2018 Euromoney Philippines

Investment Forum

Secretary Benjamin E. DioknoDepartment of Budget and Management

Fairmont Makati, Manila

19 October 2018

2

Local and Global Developments

Higher Global Oil Prices Monetary Tightening

Higher Domestic Inflation

3

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

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9

200

0

200

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201

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0

2

-2

-4

-6

-8

4

6

8

6.3%

2010-20164.5 %

2000-20092.8

%

1990-19992.0

%

1980-1989

6.3%H1 2018

6.7%FY 2017

Consistent Upward Trajectory

2018

6.5-6.9

2019

7.0-8.0

2020

7.0-8.0

2021

7.0-8.0

2022

7.0-8.0

Gross Domestic Product

Source: National Economic and Development Authority

Medium-Term Growth Prospects, 2018-2022

4

5

Fiscal Position of the Philippines

2010 2011 2012 2013 2014 2015 2016 2017

Revenue Effort 13.4 14 14.5 14.9 15.1 15.8 15.2 15.7

Expenditures as % of GDP 16.9 16 16.8 16.3 15.7 16.7 17.6 17.9

Deficit -3.5 -2 -2.3 -1.4 -0.6 -0.9 -2.4 -2.2

-5

0

5

10

15

20

As

Shar

e o

f G

DP

National Government Fiscal Position 2010 - 2017 (GDP Base Year 2000)

Revenue Effort Expenditures as % of GDP Deficit

6

Declining Debt Burden

30.332.231.531.8

30.130.4

27.6

24

19.618.4

15.9

18.618.3

20.6

24.7 25

27.4

30.131.6

29.7

23.2

20.719.4 20

17.717.116.215.9

12.811.3

10

0

5

10

15

20

25

30

3519

87

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Debt Service as Share of the National Budget(in %)

7

Declining Debt-to-GDP Ratio

42.1 42.141.7

40.7

39.6

38.6

2017 2018 2019 2020 2021 2022

Debt as Share of GDP (%)

8

Investment Grade Credit Rating

BBB Standard and Poor’s

Sustained Investment Grade Rating

Baa2 Moody’s

BBB Fitch Ratings

9

Historical Inflation Numbers

10

Sound Macroeconomic Fundamentals

11

Sound Macroeconomic Fundamentals

Gross International Reserves

$75.2 billion Worth 7 months of imports

Year Amount (billions of

USD)

Term Average(billions of

USD)

President

2011 2.00

4.7Former

PresidentBenigno

Aquino III

2012 3.21

2013 3.73

2014 5.73

2015 5.63

2016 8.27

2017 10.05TBD

Rodrigo Duterte2018 (as of July) 6.7

12

Rise in Foreign Direct Investments

13

Build Build Build

Infrastructure

Spending averaged

2.6% of GDP in the

last 50 years prior

to President

Duterte

14

Medium-Term Infrastructure Program

909.74

1,266.3

1,540.0

1812.0

4.7

5.96.5

7.0

0

1

2

3

4

5

6

7

8

-100

100

300

500

700

900

1100

1300

1500

1700

1900

2019 2020 2021 2022

Infrastructure Cash-Based Appropriations (PHPbn)*

15

Infrastructure Spending

Infrastructure and Other Capital Disbursements

Obligation-Based Program (PHP bn)

Actual(PHP bn)

Variance(PHP bn)

Percent

First Semester of 2018

338.3 352.7 14.4 4.3

Infrastructure and Other Capital Outlays (January – July 2018)

Jan – July 2017 (PHP bn)

Jan - July 2018 (PHP bn)

Amount Increase (PHP bn)

Amount Increase (Percent)

Disbursements 297.5 437.2 139.7 47.0

Economic Services

P1,068.4 billion; 28.4%Gen. Public Services

P709.4 billion; 18.9%

Debt BurdenP414.1 billion; 11.0%

Defense

P188.2 billion; 5.0%

Social ServicesP1,377.0 billion; 36.7%

Budget by Sector, 2019 President’s Budget

16

17

Tax Policy Reform

•The Executive is proposing a revenue-neutral package.

• Its aim is to make the tax system more competitive.

• Lowering of income tax rates from 30% to 25% will make the Philippines more comparable to its regional peers and encourage small and medium enterprises.

18

TRAIN Package 2

19

TRAIN Package 2

•To offset revenue losses, the corporate income tax cuts will be accompanied by the rationalization of fiscal incentives.

• Incentives should be targeted, performance-based, transparent, and time-bound.

• Incentives should be granted to innovative and job-creating industries; should not be perpetual.

20

Cash-Based Budgeting System

Contracts intended to be

implemented for the fiscal

year should be fully

delivered, inspected, and

accepted by the end of the

fiscal year .Payment is done

within the fiscal year and up

to a three month Extended

Payment Period after the

fiscal year for goods and

services accepted by

December 31 of the fiscal

year.

21

Measures to Address Inflation

Last month, the

Palace issued

Administrative

Order No. 13 and

Memorandum

Orders No. 26 to 28

to boost food

supply.

22

Suspension of 2nd Tranche of Oil Taxes

The economic

managers have

recommended to

suspend the 2nd

Tranche of Oil Excise

Taxes under TRAIN with

Dubai Crude Oil likely

averaging above

80$/barrel in the coming

months.

23

Monetary Policy Response of BSP

The Bangko Sentral ng

Pilipinas (BSP) has raised

interest rates by a

cumulative 150 basis points

since May 2018 to temper

inflation expectations.

24

Rice Tariffication Bill

We expect Congress to

pass the Rice Tariffication

Bill as it will reduce the

price of rice by PhP 4 to 7

per kilogram.

2018 Euromoney Philippines

Investment Forum

Secretary Benjamin E. DioknoDepartment of Budget and Management

Fairmont Makati, Manila

19 October 2018