 26.3% in 2015 to 17% by 2022� Law abiding country� Peace within the country and with neighbors� Achieve high middle income status (USD3,000 to USD4,100 GNI per capita)

� By 2040*� Extreme poverty eradicated� Inclusive economic and political institutions offering everyone equal opportunities� Achieve high income status (USD3,000 to USD 12,000 GNI per capita)� President Duterte signed on 11 Oct 2016 Executive Order No. 5 adopting “Ambisyon 2040,” a 25-year long-term

vision to eliminate poverty, as a guide for development planning in the country.

Broad strategies to

achieve the vision

*Refer to Vision 2040: http://2040.neda.gov.ph/

5

� Continue and maintain current macroeconomic policies, including

fiscal, monetary, and trade policies.

� Institute progressive tax reform and more effective tax collection, indexing taxes to inflation.

� Increase competitiveness and the ease of doing business. This effort will draw upon successful models used to attract business to local cities (e.g., Davao), and pursue the relaxation of the Constitutional restrictions on foreign ownership, except as regards land ownership, in order to attract foreign direct investment.

� Accelerate annual infrastructure spending to account for 5% of GDP, with PPP playing a key role.

� Promote rural and value chain development toward increasing agricultural and rural enterprise productivity and rural tourism.

� Ensure security of land tenure to encourage investments, and address bottlenecks in land management and titling agencies.

� Invest in human capital development, including health and education systems, matching of skills and training to meet the demand of businesses and the private sector.

� Promote science, technology, and the creative arts to enhance innovation and creative capacity towards self-sustaining, inclusive development.

� Improve social protection programs, including the government’s CCT program, to protect the poor against instability and economic shocks.

� Strengthen implementation of the Responsible Parenthood and Reproductive Health Law to enable especially poor couples to make informed choices on financial and family planning.

10-Point Socioeconomic Agenda of the Duterte AdministrationStrong mandate from people ensures political capital to advance transformational reforms that will move the economy to even higher

growth plane and improve welfare of Filipinos. Action-oriented, results-driven leadership style of the President boosts prospects for a

more robust investment climate characterized by common compliance to law and order in a more conducive regulatory environment

� Proposed FY 2017 Budget of PHP3.35tr � Shift to a federal system of government� Comprehensive Tax Reform program

� Reduce in personal and corporate income tax rates� Increase excise on all petroleum products & index to inflation� Levy a tax on sugary products and index to inflation� Adjust sin taxes

� Amendments to loosen the Bank Secrecy Law� Emergency powers to solve transport and traffic problems� The Bangsamoro Basic Law without unconstitutional provisions� Creation of the People’s Broadcasting Corp. to replace PTV-4, with separate

television channels for Muslims and the Lumad� Whistleblower Protection Act� Creation of a Single Department to Handle Overseas Filipino concerns� Universal health insurance through the Philippine Health Insurance Corp� Amendments to the Anti-Money Laundering law, particularly to make tax evasion

as a predicate crime to money laundering2

� Amendments to the 1996 Passport Law to extend validity of passport� PPP Act

2

� Exemptions from the salary standardization law for BIR and BOC personnel2

� Freedom of Information covering the Executive Branch of Government3

� Budget Reform Act4

� Streamlining the Government Act4

� Military and Uniformed Personnel (MUP) Compensation and Pension Reform4

� Amendments to Anti-Terrorism Law5

� Amendments to Anti-Cyber Crime Act5

� Passage of an Act Creating the Department of Housing and Urban Development5

� Amendments to the National Defense Act to Revise Reserve Officers’ Training Corps5

� Reinstatement of the death penalty5

� Freedom of Information Act5

Economic Agenda Legislative Agenda1

4Based on the President’s 2017 Budget Message5http://www.rappler.com/nation/146324-list-priority-bills-duterte-administration

1Based on the State of the Nation Address of President Rodrigo Duterte on July 25, 20162Based on pronouncements of Economic Managers3On July 24, 2016, President Duterte signed an Executive Order implementing freedom of information in the Executive Branch

6

Net trust rating of “Excellent” at +76%

Ample Political Capital to Pursue Difficult Structural ReformsContinued Favourable Prospects under the Duterte Administration

� President Rodrigo R. Duterte obtained overwhelming margin of more than 6mn vs. his closest rival at the May 2016 national elections

� Most Filipinos are satisfied with his performance in the first 3 months:� Performance and Trust Ratings at 86% based on Sep 2016 Pulse Asia survey � “Very good” net satisfaction and “Excellent” trust ratings based on 3Q Social

Weather Survey (SWS) at 64% and 76%, respectively� Based on BSP’s Business Expectations Survey, the confidence index for Q4 2016 while

lower compared to the previous quarter remained positive at 39.8%� Optimism of domestic-oriented companies increased at 48.8% in Q4 2016 from

44.9% a quarter ago on the back of robust domestic demand� The percentage of businesses with expansion plans in the industry sector for Q1

2017 increased to 31.7% from 28.1% last quarter� Consumer sentiment posts highest reading with a positive index for Q3 2016 based on

BSP’s Consumer Expectations Survey. According to respondents, their optimism during the current quarter was due to improvements in the peace and order situation, and availability of more jobs, among others

Net satisfaction rating of “Very good” at +64%

Source: Social Weather Station, Pulse Asia, BSP

Performance & Trust Ratings of President Rodrigo R. DuterteSeptember 25 – October 1, 2016 / Philippines (in %)

86% Performance and Trust Ratings

Favorable Macroeconomic Trends

8

Economic Outperformance to Continue under the Duterte AdministrationSound economic management and transformational reforms to accelerate growth and improve welfare of Filipinos

Firmer institutional foundations bode well for

greater governance, competitiveness reforms

and quest for lasting peace

� Accelerating anti-corruption reforms and strengthening law

and order underpin the government’s growth agenda

� Important governance and economic reforms have been

institutionalized over the years

�Institutions and citizenry eager for more reforms that are

supportive of propelling long term economic growth and

ensuring political stability

� Stronger institutions and more stable political environment

have been positively recognized internationally, including

their impact on bolstering the Philippines’ economic

fundamentals

�ROP has achieved significant improvements in measured

governance and competitiveness across the years

� Solidifying gains from these is top agenda

Acceleration of infrastructure and

industries development to bring about

more robust growth across the

archipelago, create jobs and uplift the

lives of more Filipinos

� Infrastructure remains a priority sector with public

spending targeted to accelerate to account for 5.1%

and 5.4% of GDP in 2016 and 2017, respectively

� Infrastructure push will benefit from a robust PPP

pipeline. Topmost in the government’s agenda is

easing bottlenecks to accelerate implementation

� Focus is on high-impact projects that increase the

productive capacity of the economy

� Stepped up agriculture and manufacturing

development plan will create more jobs, particularly for

low-skilled labor

Credible and effective monetary

policy helps the economy stay

resilient to domestic and external

challenges

� BSP has ample monetary policy space and has at

its disposal a wide range of tools, including

macroprudential measures to stem any emerging

risks and financial stresses

� Continued solid growth in a low inflation

environment

� Diversified sources of foreign exchange

(remittances, IT-BPO, and tourism) support the

country’s BOP and cushion economy from external

stresses

Favorable macroeconomic trends supported by strong domestic demand, increasing contribution of investments and services to GDP, an emerging higher value-adding manufacturing sector and favorable demographic profile

� IMF raised its forecasts for ROP’s GDP growth to 6.4%

from 6.0% in 2016 and to 6.7% from 6.2% in 2017

� Positive sentiment reflected in consumer and business

expectations surveys. Emerging as one of the top

promising destinations of FDIs based on United Nations

Conference of Trade and Development (UNCTD)’s World

Investment Report 2016

� Favorable demographics, policy focus and budgetary

allocation towards regional development and education

and social protection to tackle poverty and inequality

reducing growth

Commitment to ensuring medium-term

fiscal sustainability

� Efforts to embark on a sustainable public revenue and

spending path include reforming the tax system through a

comprehensive tax reform package, institutionalizing

transparency and accountability in granting fiscal

incentives, reducing tax evasion and instituting stronger

public finance accounting and management standards

� Progress in strengthening the fiscal position on declining

debt and manageable fiscal deficit provides greater fiscal

space to accelerate spending on poverty reducing

measures as well as implement countercyclical policies in

the event of a shock

� ROP’s debt profile shows minimal refinancing risks; debt

affordability continues to improve with lower debt service

burden

Achieve Lasting Peace

Foster a Law Abiding Society

Reduce Poverty

Imperatives of

the Duterte

Administration

9

Real GDP Growth (6-year moving average)

GDP (constant 2000 prices)

-1

0

1

2

3

4

5

6

7

8

1955-1

960

1957-1

962

1959-1

964

1961-1

966

1963-1

968

1965-1

970

1967-1

972

1969-1

974

1971-1

976

1973-1

978

1975-1

980

1977-1

982

1979-1

984

1981-1

986

1983-1

988

1985-1

990

1987-1

992

1989-1

994

1991-1

996

1993-1

998

1995-2

000

1997-2

002

1999-2

004

2001-2

006

2003-2

008

2005-2

010

2007-2

012

2009-2

014

6-yr moving average 6.2% 2010-2015 ave

1971-1976;

1972-1977;

1973-1978

2010-2015

Source: National Economic and Development Authority (NEDA) Staff Calculations

Economy on Higher Growth Trajectory

10

7.2

8.7

6.2 5.8

3.9

5.4

4.8

(0.5)

0.2

2.4

7.3

5.8 5.9

4.8

2.9

3.9

3.1 3.2 2.9

1.3

7.4

4.9*

7.0

5.0

3.33.8*

2.3*

3.5*

2.6

0.3*

7.6

5.2

6.4

4.9

3.2 3.3

2.2

3.1

2.3

0.1

7.6

5.8

6.7

5.3

3.3 3.0

2.7 2.2

1.8

0.8

India(BBB-/Baa3/BBB-)

Panama (BBB/Baa2/BBB)

Philippines(BBB/Baa2/BBB-)

Indonesia(BB+/Baa3/BBB-)

Thailand(BBB+/Baa1/BBB+)

Turkey(BB+/Baa3/BBB-)

Colombia(BBB/Baa2/BBB)

Spain(BBB+/Baa2/BBB+)

Slovenia(A/Baa3/BBB+)

South Africa(BBB-/Baa2/BBB-)

FY 2010-14 average 2015 Q1-Q3 2016 2016F 2017F

Source: PSA; International Monetary Fund (IMF); Bloomberg L.P.

Solid Economic Performance Amidst Global Economic Turbulence One of the fastest growing economies regionally and amongst similarly and higher rated peers

Real GDP growth (%)

Note: 2016 and 2017 Forecast based on IMF WEO October 2016 update*Latest available data is 1H2016Ratings: S&P/Moody’s/Fitch

� According to the National Economic and Development Authority (NEDA), estimated potential output for 2016 is 6.4% to 6.9% while IMF placed

it at 6.5%, aided by the success of ongoing structural reforms. NEDA estimates potential output to rise to 6.9% to 7.9% by 2022

� This surpasses the country’s estimated potential output prior to the global financial crisis (4-5% in 2000’s), and is in contrast to the declining

trend in potential growth across many emerging markets

� With increasing investment rate and young and educated workforce, there is sufficient scope for potential growth to rise further, aided by

greater capital formation

� Over the medium-term, the Duterte administration aims for a steady acceleration of growth (7.0-8.0%) supported by sustained and deepened

structural reforms. These include comprehensive tax reform, sustained investment in infrastructure, human capital development, easing of

restrictions on foreign investments, reduction of cost of doing business, and strengthening of agro-industrial linkages

� The continued positive economic outturns bolster confidence that the policy track taken will further uplift the welfare of a greater number of

and most especially the marginalized Filipinos. The Duterte Administration targets to reduce poverty incidence to 17.0% by 2022

Source: PSA

11

2.5 3.3 3.8 4.2 4.90.30.6 0.6

1.1

0.40.7

2.43.3

5.4

-0.3 -0.8-2.5

-5.4

1990-1999 2000-2009 2010-2015 Q1-Q3 2015 Q1-Q3 2016

Consumption Government Investment Net Exports

5.7%

7.0%

6.2%

4.5%2.8%

0.71.2 2.4

1.92.7

1.8

2.8

3.73.7

4.4

1990-1999 2000-2009 2010-2015 Q1 - Q3 2015 Q1-Q3 2016

Agriculture Industry Services

2.8%

4.5%

6.2%5.7%

7.0%

Economic Rebalancing Towards a More Broad Based Growth

Source: PSANote: Numbers may not add up due to rounding

Capital formation remains strong

Gross capital formation (PHP bn, constant prices)

… and is an increasingly key driver of growth

GDP breakdown by expenditure (%)

2011 2012 2013 2014 2015 Q1-Q32015

Q1-Q32016

Construction Durable Equipment Others

+2.8% -4.3%

+27.7% +5.2%

Investments and services increasingly becoming major drivers of growth

GDP breakdown by component

1,5681,490

1,1651,217

68.2

11.2

26.3 -6.5

0.8

68.1

10.9

22.7

-1.6

-0.1HouseholdExpenditure

GovernmentSpending

CapitalFormation

Net Exports

StatisticalDiscrepancy

Q1-Q3 2016

1,805

+15.1%

Contribution to growth: supply side (%)Contribution to growth: demand (%)

+23.8%

1,556.5

1,257.2

Q1-Q3 2015

12

4.3

6.0 6.8

6.5

4.2

5.4

1.3 1.4

2010 2011 2012 2013 2014 2015 H12015

H22016

1.1

2.0

3.23.7

5.7 5.8

3.2

5.4

2010 2011 2012 2013 2014 2015 Jan-Aug2015

Jan-Aug2016

Rising Investments Highlight Confidence in ROP’s Growth Prospects

Manufacturing, 49%

Finance and Insurance, 15%

Water Supply, Sewerage, and

Waste …

Real Estate, 9%

Wholesale and Retail Trade,

7%

Mining and Quarrying, 5% Others, 9%

Total Approved Foreign Investment **(USD bn)

ROP gaining attractiveness as an FDI destination

Average Growth of FDI, 2012-2015 (%)

Increasing investments in manufacturing

Net FDI - Sector, 2012-2015 (%)

Sustained inflows from foreign investors and bright prospects highlight confidence in ROP’s fundamentals

Net Foreign Direct Investment Flows* (USD bn)

Source: PSA, NEDA, BSP, UNCTAD, Bloomberg; * BOP Concept; ** Investment approved by the Philippines’ Investment Promotion Agencies – Board of Investments (BOI), Clark Development Corporation (CDC), Philippine

Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB), BOI-Autonomous Region of Muslim Mindanao (BOI-ARMM), and Cagayan Economic Zone

Authority (CEZA); amount of approved investments converted to USD

+9.2%

+71.1%

88.63

60.03

32.43

12.68 9.384.15

-0.68 -1.98 -2.85-20.00

0.00

20.00

40.00

60.00

80.00

100.00

TH TW PH VN IN SG ID2 CH MY

ROP is one of the top 15 destinations of investments, along with Australia, France and Malaysia, by multinational enterprises (MNEs) for 2016-2018 based on UNCTAD’s World Investment Report 2016. Further liberalization of industries and efforts to improve business

operating environment are expected to attract more investments

� In order to attract massive flow of domestic and foreign investments and create more jobs, the Department of Trade and Industry DTI) is pushing to modernize

BOI incentive regime, to be at par with ASEAN countries; remove nationality requirement and export-bias; provide menu of incentives, and strengthen regional

investment promotions

� Investors confidence in the favourable growth prospects of the country buoyed BOI-approved investments to PHP324.5bn, up 35.5% in the first 11 months

of 2016. For 2016, BOI investment approvals are expected to grow by 10-15%

13

Manufacturing and Agribusiness to Buoy Growth and Create Jobs

Source: PSA, DTI, DA

Economy increasingly supported by a vibrant manufacturing

sector

Real growth (%)

Industry development is getting a big push

� Manufacturing sector targeted to contribute 30% to the country’s GDP by 2020 from the current 23% under the Comprehensive National Industrial Strategy (CNIS) while share of jobs to total is targeted to reach 15% from the current 8% � DTI intensifying support programs to promote Micro Small & Medium Enterprises (MSMEs) through: trainings and capacity-building; one-town-one

product (OTOP); next generation Negosyo Centers (Go Negosyo Act); shared service facilities/fabrication laboratory (FABLAB); innovation centers;incubation centers & coworking spaces; and access to finance

� Manufacturing Resurgence Program - will rebuild the existing capacity of industries, strengthen new ones, and maintain the competitiveness of industries with comparative advantage. The goals: close the gaps in the supply chain, provide access to raw materials, and expand domestic markets and exports • PHP 289bn program allocation in 2016 GAA from PHP239bn in 2015• Comprehensive Automotive Resurgence Strategy (CARS) Program - PHP27bn (USD600mn) worth of incentives to local assemblers who

can produce 200,000 units for a single model over a six-year period

� Toyota and Mitsubishi were accepted under the program

� SMEs in the car parts manufacturing sector that stand to benefit from the program

� Targets to generate 200,000 new jobs, bring in USD1.2bn in fresh investments and stimulate local demand by increasing vehicle sales to

USD9.2bn

� Agriculture is seen as a potential growth driver that can create more jobs for less skilled workers

� Accelerate production of high value crops - key words are processing and value-adding

� Regain the country’s status as No. 1 coconut producer; support banana, rubber, pineapple, oil palm, etc. production

� Establish modern harvest and post-harvest facilities

7.1

6.9

0

2

4

6

8

10

12

14GDP Manufacturing

Roadmap for the structural transformation of a globally

competitive Philippines manufacturing sector

Phase I

2014 - 2017

Phase II

2017 - 2021

Phase III

2021 - 2025

� Rebuild capacity of existing industries, strengthen emerging industries, maintain competitiveness of comparative advantage industries

� Shift to high value added activities, investments in upstream industries

� Link and integrate industries

� Deepen participation in regional/global production networks

� Become hubs in auto, electronics, machinery, garments, food

14

Industry Roadmapping Project

1. Processed Fruit-Dried Mango2. Processed Shrimp/Prawns3. Seaweeds/Carrageenan

AgribusinessManufacturing

1. Aerospace2. Automotive3. Auto Parts4. Bamboo5. Biodiesel6. Cement7. Ceramic Tiles8. Chemicals9. Coco coir10. Copper and Copper Products11. E-Vehicles12. Electronics13. Integrate Circuit (IC) Design14. Furniture15. Gifts and housewares16. Holiday decor17. Iron and Steel18. Manufacturing19. Metalcasting20. Motorcycle21. Natural Health Products22. Petrochemicals23. Plastics24. Paper25. Rubber Products26. Shipbuilding27. Tool and Die

Services

1. Book Publishing2. Information Technology and Business

Process Management (IT-BPM)3. Health Care Services4. Mass Housing5. Printing6. Retirement

Elevating the development and growth of local industries as competitive players in the global market

36 Roadmaps completed

� Industry Roadmaps -42 total sectoral roadmaps, 36 of which are completed (such as manufacturing, chemicals, copper products, rubber products, IT-BPM,

electronics, aerospace, etc.) while 6 are still being finalized. These sectoral roadmaps are the building blocks of the Manufacturing Industry Roadmap (MIR) and

the Comprehensive National Industrial Strategy (CNIS)

� The industry roadmaps serve as basis for effecting policies and implementing programs that support the development and growth of industries including

government funding to support its key initiatives

15

Sustained Low Inflation Environment

Source: BSP; PSA

Inflation remains benign demonstrating monetary policy credibility

Headline CPI (yoy, %)

Latest baseline forecasts suggest inflation to be close to lower

end target in 2016 and within target bands in 2017-2018

BSP Private Sector Economists’ Survey (Mean forecast for full year, %)

Inflation target: 3.0 ± 1.0 % for 2015-2018

BSP policy stance successfully balances growth and

inflation

GDP, CPI volatility (20Y Standard Deviation, 2001-2020F)

5.5

2.9

8.3

4.2

3.8

4.6

3.23.0

4.1

1.4 1.6

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Oct 2016

Inflation Target Band Headline CPI

3.6

4.1

3.3

2.9

2.4

2.3

2.2

2.3

1.7

1.5

1.6

3.2

2.8

3.0

2.2

1.1

1.7

1.0

1.5

1.6

1.8

1.7

Uruguay

Kazakhstan

Iceland

Panama

Peru

Thailand

Mexico

Spain

Philippines

Colombia

Poland CPI volatility

GDP volatility

Source: IMF World Economic Outlook, October 2016

1.0

2.0

3.0

4.0

5.0

2014 2015 2016

2016 2017 2018 target range

2016: 1.8

2017: 2.72018: 2.8

16

Promoting More Effective Monetary Transmission Mechanism

Source: BSP; Bloomberg L.P.

Amendments to BSP Charter

� Expand mandate to include financial stability to allow BSP to oversee all nonbank credit provision

� Allow BSP to issue its own debt securities

� Increase the BSP’s capitalization by PHP 150bn, payable in three years

� In the area of bank regulations, provide immunity from lawsuits for personnel to allow the BSP to more effectively perform its function as regulator

Payments and Settlements System Bill

� The proposed bill provides a legal framework to guarantee that payment and settlement systems in the country are efficient, safe, reliable, affordable

and meet global standards. The bill also empowers the BSP to regulate all types of payment and settlement systems in the country

Interest Rate Corridor to enhance effectiveness of monetary policy

Old Structure Interest Rate Corridor Structure

Repurchase rate (RP)—6.0% Overnight Lending Facility—3.5% Ceiling

Reverse Repurchase (RRP) rate — 4.0% Overnight Reverse Repurchase Facility—3.0% Policy Rate

--- Term Deposit Facility (7 and 28 day tenors)

Special Deposit Account rate —2.5% Overnight Deposit Facility—2.5% Floor

Other reforms in the pipeline

� Strengthen the relationship between BSP’s policy rate and money market interest rates

� Help limit interest rate volatility

� Provide the BSP another tool to siphon excess liquidity

� Provide opportunity for counterpart banks to manage internal liquidity

� Key features:

� Reconfiguration of the BSP’s existing facilities

� Introduction of Term Deposit Auction Facility (TDF)

� As of 29 November, the TDF has absorbed PHP490bn from the system

17

Microfinance

Efficient Mobilization of Resources to Help Sustain Economic Growth

Sources: EIU; BSP, DTI; NSFI – National Strategy on Financial Inclusion

Increased access to finance and improved usage of financial services

� The Philippines is consistently ranked one of the best, placing 3rd globally in

2014 EIU Report, across a range of indicators on financial inclusion, behind

only Peru and Colombia

� World Bank, in a blog article “Philippines pioneers approach to monitor andevaluate the national financial inclusion strategy” , lauded ROP citing “The

Philippines pioneering and unique approach to gather relevant data on activities,

inputs and indicators to enable collaborative reporting by the various implementing

agencies [of the NSFI].

� Based on Brookings Institute's 2016 Financial and Digital Inclusion Project Report:

Advancing Equitable Financial Ecosystems, ROP gained the biggest improvement in

overall score in digital and financial inclusion.

� The Financial Inclusion Steering Committee (FISC), chaired by the BSP, was

institutionalized in June 2016 through EO No. 208. FISC provides strategic direction,

guidance and oversight in the implementation of the NSFI

� No. of micro-deposit accounts – 2.9mn as of Q2 2016 from 1.1mn in 2012

� Amount of micro-deposits – PHP6.3bn as of Q2 2016 from PHP2.3bn in 2012

� Amount of microfinance loans – PHP11.7bn as of Q2 2016 from PHP8.4bn in

2012 Micro, Small and Medium Enterprises (MSMEs)� As of Q2 2016, direct lending to Micro and Small Enterprises and Medium

Enterprises amounted to PHP199.21bn and PHP267.98bn, respectively,

benefitting 1.4mn MSMEs

� Government financial institutions to come up with financing packages to

capacitate SMEs

� Philippine banks’ physical presence continues to expand – 10,936 as of Q2

2016 from 7,585 in 2001

� Micro-banking offices are increasing – 617 as of Q2 2016 from 251 in 2011

PH financial system evolving to be more responsive to the needs of

the citizenry and able to channel resources to productive activities

Highlighted Programs

� BSP’s Credit Surety Fund (CSF)- credit enhancement scheme which aims to

increase the credit worthiness of MSMEs that are experiencing difficulty in

obtaining loans from banks due to lack of acceptable collaterals, credit knowledge

and credit track records. As of Dec 2015: 45 CSFs established nationwide; PHP

2.3bn lent to MSMEs; CSF has been institutionalized into law (RA No. 10774

dated 6 February 2016)

� DTI’s Business Development Services – e.g., 1) Shared Service Facilities

(SSF) which provides equipment for common use of MSMEs; and 2) SME Roving

Academy which provides learning programs designed to promote

entrepreneurship and skills enhancement

� Proposed PHP 1bn regional credit access for MSMEs for construction of

additional SSFs among others.

Archipelagic barrier poses a big challenge to financial access. 36.2% of

1,634 cities/municipalities without banking presence. BSP is at the

forefront of ensuring increased access to credit particularly for

microenterprises.

Key Strategic Initiatives

Enables banks and other financial service providers to

deliver a wide range of financial services – saving,

credit, insurance, payments and remittances – to all

Coordinated Roadmap to ensure policy coherence,

maximize partnerships, and address duplication to

improve financial access

Survey to provide accurate benchmark on the state of

financial inclusion in the country, support evidence

based policy making and provide for an adequate

measurement of progress

System will promote electronic payments and

interoperability to facilitate efficiency, lead to lower

business costs, drive innovation and possibly increase

consumer expenditure. Greater access to payment or

transactional accounts can be an effective on-ramp to a

broader range of financial services

�Enabling Regulatory Framework

National Retail Payment System

National Strategy for

Financial Inclusion (NSFI)

National Survey on Financial Inclusion

18

Per Capita GNI (US$ PPP basis)

2014 in 20 yrs in 30 yrs8,302

41,510

91,322

Year

x5

x11

x2

Note: GNI is significantly larger than GDP in the Philippines owing to worker remittances that supplement residents’ domestically-generated income, and is a stronger measure of wealth; 2016 Per Capita Income data is annualized as of 1Q-3Q 2016Source: NEDA; World Bank Report No. 93530-PH, January 2015

Sin Tax Reform Law (RA No. 10351)

� Expected to generate revenue to finance investments in health, including enabling 14.7mn poor to be enrolled under the National Health InsuranceProgram (NHIP), upgrading of medical facilities and financing additional medical assistance programs

Responsible Parenthood and Reproductive Health Act of 2012 (RA No. 10354) will be put into full force and effect

� Mandates the provision and delivery of essential services that are expected to significantly reduce maternal deaths, including clearly-defined

responsibilities of national and local government agencies

Full implementation of Magna Carta for Women from agencies up to barangay level to protect women’s rights

Amendments to the Expanded Senior Citizens Act (RA No. 10645)

� Provision of mandatory Philhealth coverage for all senior citizens

Increasing per capita income

Social reforms and programs to reduce people’s vulnerabilities and build resilient and empowered individuals and communities

� Sustained economic growth has enabled the acceleration in growth of average

incomes of households. According to latest World Bank estimates, the average

income of Filipinos can double within 10 years and grow eleven-fold in

30 years at the current pace of economic growth (WB cited 6% annual growth)

in 10 yrs

16,604

Building Up Human Capital and Improving Social Protection

5,069 5,735 6,122 6,545 6,958 7,324 7,776

6,3926,870 7,377

7,953 8,4228,8…

9,358

2006-10average

2011 2012 2013 2014 2015 2016*

GDP per capita (PPP basis) GNI per capita (PPP basis)

Rising average income

Per capita income at current prices, USD

19

Strengthening access to education and training for life skills

� Increase spending on education and incorporate mandatory education about the effects of drugs

� Intensify and expand Alternative Learning System programs

Enactment of the Kindergarten Act of 2012 (RA No. 10157)

� Provides for mandatory implementation of universal kindergarten

Enhanced Basic Education Act of 2013 (RA No. 10533)

� Institutionalises the implementation of the K to 12 program, which helps align the country’s basic education system withinternational standards

� The K to 12 Program covers 13 years of basic education with the following key stages: Kindergarten to Grade 3; Grades 4 to 6;

Grades 7 to 10 (Junior High School); Grades 11 and 12 (Senior High School)

� In SY 2016-2017, the Department of Education (DepEd) began implementation of Senior High School, a 2 year specializedupper secondary education

� The additional years will equip students with skills for work, entrepreneurship or higher education to better prepare themfor the future

� Three tracks available for senior high school students:

� Academic: Business, Accountancy, Management (BAM); Humanities, Education, Social Sciences (HESS); and Science,Technology, Engineering, Mathematics (STEM)

� Technical-Vocational

� Livelihood

� The proposed 2017 budget for DepEd of PHP570.4bn will sustain the K to 12 program through construction of nearly 37,500classrooms, hiring of 53,831 additional teachers and provision of scholarships in private schools for 2.7mn students

Social reforms and programs to reduce people’s vulnerabilities, and build resilient and empowered individuals and

communities

Building Up Human Capital and Improving Social Protection

20

Ladderized Education Act of 2014 (RA No. 10647)

� Empower workers by making tertiary education available to them

Comprehensive & Unified Student Financial Assistance UniFAST (RA No. 10687)

� Speed up the delivery of government scholarships/ student financial assistance for qualified beneficiaries and adopting uniform standards forselection and retention

Improving health access and quality

� Provide universal health insurance for all Filipinos

� Strategic thrusts: a) achieve health-related Millennium Development Goals (MDGs) of improving maternal and child health and combatingpriority infectious and non-communicable diseases; b) provide financial risk protection through expansion in the enrolment and benefitdelivery of the National Health Insurance Program (NHIP); c) improve access to quality health care by upgrading public hospital and healthfacilities, ensuring adequate competent health human resources and securing the availability of essential medicines

Expansion of social protection

� Public social assistance has also expanded significantly in recent years through conditional cash transfers (CCTs) or the Pantawid PamilyangPilipino Program (4Ps) – Philippines has the third largest CCT coverage in the world, behind Brazil and Mexico, according to the IMF

� Dual objectives of 4Ps:

� social assistance – a) health grant equivalent to PHP500 per household every month, or a total of PHP6,000 every year; and b)education grant equivalent to P300 per child every month for ten months, or a total of PHP3,000 every year (up to a maximum ofthree enrolled children only)

� social development through programs such as health check-ups for pregnant women and children aged 0 to 5; deworming ofschoolchildren aged 6 to 14; enrolment of children in day care, elementary and secondary schools; and family development sessions

� CCT budget amounts to PHP62.7bn in 2016 with 4.4mn beneficiaries and PHP78.7bn proposed in 2017 with 4.62mn beneficiary-families

� Provide assistance to beneficiaries of Pantawid Pamilyang Pilipino Program (4Ps) or CCTs who graduate from the program to becomeindependent and self-reliant

� Proposed to be expanded to include rice subsidies to poorest families

� 2017 proposed budget for CCT fund includes PHP23.4bn rice allowance for 3mn CCT-beneficiary

� Eligible households will be given 20 kilos of rice for 12 months starting 2017

Social reforms and programs to reduce people’s vulnerabilities, and build resilient and empowered individuals and communities

Building Up Human Capital and Improving Social Protection

Firm Institutional Foundations Through Structural Reforms

22

Year Selected Structural/Policy Reforms in the Philippine Economy

1993 Creation of the Bangko Sentral ng Pilipinas (RA No. 7653)

1994 Liberalization of foreign bank entry (RA No. 7721)

1995 Liberalization of the telecommunications industry (RA No. 7925)

1996 An Act to Further Liberalize Foreign Investments, Amending for the Purpose RA7042 (RA No. 8179)

1997 Privatization of water services (MWSS) (RA No. 8041)

1998 Deregulation of the oil industry (RA No. 8479); Adoption of consolidated bank supervision

2000 Philippine E-Commerce Act (RA No. 8792)

2001 Liberalization of the power sector (EPIRA) (RA No. 9136)

2002 Inflation Targeting Framework; Special Purpose Vehicle Act (RA No. 9182); PhilPass

2002 Government Procurement Reform Act (RA No. 9184)

2004 Securitization Act; Adoption of Basel 2; Financial Sector Forum (FSF)

2005 Expanded value-added tax (E-VAT) (RA No. 9337); Fixed Income Exchange

2006 Wholesale Electricity Spot Market (WESM)

2007 Risk-based bank supervision

2009 Privatization of National Transmission Corporation (TransCo) and National Power Corporation’s (NPC) assets

2011 EO 29 on Open Skies Policy; Adopted phased-immigration to Basel III

2011 Government-Owned-and-Controlled Corporations Governance Act of 2011 (RA No. 10149)

2012 Amendments to Sin Tax Law (RA No. 10351)

Long Track Record of Purposeful Structural and Policy Reforms

23

Year Selected Structural/Policy Reforms in the Philippine Economy

2012 Amendments to the Anti-Money Laundering Law (RA No. 10365)

2013 Act Allowing the Infusion Of Foreign Equity In The Capital Of Rural Banks (RA No. 10574)

2014 Comprehensive Agreement on the Bangsamoro

2014 Go Negosyo Act [promotes the development of micro, small, and medium enterprises ] (RA No. 10644)

2014 Ladderized Education Act (RA No. 10647)

2014 Full Entry of Foreign Banks in the Philippines (RA No. 10641)

2015 Philippine Competition Act (RA No. 10667)

2015 Act Allowing Foreign Vessels to Transport and Co-Load Foreign Cargoes for Domestic Transhipment (RA No. 10668)

2015 Department of Information and Communications Technology Act of 2015 (RA No. 10844)

2015 Tax Incentives Management and Transparency Act (RA No. 10708)

2016Amendments to the Act to Facilitate the Acquisition of Right-of-Way Site or Location for National Government Infrastructure Projects (RA No. 8974)

2016 Amendments to the Philippine Deposit Insurance Corp. (RA No. 10846)

2016 Customs Modernization and Tariff Act (RA No. 10863)

2016 Operationalizing in the Executive Branch Full Public Disclosure and Transparency (Executive Order (EO) No. 2)

2016 Amendment to Investment Restrictions for Adjustment, Lending and Foreign Companies and Investment Houses (RA No. 10881)

2016 Approving and Adopting the Twenty-five-year Long Term Vision Entitled Ambisyon Natin 2040 as Guide for Development Planning (EO No. 5)

Long Track Record of Purposeful Structural and Policy Reforms

24

LEDAC is composed of 20 members with the President as Chair and the following as members:� Vice President (Vice Chairman); Senate President; Speaker of the House of Representatives; Seven members of the Cabinet designated by

the President; three members of the Senate designated by the Senate President (nominated are Sen. Franklin Drilon, Sen. Vicente Sotto III, and Sen. Ralph Recto); three members of the House of Representatives designated by the Speaker of the House (nominated are Cong. Rodolfo Fariñas, Cong. Danilo Suarez, and Cong. Dakila Carlo Cua); representative of the Local Government Units (LGUs); representative from the Youth Sector; representative from the Private Sector

Relentless Pursuit of Structural ReformsSuper Majority Coalition in both Houses of Congress and convening of LEDAC* will help facilitate passage of priority

legislative agenda

House of Representatives Senate

Based on speech of House Speaker Pantaleon Alvarez on July 25, 2016 during the opening of Congress� Federal parliamentary system through Constitutional

Convention � Re-imposition of the death penalty for heinous crimes � Emergency powers for the President to address Metro

Manila Traffic� Amendment of the Government Procurement Act. or RA

No. 9184, as amended � Freedom of Information Law � Simplified Income Taxation� Legislative Franchise for Mining Firms� Exportation of Processed Ore only� Increase penalties presently in the statutes for the non-

payment of minimum wage and address contractualization� SSS Pension Hike

During the 25 July 2016 inaugural address of Senate President AquilinoPimentel III, he said that the Senate will support the legislative initiatives that President Rodrigo Duterte envisions as necessary to promote public welfare.

He also said that the following essential elements of the Program of Government for Change that majority senators have agreed upon will hopefully, lay the basis for the development and progress of our country and people:� Adoption of a Federal System of Government� Reform the taxation system to make it more just, progressive� All-out search for peace� All-out war against crime, drugs, corruption� Strengthen the rule of law� Reform the budget, declare war on waste� Work for sustainable, inclusive economic growth� Protect the environment� Deliver quality education, quality health care� Fight abuse and the abusive� Focus on the needs and situation of the helpless, impoverished members

of Philippine society, especially the sick, the elderly, and the children, because they need the help of government more than the others

*Legislative-Executive Development Advisory Council

Infrastructure Development

26

The Duterte Administration’s Infrastructure Plan: Build Build Build� Accelerate public infrastructure spending to account for 5.1% of GDP (PHP756.4bn) in 2016, 5.4% of GDP (PHP860.7bn) in 2017 and further to 7.1% of

GDP by 2022 to expand further the country’s productive capacity.

� Projects expected to create jobs, increase incomes and boost the economy, and deal with problems such as traffic congestion, insufficient and inefficient transportation system.

In the long run, the infrastructure investments are expected to propel the economy to grow 7-8%

� The budget of DPWH, a key infrastructure agency, increased by 30.1% to PHP397.1bn in 2016 from PHP304.1bn in 2015 . Its 2017 budget is proposed to increase by 15.5% to

PHP 458.6bn

� Closer coordination between major infrastructure agencies such as NEDA, DPWH, DOTr and BCDA to facilitate project implementation

� Successful coordination and implementation ensure completion of priority projects listed below within 3-5 years timeframe

Priority Projects (announced on 3 November 2016)

Bridges and Roads Railways, Urban Mass Transport, Airports and Seaports New and Better Cities

� NLEX-SLEX Connector Road – reduces travel time from Alabang to Balintawak to 30 minutes which usually takes more than an hour

� Santa Monica - Lawton – Bonifacio Global City Link Bridge – cuts down the number of vehicles passing EDSA by 100,000

� UP - Miriam - Ateneo Viaduct – 80% decrease in travel time

� Iloilo-Guimaras-Negros-Cebu Link Bridge –allows travel by car and bus

� Davao City Bypass Construction Project –reduces travel time from Digos, Davao del Sur to Panabo, Davao del Norte to 45 minutes from the usual 2-hour travel

� Manila Clark Railway - Guaranteed 1 hour from Metro Manila to Clark International Airport

� Metro Manila Bus Rapid Transit System – fast and reliable schedule of bus trips in EDSA

� Mindanao Railway – 2 hours travel time from Davao to Surigao and CDO ensures freshness of produce

� Regional Airport Development – new and modernized airports for increased accessibility

� Roll-on/Roll-off (RoRo) Ports Development -accessibility and affordability of travel within the country

� Clark International Airport New Terminal Building – first worldclass airport in the Philippines that will reduce traffic and congestion at NAIA

� Clark Green City – the first of many new cities; a long-term solution to congestion and traffic woes in Metro Manila

� BGC to NAIA Bus Rapid Transit (BRT) System –15 minutes travel time from Fort Bonifacio to NAIA

� Subic-Clark Cargo Railway Project – connection of Subic Airport and Clark airport that will decongest Metro Manila with cargo trucks and reduce the price of goods

3%3%

18%

5%

52%

19%

Investment Mix

Sea Ports

BRT & Other Transport

Others

Airports

Rail, Roads & Bridges

New Cities

120,000 97,500

675,000

195,000 2,000,000

730,000

Jobs Created

Source: Presidential Communications Office

27

Measures to Facilitate Infrastructure Development

Administrative measures

� Sustain PPP Program to include also unsolicited projects and also pursue hybrid schemes (government to build then tap private sector for O&M)

� Execute expenditure reforms from budget preparation to project implementation to ensure speedy development of critical infrastructure� Step up right-of-way acquisitions to speed up delivery of projects� Started implementation of the following policies to improve and streamline the Government’s approval processes of major public investment

projects: (1) Updated the economic hurdle rate from 15 percent to 10 percent to facilitate the economic justification for more projects; (2) Raised the cost of projects that will require Investment Coordination Committee (ICC) approval from PHP1bn to PHP5bn to declog the ICC project pipeline approval; (3) Streamlined ICC review procedures for minor changes in scope, design, cost, and extension of implementation or loan/grant validity of projects; and (4) Streamlined the NEDA Board and ICC membership i.e. NEDA Board membership down to 11 from 22 [new composition: President, Secretaries of NEDA, DOF, DTI, DPWH, DBM, DOTr, DOE, Executive Secretary, Chairperson of MINDA, and Deputy Governor of BSP] while the ICC has been limited to 6 members, composed of the Secretaries of DOF, NEDA, DBM, DOE, the Executive Secretary, and Governor of BSP

� Public Investment Program Online system (PIPOL) allows online submissions by agencies of their priority programs and projects, including comprehensive details and status updates. It also allows NEDA to review and validate agency submissions, as well as to generate reports

� Implement 24/7 construction work: higher expense to be offset by reducing economic cost of delays; will result in jobs and generate multiplier effects e.g., related enterprises such as convenience stores

Legislative support

� RA No. 8975 or An Act to Ensure Expeditious Implementation of Government Infrastructure Projects - Prohibits lower courts from issuing temporary restraining orders on national government infrastructure projects covered by the Build-Operate-Transfer Law (BOT Law)

� RA No. 10752 or An Act Facilitating the Acquisition of Right-of-Way (ROW) Site or Location for National Government Infrastructure Projects

Proposed critical measures to address institutional, legal and policy issues

� Amend the Electric Power Industry Reform Act (RA No. 9136)� Amend the Build-Operate-Transfer (BOT) law (RA No. 7718)� Amend the IRR of the Government Procurement Law (RA No. 9184)� Amend the Water Code of the Philippines (RA No. 1067)� Create National Transport Policy

Infrastructure Buildup to Increase Productive Capacity

Source: Expenditures and Sources of Financing (BESF) 2017 - Department of Budget and Management (DBM)

28

Addressing Metro Manila traffic and flooding

� An interagency task force led by the Department of Transportation (DOTr) has been created to manage traffic on all national roads in Metro Manila to solidify traffic enforcement under one chain of command � The Inter-Agency Committee on Traffic (IACT) includes personnel from the DOTr, Metro Manila Development Authority, Philippine National Police-Highway

Patrol Group (PNP-HPG), Land Transportation Office (LTO), and Land Transportation Franchising and Regulatory Board (LTFRB).� The IACT removed the window hours for the number coding scheme along major thoroughfares in Metro Manila i.e., EDSA, C5, Roxas Boulevard, Alabang-

Zapote Road and roads within the cities of Mandaluyong, Las Piñas, and Makati� Request grant of emergency powers for the President/Executive Branch of the government to manage, mitigate and solve the traffic and congestion across the

country for 3 years unless withdrawn sooner by Congress. The following are its proposed salient provisions : 1) decongest traffic in highly urbanized areas; 2)establish a single authority to manage traffic; 3) expedite procurement processes for transportation projects; 4) limit the issuance of temporary restraining orders and injunctions to the Supreme Court; exempt key transportation projects from restrictive audit rules; 5) expedite expropriation process for Right-of-Way acquisitions; and 6) reorganize the DOTr to provide enough manpower in implementing projects. Status: The Senate Committee on Public Services chaired by Senator Grace Poe concluded public hearings on the emergency powers on 22 September 2016. Ongoing reconciliation between Congress and Senate on draft bill on draft bill granting emergency powers to the President. DOTr submitted to the Senate a list of infrastructure projects that reflects costs and timelines for each project with and without emergency powers to convince and make Congress understand better the necessity for an emergency power

� Use of Batangas and Subic ports to decongest Manila ports� Revival of the operation of the Pasig River Ferry Service System � Expansion of point to point (P2P) bus services (Existing: Trinoma (North EDSA) to Glorietta 5 (Makati); Robinson’s Galleria (Ortigas) to Park Square Makati

(Makati); Alabang Town Center (Alabang) to Greenbelt 1 (Makati); North EDSA (North EDSA) to SM Megamall (Ortigas) and Fairview to Makati� Deployment of more Premium Airport Shuttle Buses� Consider a cable-car system and putting up pontoon bridge in Pasig River for Makati Business District� Maximize the use of existing roads - coordinate with LGUs to map out secondary routes and to consult various stakeholders, including public transport operators� Intensify anti-colorum campaign and out-of-line apprehension including the removal of terminals� Improve capacity of existing mass transit system and station experience by:

� reducing queuing time at ticketing stations by having ticket stalls in malls and convenience stores� providing extra customer service for waiting passengers e.g., free WIFI� increasing the number of running trains from 16 trains to 20 trains� increasing the train speed from 40 [kph] to 60 [kph]� reducing headway time from 5 minutes to 3 minutes � extending operating hours from 9:30 p.m. to 10:30 p.m.� addressing delays in the procurement of additional trains

� Implement structural mitigation measures to address the perennial flooding in Metro Manila and neighbouring areas and put up new pumping stations in strategic places

Support infrastructure for growth

� Construct more access roads and tourism gateways to service centres and tourist sites� Road development projects to support modern agriculture; expand and improve the construction and rehabilitation of roads and bridges, irrigation facilities� Review power mix with end goal of ensuring adequate power supply at affordable cost

Infrastructure Buildup to Increase Productive Capacity

29

Sustained Implementation of the PPP ProgramProjects awarded amounting to

USD7.05bn* 15Sustaining PPP development� Bid out shovel ready projects� Pursue solicited and unsolicited projects� Encourage LGU PPP projects� Develop and implement hybrid PPP projects (e.g., government to build, private sector to

operate and maintain)

*Amount does not include premium payments. Change in the total cost of awarded projects from USD4.8bn

to USD4.4bn accounts for (1) exclusion of O&M cash support of MPOC and approved minimum bid price of

CALA and (2) inclusion of variation cost (for MCX and NAIA Expressway) and ODA component (for LRT Line

1 Cavite Ext. and O&M)

**Amount includes reclamation cost of USD100mn

***This does not include 16 projects with no estimated cost yet.

Status as of 16 November 2016; USD 1 = PHP 45.00

President Rodrigo Duterte has announced that his administration would honour existing

government contracts and projects awaiting implementation and speed up the roll-out of

projects under the PPP programme by streamlining the procurement system and reducing

red tape. This bodes well for the construction and infrastructure sector. We expect rail and

airport projects to gain traction and a slow transition from coal to renewables. – BMI

Research, Philippines Infrastructure Report (November 2016)

StatusNo. of

ProjectsEst. Project

Cost (USD bn)

PROJECTS UNDER IMPLEMENTATION

Awarded 15 7.0*

PPP PIPELINE

Projects under procurement 13 7.5

For approval of relevant government bodies

3 5.1

For finalization of project structure 2 111.9**

Projects with ongoing studies 3 0.1

Under conceptualization or development 17 TBD

Sub-total for PPP Pipeline 38 124.6

TOTAL 53 131.6***

The NEDA Board approved the following major projects last 14 September 2016,

including PPP:

� Metro Manila Flood Management Project, Phase I (PHP23.5bn)

� Metro Manila Bus Rapid Transit (BRT) – EDSA (PHP37.8bn)

� Increase in Passenger Terminal Building (PTB) Area of the Bicol International

Airport (PHP4.8bn)

� Change in Scope of the New Bohol Airport Construction and Sustainable

Environment Protection Project (PHP7.8bn)

� Ninoy Aquino International Airport (NAIA) PPP Project (PHP74.6bn)

Rapid Response of Administration for Infrastructure Development

On 14 November 2016, the NEDA Board approved 8 projects as well as the ICC guidelines on processing projects that will require Chinese support for the conduct of pre-investment and investment activities. Out of the 8 approved projects, 6 are infrastructure while 2 are agriculture projects but with infrastructure component:

� Improvement/Widening of General Luis Road (Quezon City to Valenzuela City ) (estimated cost is PHP3.0bn if 24/7 work schedule is adopted and PHP2.8bn if through regular work schedule)

� Plaridel Bypass Road Project (PHP10.5bn)

� New Cebu International Container Port Project (PHP9.2bn)

� North-South Railway - South Line Project (PHP170.7bn)

� Malitubog-Maridagao Irrigation Project, Stage 2 (PHP5.4bn)

� New Nayong Pilipino at Entertainment City (PHP1.5bn)

The Philippines has one of the best performing Public-Private Partnership (PPP)

programs in Asia…government is in the driver’s seat when it comes to

infrastructure development, bringing in the private sector for expertise, capacity,

and relevant experience…The Philippine PPP Center has done much to reduce

some of the roadblocks to PPP implementation…Indeed, there are promising

opportunities ahead for the Philippines’ successful PPP program, already a regional

leader. With improvements, the Philippine PPP program will go even further in

reducing the infrastructure gap in the Philippines, and become a model for ASEAN

infrastructure spending. – Jesse Ang, Principal Investment Officer,

International Finance Corp. PPP Asia (26 November 2015)

30

Awarded Projects to Help Close the Infrastructure Gap

*Indicative project cost does not include premium payments

Source: PPP Center

Awarded Projects Indicative Project Cost*

(USD mn)

Private Proponent Status Target Completion

Date

1. Daang Hari-SLEX Link Road Project - Construction of a new 4-km 4-lane toll 49.6 Ayala Corporation Started operation on 24 July 2015 Completed

2. PPP for School Infrastructure Project (PSIP) Phase I - Design, financing and construction of about 9,303 one-storey and two-storey classrooms, including furniture and fixtures

219.8 Citicore – MegawideConsortium Inc. & Bright

Future Educational Facilities

As of 15 Dec 2015: 9,296 classrooms (100%) completed and delivered

Completed

3. NAIA Expressway (Phase II) Project - Construction, operation and maintenance (O&M) of a 4-lane, 7.75 km elevated expressway and 2.22 km at-grade feeder road

398.4 Vertex Tollways Devt. Inc. (a wholly owned subsidiary of San

Miguel Corporation)

As of 23 September 2016: 94.14% completed April 2017

4. PPP for School Infrastructure Project (PSIP) Phase II - Designing, financing, and constructing of 4,370 one-storey, two-storey, three-storey and four-storey classrooms, including furniture, fixtures, and toilets

85.8 Megawide Construction Corporation, Consortium of BSP

& Co., Inc. & Vicente T. Lao Construction

As of 31 August 2016: 2,626 classrooms (60.13%) completed

TBA

5. Automatic Fare Collection System (AFCS) - Decommissioning of the old-magnetic-based ticketing system and replacing the same with contactless-based smart card technology on LRT Line 1 and 2 and MRT Line 3

38.2 AF Consortium Operational since December 16, 2015 Completed

6. Mactan-Cebu International Airport Passenger Terminal Building -Construction of a new world-class passenger terminal building and the operation of the old and new facilities

389.3 Megawide-GMR (India) Consortium

As of 30 September 2016: 30.83% completed June 2019

7. LRT Line 1 Cavite Extension and O&M – O&M of existing LRT-1 and 11.7 km extension of the current LRT 1 starting from Baclaran Station to the future Niyog Station in Bacoor, Cavite

1,442.2 Light Rail Manila Consortium (LRMC)

Financial Closure achieved on 11 February 2016; andOngoing soft renovation and upgrades of LRT Line 1 existing system and other pre-construction activities

April 2019

8. Southwest Integrated Transport System - Design, construction, financing, O&M of a 4.59ha ITS terminal

55.6 MWM Terminals Contract signed on 24 April 2015; and Notice to Proceed issued by the DOTr on 17 October 2016

March 2018

9. Cavite-Laguna Expressway - Financing, design, construction, O&M of a 4-lane, 44.63 km closed-system tolled expressway

787.3 Metro Pacific Investments Corp Contract signed on 10 July 2015; and Ongoing review of draft Detailed Engineering Design and other pre-construction activities

June 2021

10. South Integrated Transport System - Design, construction, financing, O&M of a 4.7ha ITS terminal

115.6 Ayala Land Incorporated (ALI) Contract signed on 26 January 2016; and Ongoing Independent Consultant procurement and pre-construction activities

April 2018

11. Bulacan Bulk Water Supply Project - Financing, detailed design, construction, and maintenance of conveyance facilities, treatment facilities and water source

542.2 Consortium of San Miguel Corporation and Korea Water

Resources Corporation

Groundbreaking ceremony held on April 15, 2016; andOngoing pre-construction activities

September 2018

12. Metro Manila Skyway Stage 3 (MMSS-3) Project - The MMSS-3 Project is an

elevated expressway over its entire length from Buendia, Makati to Balintawak, Q.C.

with a distance of about 14.82 kms. and also includes improvement works in selected

at-grade sections.

831.8 Citra Central Expressway Corporation (CCEC)

As of 25 August 2016: 15.239% completed January2018

13. MRT Line 7 Project - Financing, design, construction, O&M of the 23-km. elevated railway line with 14 stations from San Jose Del Monte, Bulacan to MRT 3 North Ave. in Quezon City and the 22-km. asphalt road from Bocaue Interchange of the North Luzon Expressway (NLEX) to the intermodal terminal in Tala

1,540.0 San Miguel Corp. Groundbreaking ceremony held on April 20, 2016; andOngoing pre-construction activities

September 2019

14. Civil Registry System IT Project (Phase II) - Computerization of the civil registry operations of the Philippine Statistics Authority (PSA)

35.3 Unisys Public Sector Services Corp.

Contract signed on 30 September 2016 TBA

15. NLEx-SLEx Connector Road - Construction, O&M of a 8 km. 4-lane elevated expressway over the Philippine National Railway (PNR) right of way

515.6 Metro Pacific TollwaysDevelopment Corp. (MPTDC)

and its subsidiary Manila North Tollways Corporation

(MNTC)

MPTDC and its subsidiary MNTC accepted the NOA on September 26, 2016

TBA

Sound and Strengthening Government Finances

32

Institute Progressive Tax Policy Reform and More Effective Tax CollectionAdministrative measures to complement proposed legislative fiscal

reforms to ensure healthy fiscal position

Proposed administrative measures at the BIR and BOC

� Simplify tax system to expand the tax base, modernize governance, reduce corruption and inefficiency, and cut red tape

� Expand BIR’s electronic filing saturation (current baseline of 62.5% or 22mn returns in 2015)

� Expand BIR’s Large Taxpayer Service which monitors 3,000 taxpayers and improve taxpayer segmentation for better management of revenue base

� Rationalize the import permit requirements for BOC

� Craft IRR of Customs Modernization and Tariff Act (RA No. 10863) with inputs from stakeholders

� Adopt random audit of shipment

� Peg valuation of goods to prevailing real time prices in the international market

� Accelerate the RATE, RATS and RIPS program and work closely with DOJ to speed up resolution of pending cases

Other legislative measures being studied to support collection efficiency

� Exempt BIR and BOC employees from Salary Standardization Law

� Increase fiscal autonomy of BIR and BOC

13.513.6

12.212.1

12.4

12.9

13.3

13.6 13.6

14.2

2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Sep2016

Tax effort is back on a higher trajectory

Rigorous tax administration continues to yield positive results

NG Revenue (% of GDP), BIR and BOC Revenue (PHP mn)

14.0 13.4

14.0 14.5

14.9 15.1 15.8 15.9*

750,2

87

822,6

23

924,1

46

1,0

57,9

16

1,2

16,6

61

1,3

34,7

62

1,4

33,3

02

1,2

93,2

26

220,3

07

259,2

41

265,1

08

289,8

66

304,9

25

369,2

77

367,5

34

321,2

98

1234567891011121314151617

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

2009 2010 2011 2012 2013 2014 2015 Jan-Oct2016

Revenue-to-GDP BIR Reveneus BOC RevenuesSources: Department of Finance (DOF), Bureau of the Treasury (BTr)*Q1-Q3 2016

Revenue impact from administrative measures is estimated

to reach PHP200bn or 1% of GDP by 2019

33

Proposed Tax Reform Packages to Broaden the Tax Base

Priority Legislative Measures Offsetting Measures

� The Comprehensive Tax Reform Package which aims for a simpler, more equitable and efficient tax system with a goal of lowering the tax rate at the same time broadening the tax base and increasing revenues

� Lower personal income and corporate tax rate to be competitive with the region to boost spending power of wage earners and encourage investment inflows

� Revenue impact from package 1 of the tax policy reform is estimated to reach PHP400bn or 2% of GDP by 2019

Package 1 – Personal income tax (PIT) and consumption tax

� Adjust brackets to correct “income creeping”

� Reduce PIT max rate to 25% from 32%, except for the highest income earners to maintain progressivity

� Shift to modified gross system to simplify PIT system

Status: Draft Bill submitted by the Department of Finance to the House of Representatives on Sep 26, 2016

� Expand VAT base by limiting exemptions to raw food and other necessities (e.g., education, health)

� Low income consumers and businesses are already protected by the marginal threshold which can be adjusted if needed

� Use targeted programs to protect the poor and vulnerable

� Increase excise on all petroleum products and index to inflation

� Relax strict bank secrecy laws for fraud cases

� Make tax evasion as a predicate crime to money laundering

Other Reforms in the Pipeline

Package 2 – Healthy tax � Levy tax on sweetened beverages and index to inflation� Increase excise on alcohol after the current sin tax measures

Package 3 – Corporate income tax (CIT)

� Reduce CIT rate to 25% from 30%

� Simplify other corporate income tax provisions to improve compliance

� Rationalize fiscal incentives to be more transparent, targeted, performance-based, & time-boundsunset provisions to existing incentives

� Expand the coverage of the Fiscal Incentives Review Board to include all incentive recipients beyond GOCCs

� Replace the 5% gross income earned tax rate to a reduced CIT rate of 15%� Limit VAT zero-rating to direct exporters� Give full VAT refund in cash, abolish tax credit certificates

Package 4 – Property tax

� Lower estate and donor’s tax rate as well as rate of transaction taxes on land (DST, transfer tax, registration fees)

� Rationalize valuation of properties� Increase valuation closer to market prices� Review valuation every 3 years and adjust accordingly

Package 5 – Capital income tax

� Reduce tax on interest income earned on peso deposit and investment from 20%-10%

� Harmonize capital income tax rates for dollar deposits and investment, dividends, equity, fixed income rates towards 10%

� Increase tax on stocks traded in the stock market from 0.5% to 1% on gross selling price

Package 6 – Other tax measures as needed � Tax on fatty food, luxury items such as automobiles, yachts and jewelry, lottery and casino

� Mining taxes

34

Strengthened Public Finances and Debt Dynamics

* Excludes Global Peso NotesSources: Bureau of the Treasury

� Republic’s fiscal commitment is enshrined in laws and administrative issuances:

� Presidential Decree No. 1177 provides for the automatic appropriation of principal and interest payments on public debt

� The 1987 Philippine Constitution requires all foreign loans may only be incurred pursuant to the BSP’s law and regulations

� Republic Act (RA) No. 245 and DOF Order 141-95 or An Act Authorizing the Secretary of Finance to Borrow to Meet Public Expenditures Authorized By Law, mandates issuance of T-bonds shall not be shorter than 1year and not longer than 25 years

� RA No. 7653 or New Central Bank Act mandates BSP to maintain adequate reserves to meet demands for foreign currency

� Letter of Intent 158 and Administrative Order 99: all foreign borrowing is required to be submitted to the Monetary Board for approval-in-principle

� RA No. 4860 or the Foreign Borrowings Act tasked BSP to promulgate and enforce measure to reduce external debt service requirements

� Administrative Order (AO) No. 270 - Prescribing the Implementing Rules and Regulations of the Local Government Code of 1991: The appropriated aggregate budgetary amount of local government units (LGUs) shall not exceed the estimates of income

� Republic’s credit profile strengthened by market-oriented practices of managing debt

� Debt Management: Strategic and proactive approach to debt management has enhanced the portfolio risks profile and reduced the cost of borrowing for the Government

� Subsidy Expenditures: Unlike many peers, ROP expenditures is not encumbered by large structural subsidies

� Diversified Sources of Financing: Government is shifting towards domestic markets for PHP denominated debt, while retaining options to tap comparatively cost-effective financing from markets other than USD bonds (e.g. Samurai Bonds, Global Peso bonds, Euro Bonds, Dimsum Bonds) as well as external official development financing

� Bond Sinking Fund: The Fund assures investor of the Government’s capability to repay maturing Peso-denominated debt as it falls due

Strategic Guidelines Set for the 2014 2015 2016 2017 2018

Liability Management Program

a.Reduce debt service payments (Interest

payments/Revenue, %)18.8 16.8 14.7 17.0-19.5 15.5-18.5 14.3-16.9 12.6-15.5 10.9-14.1

b.Minimize foreign exchange risk by

reducing foreign currency denominated

debt (as % of total debt stock, excludes

Global Peso Notes)

34.3 31.6 32.9 29.0-33.7 28.6-32.6 29.9-32.7 30.5-32.5 29.9-31.8

�Minimizing debt maturing in one

year (% of total)9.9 6.2 4.9

�Maintaining average maturity of

debt portfolio (in years)10 9.9 10.1

Program

Not more than 15%

7-10 years

c.Minimize financing risks by:

2013

Actual

2014

Actual

2015

Actual

35

2.7

3.93.7

2.6

-0.2 -0.2

0.8 0.7

1.4

2.0

1.4

0.3

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Sep 2016

Primary Surplus/GDP

Manageable fiscal deficits

Healthy primary balance

Sound Fiscal Position

Sources: DOF, BTr

NG Primary Surplus (% of GDP)

National Government (NG) Revenue, Expenditure and Deficit (% of GDP), General Government Revenue (% of GDP)

14.4 15.6 16.5 15.614.0 13.4 14.0 14.5 14.9 15.1 15.8 15.9

17.0 16.7 16.7 16.5 17.7 16.9 16.0 16.8 16.3 15.7 16.818.0

-2.6-1.0 -0.2 -0.9

-3.7 -3.5-2.0 -2.3 -1.4 -0.6 -0.9 -2.1

21.0 21.0 21.5 22.7

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Sep 2016

NG Revenues/GDP NG Expenditures/GDP NG Deficit/GDP Gen. Gov. Revenues/GDP

36

Sustained improvement in revenue collection with National Government revenue-to-GDP of 15.9% in Jan-Sep 2016

Sustainable Fiscal Revenue and Spending Path

1Emerging outlook or projection for the year approved by the DBCC on Jul 5, 2016n.a. – not availableNote: Some values may not sum up to exact figure due to roundingSource: DOF, Budget of Expenditures and Sources of Financing (BESF) 2017 - Department of Budget and Management (DBM)

National Government Fiscal Performance

Actual Actual

2016 Outlook1

Jan-Oct 2016

Jan-Oct 2015

YoY Growth (%)

Jan-Sep 2016

2015

PHP Bn % of GDP PHP Bn % of GDP PHP Bn % of GDP

Total Revenues 1,821.4 1,768.0 3.0 15.9 2,109.0 15.8 2,256.7 15.5

Tax Revenues 1,629.6 1,505.1 8.3 14.2 1,815.5 13.6 2,044.0 14.1

Bureau of Internal Revenues

1,293.2 1,190.6 8.6 11.3 1,433.3 10.8 1,620.0 11.2

Bureau of Customs 321.3 300.7 6.8 2.8 367.5 2.8 409.0 2.8

Non-Tax Revenues 191.8 262.9 (27.0) 1.7 293.3 2.2 210.7 1.5

Bureau of the Treasury 91.1 97.4 (6.5) 0.8 110.0 0.8 n.a. n.a.

Privatization 0.6 62.7 (99.1) 0.0 62.8 0.5 2.0 0.0

Expenditure 2,037.4 1,820.6 11.9 18.0 2,230.6 16.8 2,645.6 18.2

Surplus/(Deficit) (216.0) (52.6) 310.9 (2.1) (121.7) (0.9) (388.9) (2.7)

Primary Surplus 49.8 219.3 (77.3) 0.3 187.7 1.4 n.a. n.a.

37

15.414.614.9

13.0

35.436.9 36.7

31.7

23.6 22.624.8 24.4

20.5 20.418.8

16.814.7

27.029.2

31.129.7

23.321.4

19.6 19.317.9 17.6 17.2 16.2

13.9

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Oct2015

Jan-Oct2016Jan-Oct IP/Rev Jan-Oct IP/Exp Interest Payments/Revenue Interest Payments/Expenditure

49 81 58155 143

18799 61

148 131 10751 51 52

141 138 10036

145

3284 97 24 20 110

215

302301 313

343

173

290

166199

128 156

73

50 17 0

78

273

234

89

28 22532

217 1430

Jun 2

016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041-2

056

Domestic External

Interest payments / NG revenue (%) and Interest payments / NG expenditure (%)

No bunching of maturities; amortization is spread out over the long-term

Steady decline in the Republic’s interest service burden

Source: BTr

Declining Debt Service Burden

As of End Jun 2016 (PHP bn)

38

68.5

61.4

53.9 54.7 54.852.4 51 51.5 49.2

45.4 44.7 43.1

59.2

51.6

44.2 44.1 44.3 42.2 41.4 40.6 39.236.4 36.3 35.4

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

National Gov't Debt General Gov't Debt

Sustained decline in debt/GDP ratio

Ample domestic liquidity allows ROP to source majority of its financing needs from domestic market minimizing FX risks

Long-dated debt profile reduces refinancing risk

Fiscal Deficit is Increasingly being Funded from Domestic Sources

Unless otherwise stated, graphs pertain to National Government (NG) debtSources: BTr, DOF

NG debt /GDP and GG Debt /GDP (%) Total debt breakdown (%)

Domestic debt breakdown (%) External debt breakdown (%)

52 56 56 59 57 56 58 5864 66 67 65 64

48 4444 41

43 44 42 42 36 34 33 35 36

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 end-Sep2016External Domestic

29 3019

10 8 9 7 7 8

4441

2620 14 12 10 10 8

27 29

54

7078 79 82 83 84

2003 2005 2010 2011 2012 2013 2014 2015 end-Sep2016

Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr

10 4

90 96 100 100 100 100 100 100 100

2003 2005 2010 2011 2012 2013 2014 2015 end-Sep2016

Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr

* End Sept 2016

**End June 2016

*

**

39

Markets Recognize Philippines’ Strong Credit Quality

Source: Bloomberg L.P. (Data as of 21 November 2016)

5Y sovereign CDS levels (basis points)

102.372 Slovenia

96.532 Thailand

124.359 Peru

192.387 Mexico181.514 Indonesia

0

50

100

150

200

250

300

350

400 Philippines (Baa2/BBB/BBB-) Slovenia (Baa3/A/A-) Peru (A3/BBB+/BBB+) Thailand (Baa1/BBB+/BBB+)

Mexico (A3/BBB+/BBB+) Malaysia (A3/A-/A-) Indonesia (Baa3/BB+/BBB-) Colombia (Baa2/BBB/BBB)

131.888 Philippines

172.106 Malaysia

204.338 Colombia

(Moody’s/S&P/Fitch)

40

Sophisticated Debt Management

Source: Bureau of the Treasury; Bloomberg L.P.

Highlights of Transaction

Order book Oversubscription

� 1st Asian issuer to launch a transaction in 2012

� Lowest ever coupon (4.20%) achieved by an Asian sovereign for a bond greater than the 10-year tenor

� Lowest ever coupon (5.0%) achieved for the ROP in the 25-year tenor

8.3x

Jan 2012

� Largest global tender offer ever done by a sovereign in Asia ex-Japan

� Deal swapped higher-cost FCY-denominated debt with lower-cost LCY-denominated debt with longer tenors

� Resulted in NPV savings of over USD 14mn

7.8x

Nov 2012

� 1st one-day accelerated “Switch” Tender Offer executed by an Asian sovereign

� Received aggregate offers of over USD 2.6bn in notional value and accepted USD 870mn notional with a purchase price of USD 1.08bn

9.0x

Jan 2014

� 1st benchmark USD transaction announced in 2015

� Lowest coupon ever achieved by the ROP for a USD issue of any tenor

� Lowest coupon (3.95%) ever achieved in the 25Y/30Y tenor by an Asian sovereign

9.2x

Jan 2015

� Domestic debt swap will result in PHP2.4bn savings on interest expense in the first year

� Minimum coupon of 3.625% for 10Y and 4.625% for 25Y

3.9x

Sep 2015

� 1st trade coming out of EM Asia in 2016

� Concurrent execution of one-day accelerated switch tender offer

� Lowest-coupon by ROP at 3.7% for a 25-year debt

6.7x

Feb 2016

Innovative liability management exercises have been consistently met with strong investor interest

41

2013 2014 2015 2016*

Number of Issuers 4 5 4 3

Total Amount (PHP bn) 61.0 14.5 5.2 55.6

2013 2014 2015 2016*

Number of Issuers 9 19 11 9

Average Issue Size (PHP bn) 9.3 10.1 9.8 8.0

Total Amount (PHP bn) 83.5 191.9 107.4 71.7

Deepening Capital Markets Provide Funding OptionsStrong confidence witnessed from ROP’s benchmark bond issuances have paved the way for the successful capital raising efforts of

domestic corporate entities, who are able to increasingly tap both local and international capital markets, to meet their funding needs

IPOs, 2013- 2016

IPOs well-received despite ongoing global volatilities

New Bond Listings, 2013-2016

Funding of corporates through the market remains robust

*as of November 2016

Expansion plans of firms increasingly financed by capital market

Issuer Expansion Projects

South Luzon Tollway Corp � Listed in PDEX in May 2015 bonds worth PHP7.3bn to fund road building activities� Completing the construction of tollroad 4: Sto. Tomas, Batangas to Lucena, Quezon

8990 Holdings Inc. � On Jul 16, 2015 raised PHP9bn in their maiden bond issuance in order to secure diversification of their long term financing in constructing houses for the masses

Aboitiz Equity Ventures, Inc. � Issued in Aug 2015 this is the largest corporate bond issuance (PHP24bn) in 2015. The issuance is for planned acquisitions and further investments e.g., take active part in infrastructure sector

Filinvest Land, Inc. � Issued PHP8bn worth of bonds in Aug 2015 to develop 19.2 hectares of Cebu’s South Road Properties (SRP) that they won through bidding

SM Prime Holdings, Inc. � On Nov 25, 2015 raised PHP20bn in order to support the funding needs of their mall expansion programs� On Jul 26, 2016 raised PHP10bn to sustain their development roadmap which includes provincial expansions where there are

huge growth potentialsSMC Global Power Holdings Corp

� Issued an aggregate of PHP15bn worth of bonds in Jul 2016 to support the current building of additional capacities for theirGreenfield power plants in Limay, Bataan and Malita, Davao.

� Shelf registration program boosts corporate bond issuance. Taking advantage of the program to date are SM Prime Holdings Inc., Ayala Corp., SMC

Global Power Holdings Corp., DMCI Project Developers Inc., Ayala Land Inc. The SEC has been active in promoting efficiency-related measures such this shelf

registration program, seen as a step in improving the quality of business regulation. Of the total PHP 137bn fixed rate and deferred coupon paying bonds for the period

January-July 2016, PHP121bn were registered under this system.

*as of November 2016

Issuer names still in the pipeline includes Ayala Land, Inc., Double Dragon

and GT Capital

Shakey’s (a popular pizza chain) IPO has been approved by PSE for listing

on 25 November 2016.

Strong External Position

43

Robust External Profile Lends Resiliency to Global Economic Stresses

Source: BSP

� BOP surplus in 2015 was USD2.6bn, a reversal from the BOP deficit recorded in 2014 of USD2.9bn. In 2016, BOP is projected to remain in surplus of USD2.0bn. BOP position as of end-Oct 2016 is USD1.5bn

� ROP’s current account continues to be in surplus at USD778mn at end-June 2016, supported by robust remittances from overseas Filipinos (OFs), substantial Business Process Outsourcing (BPO) revenues and increasing tourism receipts. The 2015 current account posted a surplus of USD8.4bn, equivalent to 2.9% of GDP

Note: Beginning 2005, the BOP is based on IMF’s BPM6

The Philippines posted 13 consecutive years of current account surplus from 2003-2015

Balance of payments (USD mn)

2,410

3,7698,556

89

6,421

15,243

11,4009,236

5,085

-2,858

2,616

1,684

634

2005 2006 2007 2008 2009 2010 2011 2012 r/ 2013 r/ 2014 r/ 2015 r/ 1H 2015 1H 2016

Net Unclassified Items Financial Account

Capital Account Current Account

Overall BOP Position

44

Sustained growth of remittances over the years

Overseas Filipinos' cash remittances (USD bn)

Tourism receipts provide key support to the current account

International visitor receipts (USD bn) and arrivals (mn)

Structural and ‘Sticky’ Current Account Surplus Provides Buffer Against Shocks

*Exchange Rate: USD1=PHP44.4 for 2014; USD1=PHP45.5 for 2015 ; [Jan-Aug 2015: USD1=PHP44.836 and Jan-Aug 2016: USD1=PHP46.895; 2016 projection based on DOT statements]

Sources: BSP, Department of Tourism, IBPAP

Notes: OF Remittances projection for 2016 computed based on actual 2015 data and MB approved 2016 growth projections

BPO – a strong driver of employment and revenues

BPO employment (‘000s) and revenues (USD bn)

8.610.7

12.8 14.516.4 17.3 18.8 20.1 21.4 23.0 24.6 25.6 26.8

19.1 20.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016P Jan-Sep 2015 Jan-Sep 2016

+4.8%

+4.0%

growth in

2015

3.44.5 6.1 7.1 8.9 11 13.2 15.8 18.0 20.5 22.9 38.9

236 298 371 424527

640777

858958

1,0441,146

1,800

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E2022P

Revenues

Employment

3.5 3.9 4.3 4.7 4.8 5.4 6.0

3.64.0

2.5 3.0

3.8 4.4

4.8* 5.0*

6.5*

3.4 3.5

2010 2011 2012 2013 2014 2015 2016P Jan-Aug2015

Jan-Aug2016

Arrivals

Receipts

+12.6%

growth in

arrivals

Business Process Outsourcing (BPO) and increasingly tourism sector act as additional, strong economic engines,

helping ensure resiliency of ROP’s external payments position against external stresses

+13.9%

revenue

Growth

in 2015

45

12.8%

25.0%

19.4%

13.2% 13.7%

5.6%

8.2%

7.2%

6.3%

7.4% 7.20%

4.60%

0%

5%

10%

15%

20%

25%

30%

0

5

10

15

20

25

30

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Overseas worker's remittance YoY growth

YoY growthOverseas worker’sremittance (USDbn)

Falling Oil

Prices

Rise of Isis

Asia15%

Americas44%

Oceania2%

Europe16%

Middle East23%

Others0%

2015 USD 25.8 bn

Remittances’ Growth Remains Strong and Diversified

Sources: BSP for remittances data

� YoY net cash remittances growth averaged 10.9% for 2003-2015, highlighting the consistency and strength of remittancegrowth in ROP over the past decades

� Remittances come from diversified sources, the largest comingfrom Americas (44%)

� Middle East contributes only 23% towards total remittances; Asia increasingly a source

� Based on historical evidence and current outlook, ongoingtensions in the Middle East are unlikely to significantly impactremittances to ROP

� Low oil prices have not shown any visible impact onremittance thus far

Even during periods of conflict in the Middle East, ROP experienced positive remittance growth

Gross Loans/Deposits Ratio (%)

Diversified sources of remittances

Domestic Credit to Private Sector (% of GDP, 2014)*

Iraq

War

Shia

Insurgency in

Yemen

Cedar

Revolution

Israeli-

Lebanon

Conflict

Arab Spring

Asia12%

Americas56%

Oceania1%

Europe16%

Middle East15%

Others0%

2008 USD 16.4 bn

46

13.10 12.9012.15 12.05

7.75 7.726.93

IndonesiaRupiah

MalaysianRinggit

KoreanWon

JapaneseYen

PhilippinePeso

ChineseRenminbi Thai Baht

Healthy External Finances Mitigate Against BOP Stresses

� ROP enjoys a healthy level of international reserves ofUSD85.1bn as of Oct 2016, sufficient to cover 9.9 months of totalimports

� Adequate reserves help guard against external shocks andunderscores the ability of ROP to pay back any foreign currencydenominated debt

� The Philippines is now a net external creditor nation to the IMF.Furthermore, the Philippines is a fully participating member of theChiang Mai Initiative Multilateralization (a USD240bn swap facility ofwhich ROP has a committed contribution of USD9.1bn; ROP mayborrow up to 2.5 times its contribution), enhancing the strength ofROP’s external and FX positions

� BSP and Bank of Japan also recently entered into a peso-yen swapfacility under a cross-border liquidity arrangement

Reserve buffer provides protection against external payments shocks…

FX reserves (USD bn) and months of import cover

… while helping smoothen volatility in the foreign exchange market by enabling the necessary adjustments in a continued

volatile global environment

Implied Volatility (YOY %, as of November 21, 2016)

18.523.0

33.837.6

44.2

62.4

75.383.8 83.2

79.5 80.785.1

4.65.1

6.7 6.4

9.2

10.4

11.611.5 11.6

9.9 10.39.9

0

2

4

6

8

10

12

14

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Oct-16

FX reserves

Import cover

Sustained decline in external debt-to-GDP ratio underscores the health of external finances

External debt (USD bn) and external debt/GDP (%)

61.661.4

66.5 65.2 64.7

73.6 75.6 80.0 78.5 77.7 77.5 77.7

59.7

50.244.5

37.6 38.4 36.9 33.7 32.0 28.9 27.3 26.5 26.2

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q22016External Debt External Debt Ratio

Source: BSP, Bloomberg

47

Export Market Diversified� To further diversify its export market, ROP plans to improve access in both domestic and international markets and maximize gains in FTAs :

� increase inbound and outbound trade missions;

� participate in exhibitions and trade fairs;

� focus on ASEAN as market for ROP products (ASEAN population: 620mn); and

� maximize availment of EU-Generalised Scheme of Preferences Plus (GSP+), pursue renegotiation of Japan-Philippines Economic Partnership Agreement

(JPEPA), push for ratification of Philippines and the Europe Free Trade Association (EFTA) Free Trade Agreement (PH-EFTA FTA)

� In December 2014, it gained stronger foothold in Europe with the approved application of the Philippines for the EU-GSP+. The Philippines is the first ASEAN country to join the GSP+. This initiative covers 6,274 products, all of which are subject to zero duty.o The country’s beneficiary status has helped increase exports to EU by 6.8% in 2015

� In April 2016, ROP and EFTA states Iceland, Liechtenstein, Norway and Switzerland signed a FTA. The PH-EFTA FTA has a comprehensive coverage,including trade in goods (industrial and agricultural goods, fish and other marine products), rules of origin, trade facilitation, trade in services, investment,competition, protection of intellectual property rights, government procurement and sustainable development.

� The direct effect of Brexit on the Philippines is seen as minimal - merchandise exports and imports between the UK and ROP is small, accounting for only0.9% and 0.5% of the total in 2010-2015, respectively

� ROP is expected to benefit from existing trade agreements: ASEAN Free Trade Agreement (AFTA), ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), ASEAN-China Free Trade Agreement (ACFTA), ASEAN-India Free Trade Agreement (AIFTA), ASEAN-Japan Comprehensive Economic Partnership Agreement (AJCEPA), ASEAN-Korea Free Trade Agreement (AKFTA)

� APEC Trade Repository, a single online reference point on APEC economies' trade and tariff mechanisms with the objective of further promoting APEC's workon transparency, connectivity and trade facilitation, was launched in November 2015

� The Philippines will now implement the Trade Facilitation Agreement (WTO-TFA) as it complied with its Category A Notification commitments that covered areas of customs administration

� The country's export industry benefits from a revitalized manufacturing sector and its continued linkage with the agriculture sector� Updated Philippine Export Development Plan approved in February 2016 sets the targets and strategies for the growth of the exports industry

Source: PSA. DTI, NEDA. For more details on the PEDP please refer to this link - http://www.dti.gov.ph/emb/images/PEDP_2015-2017_Executive%20Summary%20_28as_of_09_Mar2016_29.pdf; on EU GSP+ please refer to this link - http://www.dti.gov.ph/emb/index.php/emb-focus-2/eu-gsp

ROP’s diversified export markets act as buffer for softening global demand

Exports by destination (USD bn)

8.5 8.4 7.9 6.6 5.9 5.9 6.6 6.7 7.25.7 5.5 2.9 5.7 6.1 6.2 7.0 8.0 6.47.3 7.7

6.2 7.8 8.9 9.9 12.0 13.9 12.48.6 8.2

6.8 7.6 7.1 7.4

8.3 8.7 8.84.8 4.5

3.4 4.2 4.4

9.8 8.8

9.2 8.515.6 14.8

11.2

19.6 15.6 12.9

13.9 15.5

15.3

2007 2008 2009 2010 2011 2012 2013 2014 2015

EU China Japan USA ASEAN Others

Sound and Stable Financial System

49

Robust Banking System

Note: Banking system statistics refers to universal and commercial banks dataSource: BSP

Asset quality of the banking system remains extremely strong

with an NPL ratio of only 1.6%

Gross loans (PHP bn) and NPL ratios (%) of U/KBs

Prudent NPL coverage ratios will ensure that the banking system is well-prepared for any unforeseen shocks

NPL coverage ratio (%) of U/KBs

135.6

6,144.62

1.6

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Loans outstanding NPL ratio

15.4

16.1

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jun-16

Solo basis Consolidated basis

BSP Regulatory Requirement: 10%

International Standard: 8%

… is supported by strong balance sheets – with capitalization levels well above international norms

Capital adequacy ratio (%) of U/KBs2016 Q3:PHP101.7bn

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Sustainable profitability of banking sector…

Net profit of U/KBs (PHP bn)

50

Limited exposures of banks mitigate the system’s potential risk from contingent liabilities

Banking System Poses Minimal Risk

Sources: BSP; *World Bank

Strong deposit base and low leverage support banking sector funding

Gross Loans/Deposits Ratio (%) Philippine Banking System

Potential contingent liabilities of the banking sector is smaller than neighbors given size of the sector

Domestic Credit to Private Sector (% of GDP, 2015)*

151.3

155.3

140.6

125.2

39.1

41.9

Thailand

China

Korea

Malaysia

Indonesia

Philippines73.3

72.4

69.3

7169.7

68.1

64.5

70

73.5

64.4

68.4

70.7 71.23

Steady decline in non-performing real estate loans despite higher real estate exposure

Real estate exposure (PHP bn) and Non-performing real estate loans ratio (%)

Residential Real Property Price Index to help better assess trends in housing prices

(%, year-on-year)

814 843 900 940 1007 1035 1116 1159 1221 1273 1359 14321516 1554

1623

3.73.6

3.3 3.2

2.8 2.82.6 2.6

2.52.6

2.32.2 2.1 2.1

2.0

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2012 2013 2014 2015 2016

Real estate exposure Non-performing real estate loans ratio

12.8

4.35.1

9.2

11.3

17.9

8.66.3

9.7

2.7

8.3

1.8

5.9

9.4

18.4

0

2

4

6

8

10

12

14

16

18

20

Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Overall National Capital Region (NCR) Areas outside NCR

51

Ahead of the Curve: BSP Continues to Strengthen Financial Intermediation

Source: BSP; IMF

� BSP broadened the coverage of banks’ real estate activities that it monitors, expanding reportingguidelines which now covers loans to developers of socialized and low-cost housing, and to individuals,and credit supported by non-risk collaterals of Home Guarantee Corp. Moreover, banks are also requiredto report their investments in real estate securities

� BSP will require banks to put up additional capital rather than limit exposure to the real estate sector. In anew prudential guideline, banks must meet the requirement of 10 percent capital adequacy ratio (CAR) ofqualifying capital while its subsidiary thrift banks will have to maintain a common equity tier 1 (CET1)level of at least six percent of qualifying capital. These two specific thresholds reinforces the macro-prudential policy that banks must have sufficient capital to absorb any possible shock on its creditexposures

� Banks are permitted to purchase developers’ previously issued loans to buyers only if the loans meetminimum standards

� BSP has generated Residential Real Estate Price Index using information from banks' approved housingloan applications to provide a tool in assessing the real estate and credit market conditions in the country

Stepping up surveillance of

real estate sector

Sound regulatory

framework for banks

� Higher minimum capital standards than Basel recommendations; early adoption in January 2014 of BaselIII capital requirements

� BSP requires banks to carry out stress tests twice a year on the effect of a 20% and 50% write off ofvarious credit exposures (including real estate) on banks’ balance sheets. Based on latest stress test, thebanking system can withstand significant decline in real estate prices. Banks would have enough capital tomeet the minimum regulatory requirement.

� Measures to strengthen credit underwriting standards (e.g., focus on cash flow analysis and ability-to-pay)and consumer protection standards (e.g., institutionalize disclosure and transparency, financial awarenessand education)

Stronger policy coordination

to ensure early

identification and mitigation

of system risks and warning

signals

� Created a high-level Financial Stability Committee at the BSP� Institutionalized the Financial Stability Coordination Council, with purview over financial crisis

management, non-bank sources of credit, capital flows management, capital market reforms, andcorporate leverage

� Establish a system-wide Crisis Resolution Framework for the Philippine Financial System

Economic Outlook

53

Sources: PSA, BSP, Bloomberg1/ Inflation target range for 2016-20182/ Assumption adopted by the DBCC on July 5, 20163/ MB approved on 26 May 2016; OF remiitances computed based on MB approved growth a/ Based on Balance of Payments and International Investment Position Manual, 6th Ed. (BPM6)b/ without revaluationr/ revised; NA Not Applicable

ROP Expects Continued Robust Growth in the Medium-Term

2015 Actual

2016 2017 2018 2019 2020 2021 2022

Projections2/

Real GDP Growth (%) 5.8 6.0-7.0 6.5-7.5 7.0-8.0 7.0-8.0 7.0-8.0 7.0-8.0 7.0-8.0

Dubai Crude Oil (USD/bbl) 50.9 35-50 40-55 45-60 50-65 50-65 50-65 50-65

Inflation (%, average)1/ 1.4 2.0-4.0 2.0-4.0 2.0-4.0

364 Days T-bill Rate (%) 2.08 2.0-4.0 2.5-4.0 2.5-4.0 2.5-4.0 2.5-4.0 2.5-4.0 2.5-4.0

LIBOR, 6 mos (%) 0.5 0.8-1.8 1.0-2.0 1.5-2.5 1.5-2.5 1.5-2.5 1.5-2.5 1.5-2.5

Exchange Rate (PHP/USD) 45.5 45-48 45-48 45-48 45-48 45-48 45-48 45-48

Balance of Payments (USD, bn) 2.6 2.0 3/

Current Account (USD, bn) 8.4 5.83/

OF Cash Remittances (USD, bn) 25.8 26.83/

Merchandise Exports a/(% growth) -13.1 3.0 6.0 8.0 10.0 10.0 11.0 11.0

Merchandise Imports a/ (% growth) -3.2 7.0 10.0 11.0 12.0 12.0 13.0 13.0

Gross International Reserves (USD, bn) 80.7 82.73/b/

The Philippine economy is now on a higher growth trajectory with increasing contribution from the manufacturing sector, infrastructure investment, and robust services sector

54Source: NEDA

Expected Drivers of Growth in 2016

Supply Side

� Low petroleum prices

� Real estate, renting, business activities in response to demand from the BPM sector

� Construction and infrastructure development

� Tourism-related services

� Wholesale and retail trade

� Manufacturing resurgence

Demand Side

� Household consumption: remittance inflows, better employment prospects, strong

consumer confidence, low inflation, low interest rates

� Government spending: expansion of human development and social protection programs

(i.e., conditional cash transfer (CCT), K to 12, health, etc.)

� Investment: public construction, including infrastructure and reconstruction; private

construction

� Exports of services: good prospects for Business Process Management (BPM) and tourism

55

� Fragile growth in Japan and European Union

� Slowdown in large emerging economies, particularly China

� Uncertainties over Brexit

� Asynchronous monetary policies in major developed economies

� Geopolitical tensions in the Middle East, extended period of low oil prices

� Maritime dispute in the West Philippine Sea

� Natural hazards, potential La Niña

� Delays in infrastructure and reconstruction projects

� Logistics bottlenecks

� Closure of mines

Vigilant and well-positioned against the downside risks to growth

Risks to Growth and Opportunities

Source: NEDA, DOF

� Closer economic integration in the ASEAN and with other neighbors which would open up new sources of capital and markets

� Philippine hosting of ASEAN meetings in 2017

� Commitment to continue current macroeconomic policies and programs, sustain reform momentum

� Resumption of peace talks with National Democratic Front (NDF), Moro Islamic Liberation Front (MILF), Moro National

Liberation Front (MNLF)

While at same time watchful of opportunities

Domestic

External

56

2017 Proposed National Budget: “A Budget for Real Change”

Source: DBM – BESF 2017 and DBM Presentation to Congress on Aug 22, 2016; *National Expenditure Program

Focus on Social Services to empower human capital development

2017 Proposed Budget by Sector, PHP bn and % Share

Infrastructure and Other Capital Outlays gets a big allocation

2017 Proposed Budget by Expense Class, PHP bn and % Share

2017 Proposed Budget

� PHP3.35tn proposed budget for 2017 is 11.6% higher than the PHP3.002tr budget for 2016. It is equivalent to 21% of GDP

� The 2017 until 2022 budgets will support the President’s promise to improve the country’s infrastructure, invest in human resources, modernize agriculture and

rural development, and develop lagging regions

� Strictly compliant with the Supreme Court decision on the Disbursement Acceleration Program (DAP) and the Priority Development Assistance Fund (PDAF)

� Congress and Senate have approved the proposed budget. Bicameral conference ongoing to reconcile differences betweeen Congress and Senate versions. Budget

is expected to be passed before end-2016

Highlights of the 2017 Proposed budget:

� Infrastructure outlays for 2017 is equivalent to 5.4% of GDP to make it at par with ASEAN countries

� Proposed budget of PHP31.5bn for Mindanao Logistics Infrastructure Network to pay equal attention to connecting lagging regions with growth centers

� Proposed budget of PHP6.9bn for Technical Education and Skills Development Authority (TESDA) to support 293,333 enrollees to its Training-for-Work Scholarship

program

� Proposed budget of PHP4.3bn for full implementation of the Responsible Parenthood and Reproductive Health Law

� PHP78.7bn proposed allocation for conditional cash transfer (CCT) program for 4.62mn beneficiary families

Department 2017 NEP*

2016GAA

Share of TotalBudget (%)

(PHP billion) 2017 2016

Social Services 1,344.8 1,119.8 40.1 37.3

Economic Services 924.0 834.0 27.6 27.8

General Public Services 581.8 498.0 17.4 16.6

Debt Burden 351.6 419.3 10.5 14.0

Defense 147.8 130.7 4.4 4.4

Total 3,350.0 3,001.8 100.0 100.0

2016 General Appropriations Act

� 94.9% of 2016 agency budgets were released as of Sep 2016

� Improved absorptive capacity of agencies with 92.9% utilization rate of cash allocation as of Sep 2016; DPWH utilization rate at 98.5%

Personnel Services

PHP997.0bn, 29.8%

Maintenance Expenditures

PHP534.5bn, 16.0%Debt Burden

PHP351.6bn, 10.5%

Allocation to LGUs*

PHP554.9bn, 16.6%

Support to GOCCs

PHP131.5bn, 3.9%

Infrastructure and

other Capital Outlays

PHP780.6bn, 23.3%

PHP3,350bn

*Includes other transfers to LGUs

57

Department 2017 NEP* 2016 GAA Growth (%)

PHP billion

% Share

PHP billion

% Share

Education 567.6 16.9 433.4 14.4 31.0

Public Works and Highways 458.6 13.7 397.1 13.2 15.5

Interior and Local Gov’t. 150.1 4.5 125.4 4.2 19.7

Health 144.2 4.3 125.0 4.2 15.4

National Defense 134.5 4.0 117.7 3.9 14.3

Social Welfare and Dev’t. 129.9 3.9 110.9 3.7 17.1

Transportation 55.5 1.7 44.3 1.5 25.2

Agriculture 45.3 1.4 48.9 1.6 (7.5)

Environment & Natural Resources 29.4 0.9 22.3 0.7 31.9

Finance 23.0 0.7 20.2 0.7 13.6

Total Budget 3,350.0 3,001.8 11.6

2017 Proposed National Budget: “A Budget for Real Change”Proposed Infrastructure Outlays Budget, PHP Billion

Particulars 2017 2016 2015

Infrastructure Outlays 860.7 756.4 575.7

Percent of GDP (%) 5.4 5.1 4.3Growth Rate (%) 13.8 31.4 66.3of which:

Road Networks 328.2 298.1 223.5

Flood Control Systems 75.8 69.0 48.3

Seaport Systems 2.7 1.8 2.7

Airport Systems 5.7 9.6 12.3

School Buildings 124.6 91.3 72.5

Hospitals and Health Centers 10.0 19.2 9.5

Irrigation Systems 26.0 23.6 26.5

Other Infrastructure Assets 224.5 170.4 131.4

Particulars 2017 2016 2015

Education 649.6 501.8 373.6

Growth rate (%) 29.4 34.3 14.4Basic Education 571.5 435.4 311.1

Growth rate (%) 31.3% 40.0% 13.0%

Department of Education 567.56 433.38 309.90

Department of Science and Technology 3.9 2.0 1.2

Tertiary Education 75.1 61.6 57.0

Growth rate (%) 22.0 8.0 24.0

State Universities and Colleges 58.8 49.7 47.7

Commission on Higher Education 13.4 9.7 7.0

Department of Science and Technology 3.0 2.3 2.2Technical-Vocational Education

Technical Education and Skills Dev’t. Authority 6.9 6.9 5.6

Growth rate (%) 0.1 22.7 5.3

Proposed Education Budget, PHP Billion

Higher allotment for infrastructure and social development agencies

Budget of Top Departments, 2017 vs. 2016

� 2017 expenditure priorities show commitment to accelerate infrastructure development

� Road Networks gets the highest share of the infrastructure budget at 38.1% or PHP328.2bn

� School buildings will receive a budget of PHP124.6bn or 14.5% share of the infrastructure budget

� Spending for human capital development and a more agile and competitive work force through education will be boosted with provision for basic and tertiaryeducation growing by 31.3% and 22.0%, respectively

Source: DBM – DBM Presentation to Congress on Aug 22, 2016

58

Particulars 2017 2016 2015

Health 151.5 132.7 105.0

Growth rate (%) 14.1 26.5 23.5of which:Department of Health 94.1 81.1 64.1

Growth rate (%) 16.0 26.5 37.8

of which:Preventive and Promotive Health Programs 24.6 19.5 15.5

Health Facilities Enhancement Program 21.9 26.9 13.4

Responsible Parenthood Program 4.3 2.3 3.3

Philippine Health Insurance Corp.

National Health Insurance Program 50.2 43.9 36.3

Growth rate (%) 16.0 26.5 37.8

2017 Proposed National Budget: “A Budget for Real Change”Proposed Social Protection Budget, PHP bn

Particulars 2017 2016 2015

Social Protection 169.6 159.6 128.6

Growth rate (%) 6.3 24.1 0.5Welfare and Social Protection Programs

Department of Social Welfare and Development 129.9 110.9 110.1

Growth rate (%) 17.1 0.7 27.8Conditional Cash Transfer 78.7 62.7 54.8

Social Pension for Indigent Senior Citizens

17.9 8.7 5.7

Kalahi-CIDDS NCDDP 10.7 11.0 14.7

Sustainable Livelihood Program 9.6 9.6 4.6

Supplementary Feeding Program 3.4 4.3 2.8

Labor and Employment

Department of Labor and Employment 13.5 11.9 7.7

Growth rate (%) 13.4 54.1 3.9

Social Housing 21.7 32.4 6.0

Growth rate (%) -32.9 444.1 -76.9

National Housing Authority 12.6 30.5 4.2

Relocation (DOTr) 7.4

National Home Mortgage Finance Corporation 1.5 1.0 1.0

Social Housing Finance Corporation 0.3 0.9 0.8

Energization of Households 4.5 4.4 4.8

Growth rate (%) 3.1 -9.9 -44.2

Department of Energy 2.7 1.9 2.8

National Electrification Administration 1.8 2.5 2.0

Proposed Health Budget, PHP bn

� The proposed budget of PHP13.5bn for the Department of Labor and Employment will be utilized primarily for the implementation of livelihood programs, Special Program for Employment of Students, Rural and Emergency Employment Program and Job Start Program

� 2017 proposed budget is consistent with the government’s goal of investing to ensure a healthy population with budget for health sector growing by 14.1% or PHP151.5bn

Source: DBM – DBM Presentation to Congress on Aug 22, 2016

59

Medium-Term Fiscal Program

Source: Budget of Expenditures and Sources of Financing (BESF) 2017 - Department of Budget and Management (DBM)

Outlook Growth (%) Projection Growth (%) Projection Growth (%) Projection Growth (%)

Revenues 2256.7 7.0 2481.5 10.0 2990.1 20.5 3326.5 11.3

% of GDP 15.5 15.6 17.0 17.2

Tax Revenues 2044.0 12.6 2313.0 13.2 2821.3 22.0 3155.5 11.8

% of GDP 14.1 14.5 16.1 16.3

BIR 1620.0 13.0 1829.2 12.9 2189.7 19.7 2435.9 11.2

BOC 409.0 11.3 467.9 14.4 614.8 31.4 701.9 14.2

Non-Tax Revenues 210.7 -8.7 166.5 -21.0 166.8 0.2 169.0 1.3

% of GDP 1.5 1.0 0.9 0.9

Privatization 2.0 -96.8 2.0 0.0 2.0 0.0 2.0 0.0

% of GDP 0.0 0.0 0.0 0.0

Disbursements 2645.6 18.6 2959.7 11.9 3517.1 18.8 3907.3 11.1

% of GDP 18.2 18.6 20.0 20.2

Current Operating Expenditures 1973.1 10.5 2208.5 11.9 2424.2 9.8 2672.7 10.3

% of GDP 13.6 13.9 13.8 13.8

of which Interest Payments 327.7 5.9 334.9 2.2 349.5 4.4 385.8 10.4

% Share of Total Disbursements 12.4 11.3 9.9 9.9

Capital Outlays 655.7 50.4 734.4 12.0 1076.1 46.5 1217.8 13.2

% of GDP 4.5 4.6 6.1 6.3

Net Lending 16.8 73.2 16.8 0.0 16.8 0.0 16.8 0.0

% of GDP 0.1 0.1 0.1 0.1

Deficit -388.9 … -478.1 … -526.9 … -580.7 …

% of GDP -2.7 -3.0 -3.0 -3.0

Financing Mix (%)

External 23.0 20.0 20.0 20.0

Domestic 77.0 80.0 80.0 80.0

Consolidated Public Sector Financial Position -222.8 -310.7

% of GDP -0.015 -0.019

Nominal GDP 14528.9 15937.4 17564.7 19358.0

PHP Billion2016 2017 2018 2019

60

Ensuring Manageable Debt

� Total borrowings in 2017 expected to reach PHP631.3bn and will be used to:� finance the PHP478.1bn deficit� settle PHP89.3bn maturing debt obligations� contribute PHP45bn to the Bond Sinking Fund; and� maintain cushion of cash in the Treasury

� Maintaining heavy bias for domestic borrowing while at the same time optimizing available concessional loans from developmentpartner

� Improving revenue collections through comprehensive tax reform, spending on the right priorities and keeping fiscal risks in check to grow the economy are key to meeting debt targets

� Debt/GDP is expected to decline over time, as the expanded fiscal spending is expected to drive the growth momentum

42.740.9

39.137.5 37 35.9 35.4

2016 2017 2018 2019 2020 2021 2022

Projected NG Debt

Sustained decline in debt/GDP ratio

National Government Debt /GDP (%)

61

Continued Favorable Macroeconomic Backdrop Bolster Economic Outlook

Q3 GDP growth beat expectations, rising to 7.1% y-o-y from 7.0% in Q2

led by still strong investment spending. This underscores our view that the

quality of growth is improving. Given that year-to-date GDP growth has

averaged 7%, we are raising our 2016 GDP growth forecast to 6.9% from

6.7%. Despite the noise from President Duterte’s controversial rhetoric,

we expect this government to make more progress on infrastructure

spending than its predecessor and boost reforms, particularly by cutting

red tape and implementing comprehensive fiscal changes (see Asia Special

Report - Philippines: Beyond words, 20 October 2016). The continued

strength in domestic demand will provide significant buffers against

downside risks from external factors, including the impact of President-

elect Trump’s proposed policies. - Nomura, August 2016

Early indications are that domestic economic activity should remain

robust, supported not only by the government’s continued efforts to

increase infrastructure spending, but also from broader strength in

income and sentiment. On that basis, our forecast for real GDP growth to

stay solidly above 6% is driven by domestic demand, which we expect to

continue growing above 8% (following double-digit growth this year). Q3

GDP data showed that growth momentum remains strong. The basic

dynamic of growth enjoying a significant lift from investment spending

and robust consumer spending also looks likely to continue. Indeed, we

believe the large investments in infrastructure have helped to raise trend

growth in the Philippines, and we now expect the economy to grow by

6.8% in both 2016 and 2017, before moderating to 6.5% in 2018. –Barclays, November 2016

Growth and investment dynamics across Emerging Markets has become

more complicated in recent weeks due to uncertainty in developed

markets, but we believe the Philippine growth story is relatively

straightforward. Investment and private consumption, prompted by

fiscal expansion and steady remittances growth, respectively, should

fuel growth through 2018 (estimate).– HSBC, November 2016

The Philippine economy expanded a firmer-than-expected 7.1% over

a year ago (oya) in 3Q16 (J.P. Morgan: 6.6%oya; Consensus:

6.7%oya). In sequential terms, growth was up 4.8%q/q, saar last

quarter. In relative terms, growth in the Philippines has bucked the

regional trend in recent years, with growth outperforming the region.

The 3Q16 GDP print affirms that relative strength, leading us to revise

our 2016 growth forecast up to 6.8%oya from 6.4% in the prior

forecast. 3Q16 print reaffirms ongoing domestic demand strength.

Domestic demand, in particular fixed investment, drove the expansion

in 3Q16. - JP Morgan, November 2016

We have not seen significant changes in macroeconomic policies in the

country and we haven’t seen domestic policies turning more negative for

foreign investors. Overall, despite (his) rhetoric, if he continues to pursue

economic policy among these lines, we could actually see improvements

for economic support for the rating.– S&P, November 2016

There is indeed upside risk to our current full-year GDP forecast given

the very strong performance in the third quarter” - Moody’s,

November 2016.

The outlook for the Philippine economy remains favorable despite

external headwinds…The Philippine economy has performed well in

recent years with rising potential growth and strong macroeconomic

fundamentals and is broadly in line with potential while the outlook for

inflations is well within the target band. – IMF, November 2016

The President and the Economic Team

63

President Rodrigo Roa Duterte was born on March 28, 1945 in Maasin, Southern Leyte to Vicente Duterte and Soledad Roa who were

both civil servants. His mother was a public school teacher while his father was a government worker.

Duterte traces his roots to the Visayas. He spent his early years in Danao, Cebu, the hometown of his father. But his lineage has also

direct ties from Mindanao as his mother hails from Cabadbaran, Agusan del Norte while his paternal grandmother was a Maranao.

In 1949, when Duterte was four years old, his family resettled in the then-undivided Davao where his father Vicente later entered the

political arena and was elected governor of the province and served from 1959 to 1965.

Duterte graduated in 1968 with a Bachelor of Arts degree in Political Science at the Lyceum of the Philippines University and obtained a

law degree from San Beda College of Law in 1972. He passed the bar exam that same year. He served as special counsel and later on

became a city prosecutor at the City Prosecutor’s Office in Davao City from 1977 until 1986, when he was appointed as OIC Vice Mayor of

Davao City.

He ran and successfully won the mayoralty post in 1988. Since then, Duterte has not lost an election. He is among the longest-serving

mayors in the Philippines and has been Mayor of Davao City for seven terms, totalling more than 22 years. He has also served as vice-

mayor and as congressman of the city’s first congressional district.

On May 9, 2016, Duterte won a landslide victory as the Philippine’s 16th President. He was officially proclaimed by a joint session of the

Philippine Congress on May 30, 2016. He is the first Mindanaoan President and the first local chief executive to get elected straight to the

Office of the President.

President Rodrigo R. Duterte, 16th President of the Philippines

64

Seasoned Professionals Leading the Philippine Economy

Agency Appointee Brief Profile

Department of Finance Carlos Dominguez

Former BOD of RCBC Capital Corp., Agriculture Secretary under Pres. Corazon Aquino, President of Philippine Airlines, Chairman of Planters Bank

Bureau of Internal Revenue Cesar Dulay Lawyer, former Commissioner of the Integrated Bar of the Philippines

Bureau of Customs Nicanor Faeldon Former Marine Captain

National Economic and Development Authority

Dr. Ernesto Pernia University of the Philippines Economics Professor Emeritus; former ADB Lead Economist

Department of Budget Management Dr. Benjamin DioknoFormer Budget Secretary under Pres. Joseph Estrada; Professor at the University of the Philippines School of Economics

Department of Trade and Industry Ramon LopezFormer Vice President of RFM Corporation, Executive Director of Go Negosyo, a non-stock, non-profit organization that seeks to promote entrepreneurship in the country

Department of Energy Alfonso Cusi Former Chief of Manila International Airport Authority and Civil Aviation Authority of the Philippines

Department of Transportation Arthur TugadeFormer President and CEO of Clark Development Corporation (an economic zone north of Manila and formerly a US Military Air Base)

Department of Public Works and Highways

Mark VillarFormer Congressman, Lone District of Las Piñas City, Metro Manila; was re-elected Congressman for the 17th Congress

Department of Agriculture Emmanuel Piñol Former Governor and Vice Governor of North Cotabato, Mindanao, credited for bringing down poverty incidence in his province to 25.6% in 2009 from 41.6% in 2000

Department of Tourism Wanda Corazon TeoFormer President of the National Association of Independent Travel Agencies, the biggest travel association in the Philippines

Department of Information and Communications Technology

Rodolfo SalalimaServed as senior vice president for corporate and regulatory affairs of Globe Telecom; Asia Pacific representative and vice chairman of the International Telecommunication Union (ITU) Council Working Group for the Amendment of the ITU Constitution and Convention

Investor Relations Office

66

Investor Relations Office

Strengthening the Investor Community 15 Years and Beyond

The effective implementation of the Government’s economic program and its

success depends on regular two-way dialogue between economic policy makers

and the investment community.

The Investor Relations Office (IRO) was established in July 2001 to strengthen

the country’s relations with investors and other stakeholders by promoting

active channels of information flow and dialogue between economic policy

makers and investors.

Based in the Philippine central bank, the Bangko Sentral ng Pilipinas (BSP), the

IRO has a dedicated staff comprised of trained economists and communication

specialists who work with colleagues in the BSP and the economic agencies to

implement a wide-ranging program of investor relations activities.

As the Government has implemented its economic reform program over the last

fifteen years, the IRO’s program of investor outreach has helped to ensure that

investor decisions benefit from a comprehensive understanding of the progress

in reforms and what they mean for the economic fundamentals of the

Philippines.

In turn, the Government’s economic reform program has made the economy

relatively more resilient amid the global financial and economic crisis.

With stable macroeconomic fundamentals, the Philippines remains as one of the

most viable economies for investments in the emerging market.

The IRO is proud to have played a role in communicating the successes of the

Government’s reform program in the last fifteen years and is committed to

continuing its efforts to promote the Philippine economy.

Serving Philippine and International Stakeholders

The IRO provides services to a wide range of stakeholders – the Government’s

economic agencies, financial institutions, credit rating agencies, bilateral and

multilateral organizations, domestic and foreign investors, the diplomatic corps,

business people, the media and the general public. All services to its stakeholders

are underpinned by a set of fundamental principles: transparency, accessibility,

timeliness, consistency and feedback.

The IRO adopts a multi-pronged approach to serving its stakeholders through:

• Dissemination of key economic and financial information about economic policy

objectives and performance

• Seeking market feedback on current and proposed policy measures

• Providing feedback to economic policy-makers about investor sentiment

• Facilitating candid and constructive dialogue between policy-makers and

investors

Promoting excellence in investor relations. Enhancing sovereign value

67

Investor Relations Office

The IRO undertakes a range of initiatives to build awareness among domestic and international investment audiences around the Government’s economicreform program, promote specific investment opportunities in the Philippines and facilitate information exchange and dialogue between key economic policydecision-makers in the Government and domestic/international investors. These initiatives include:

• Regular Economic Briefings to update the business community, media and industry organizations on the country’s economic performance

• Investor Roadshows to bring the Government’s resilient economic performance record, commitment to sound economic management and responsiblereform to members of the international financial community

• Media Briefings to raise awareness of the Government’s progress in economic reforms and plans for ongoing reforms

• Government Policy Roadshows to increase the business community’s understanding of government policy measures to generate support for the policyimplementation process

• Investor Teleconferences to provide timely updates on key economic performance indicators

• E-mail service to keep investors and other investors abreast of data releases on a regular basis

• An English Language website, www.iro.ph, to provide a wide range of easily accessible information about the Philippines’ economic performance and thegovernment’s economic policies

Contact InformationFor further information about the Investor Relations Office, or about the Philippine economy, please contact:

Editha L. MartinInvestor Relations Office

Bangko Sentral ng PilipinasA. Mabini St. cor. P. Ocampo St.Malate Manila, Philippines 1004Tel: (632) 708-7487 / (632) 303-1581

Email: emartin@bsp.gov.phFax: (632) 708-7489Website: www.iro.ph

Promoting the Philippine economy at home and abroad

Finance Secretary

Carlos Dominguez

Information and Communications Technology Secretary

Rodolfo Salalima

Tourism Secretary

Wanda Teo

Energy Secretary

Alfonso Cusi

Public Works and Highways

Secretary Mark Villar

Agriculture Secretary

Emmanuel Piñol

Transportation Secretary Arthur

Tugade

Trade and Industry Secretary

Ramon Lopez

Budget and Management Secretary Benjamin

Diokno

Economic Planning Secretary

Ernesto Pernia

Bangko Sentral ngPilipinas Governor

Amando M. Tetangco, Jr.

Philippines Macroeconomic UpdatesDecember 2016