rop yeb presentation draft - 28feb2011 (for bacolod)-1

8/6/2019 ROP YEB Presentation DRAFT - 28Feb2011 (for Bacolod)-1

1/46

Daylight in the Philippines: Accelerating Progress

DRAFT AS OF 28 FEBRUARY 2011

March 4, 2011L. Fisher Hotel, Bacolod City

Year-End Philippine Economic Briefing


2/46

Executive Summary: A Strong Positive Growth Story1

A Resilient and Fast-Growing Economy2

Fiscal Sustainability: An Integral Part of the Effective Governance Agenda3

Supportive and Stable Monetary Policy and a Sound Banking System4

A Fortified External Position5

An Enhanced Political and Institutional Framework6

Agenda

Policy Directions for 20117


3/46

The Philippines, one of the few countries worldwide that avoided a recession in 2009, staged a strong recovery in 2010 asthe economy grew 7.3%Healthy economic growth is expected to be sustained in the medium term

Better conditions in the global economy and economic outperformance in the Philippines key export markets in North Asia(36% of total exports) and ASEAN (16% of total exports) should pave the way for sustainable growth performanceThe structure of the ROP economy is similar to those of advanced economies, with consumption accounting for more than70% of GDP; this is the structure investment-led economies like China are trying to emulate

A Resilient and Fast-Growing Economy

The new administration has made fiscal sustainability the cornerstone of its effective governance agendaIntense focus has been placed on improving tax collection and the results are starting to show: the country was recentlyremoved from the OECD grey list, a recognition that it is now compliant with accepted tax standards; it also received aUS$434mn Millennium Challenge Corporation grant to provide additional funding for tax administration efforts and other initiatives such as infrastructureAdditionally, the Philippines was successful in containing the damage of the global financial crisis with respect to its fiscalaccounts; deficits are manageable and debt levels are sustainableProactive debt management has reduced rollover risk and increased debt carrying capacity while minimizing foreignexchange risk and increasing self-sufficiency of funding

A Clear PoliticalCommitment to Fiscal

Sustainability

Over the last decade, the Philippines has transformed itself into a country with sustained structural current account surplusesand rapid reserve accumulationGross international reserves expanded to a record US$63.5 billion at end-January 2011. This large stockpile of internationalreserves provides a healthy buffer against external shocks reserve holdings can cover 11x the countrys short-termexternal debt on original maturityRemittances continue to contribute greatly to the Philippine current account and are up by 8.2% in 2010. Additionally, theBusiness Process Outsourcing (BPO) industry which is growing at an average of 20% annually is one of the Philippinesmost promising sectors and is one of the driving factors behind the improving net services trade balance annuallyThe Philippine banking system is sound and characterized by low NPLs and very strong prudential ratios

A Fortified ExternalPosition and a Sound

Banking System

The uncontested outcome of the last elections was widely regarded as a positive development for the Philippines and couldsignal a structural change in political dynamics ushering in more stable political transitions

A More Stable Politicaland Institutional

Environment

Executive SummaryPhilippines to sustain strong economic performance in 2011


4/46







Agenda



5/46

Economic Resiliency and Sustained DynamismThe strength of the Philippine economy is evident not only from how well it withstood the last downturn but also inhow rapidly economic recovery has been over the last twelve months

Source: National Statistical Coordination Board

The economy grew at sustained strong levels over the last decadeThe economy grew at sustained strong levels over the last decade

Average: 4.7%

GDP Growth (%)GDP Growth (%)

Full Year GDP Growth (%)Full Year GDP Growth (%)

Growth in 2010 was broad-based supported by the industry and services sectors and consumption and investments

2009

2010201

0

2009


6/46

Quarterly GDP Growth (in %)

Economic Resiliency and Sustained DynamismThe strength of the Philippine economy is evident not only from how well it withstood the last downturn but also inhow rapidly economic recovery has been over the last twelve months

The economy grew at sustained levels over the last decade posting in Q4 2010 its 48 th quarter of positive economic growth since 1999The economy grew at sustained levels over the last decade posting in Q4 2010 its 48 th quarter of positive economic growth since 1999


7/46

Economic Growth Projections

2011

Official Targets 7.0 - 8.0%

Poll of Forecasters 4.8%

IMF 5.0%

World Bank 5.0%

ADB 4.6%

Source: Official Projections are based on targets adopted by the Development Budget Coordination Committee (DBCC) ; Asian Development Outlook 2010 Update; Philippines Quarterly Update, World Bank Manila, October 2010; IMF Post Program Monitoring Discussion Staff Report

Robust Economic Outlook for 2011High levels of economic growth are viewed as sustainable in the medium term


8/46

Agriculture, Fishery and Forestry Expected to benefit from the governments modernization program

Industry Anticipated expansion in mining and acceleration in construction and full recovery of housing, biofuels and the Halal

food marketServices

Expected to continually improve driven by retail trade, finance and private services

Supply Side

Demand Side

Uncertainty of external demand : slow recovery scenario for global growthSurge in capital inflows: large capital inflows could pose challenges to liquidity and exchange rate managementCommodity price pressures : strong recovery of pr ivate demand and large capital inflows pressures; increases in toll andtransport fare in the short term; petitions for cost recovery in electricity prices; and wage hikes could exert domestic priceNatural calamities may dampen economic growthNarrowing sources of investmentProtracted resolution of European debt crisis

Risks and Challengesto Growth

Growth Drivers for 2011 and Risks and Challenges to GrowthThe Aquino Administrations thrust to improve governance and the implementation of right policies will provide impetusfor high sustained economic growth

Private consumption Remittances to provide momentum for increase in household spending

Government Expenditure 2011 National Expenditure Program increased by 6.8 percent due to the expansion of coverage of the conditional cash

transfer programInvestments

Total cumulative investments of all investment promotion agencies to reach PhP 3.8 trillion from 2011 to 2016 Expected boost from construction, agro-industry, electronics and semiconductors, tourism and Business Process

OutsourcingExports

Total exports expected to grow by 13% per year in 2011 - 2013 and 14% per year in 2014-2016 For 2016 , merchandise and services exports are expected to reach US$92 billion and US25 billion, respectively


9/46







Agenda



10/46

The administration has a clear fiscal strategy for the medium term

Fiscal Sustainability: An Integral Part of the Effective GovernanceAgendaThe Aquino administration has identified fiscal sustainability as a top priority

Rigorously implement RATEs, RATS and RIPS programs to go after evaders, smugglers and corrupt officials, respectivelyEstablish a tax registry that includes all taxpayersComplement tax collection agencies with competent and adequately trained staff Establish appropriate performance standards and evaluations for collection officialsStrengthen Lateral Attrition Law by instituting a more effective system of rewards and penalties

Stringent TaxEnforcement to Achieve

National GovernmentTax Effort of 18.1% by

2016

Zero-based budgeting: across-the-board review of all budgets to cut wasteFocused targeting of social programs making sure funds go to those truly in needAdvancing Pay-Go legislation: A requirement that all new expenditure and revenue-eroding legislation would be matchedwith revenue-increasing measuresTighter implementation of procurement laws allowing greater scrutiny of all public procurement to cut waste

Tight ExpenditureDiscipline to Use Public

Resources in the MostEfficient Manner

Target budget deficit of 2% of GDP by 2013Achieve gradual reduction in Gross and Net Debt / GDPProvide capital for priority investments in infrastructure to accelerate economic growthPush for rationalization of fiscal incentives bill to make sure they are used only where necessary and channel them to winstrategic, important investmentsPush for the GOCCs Reform BillPush for the Amendments to the Build-Operate-Transfer (BOT) Law

Sustainable Deficits andHealthy Public Finances

Reduce the debt stock and debt service payments and lengthen the maturity profile where feasible through debt swaps andexchangesContinue with various initiatives to diversify the capital structure: examples already implemented include the Retail Treasurybond, Japanese Yen issue, Global Peso bond issues

Prudent DebtManagement


11/46

In just a few months, the current administrations commitment to enforce tax collection is paying dividends

Fiscal Sustainability: An Integral Part of the Effective GovernanceAgendaThe hands-on approach to increasing tax revenues is on track

In late September 2010, the Philippines was removed from the OECD tax haven grey list

The OECD moved the Philippines from its tax haven grey list to the white list after agreeing that the countryhad substantially implemented the internationally-agreed tax standards with the implementation of RepublicAct (RA) 10021, or The Exchange of Information on Tax Matters Act.

In October 2010, the Philippines signed the first Capacity-Building Partnership Agreement with the IMF andthe MCC to help reform tax administration

Under the agreement, MCC will contribute US$4.6 million for technical assistance from the IMFs Fiscal Affairs

Department to help the Philippines Bureau of Internal Revenue (BIR) improve its revenue administrationpolicies and procedures

The 40-month project will bolster the effectiveness of revenue collection and reduce opportunities for corruption. The projects design was based on the work the IMF has done over the past several years with theBIR

Several tax evasion, smuggling and corruption cases have already been filed

Under its Run Against Tax Smugglers (RATS), the Bureau of Customs (BOC) has filed 144 cases as of Feb17, o.w. 27 cases were filed under the Aquino administration

Under its Run Against Tax Evaders (RATE), the Bureau of Internal Revenue (BIR) has filed 157 as of Feb.10 , o.w. 28 cases were filed under the Aquino administration

Under the Revenue Integrity Protection Services (RIPS), the DOF has filed 80 cases with 120 respondents, 17personnel dismissed and 35 suspended as of Feb. 23, o.w. 6 cases were filed, 3 personnel dismissed and 5suspended under the Aquino administration


12/46

2011 NG Fiscal ProgramIn Billion Pesos 2009 2010 2010 2011 Growth Rate

Actual Jan-Nov Program Program (2011/2010)Total Revenues % of GDP

1,123.214.6%

1,104.8 1,294.415.6%

1,410.015.6%

8.9%

Tax Revenues% of GDP

981.612.8%

998.5 1,153.213.9%

1,273.014.1%

10.4%

BIRBOCOther Offices

750.3220.3

11.0

753.3233.5

11.7

860.4280.7

12.1

940.0320.0

13.0

9.2%14.0%

7.4%

Non-Tax Revenues% of GDP

141.61.8%

106.3 141.21.7%

137.01.5%

-3.0%

BTr IncomeFees and ChargesPrivatizationGrants

69.970.1

1.40.2

52.452.9

0.60.4

60.179.1

2.00.0

50.081.0

6.00.0

-16.8%2.4%

200.0%0.0%

Expenditure% of GDP

1,421.718.5%

1,374.6 1,619.419.5%

1,700.018.8%

5.0%

Surplus / (Deficit) % of GDP

(298.5) -3.9% (269.8 )

(325.0) -3.9%

(290.0) -3.2%

-10.8%

Fiscal Sustainability: An Integral Part of the Effective GovernanceAgendaKeeping the deficit within manageable levels is a fundamental goal for the new administration

Source: Department of FinanceSource: Depar tment of Finance


13/46

Closing the gap between revenues and expenditures and controlling the fiscal deficit

Proposed Medium-Term Fiscal Program 2010-2016 (% of GDP)

Source: Department of Finance

Fiscal Sustainability: An Integral Part of the Effective GovernanceAgendaKeeping the deficit within manageable levels is a fundamental goal for the new administration


14/46

Fiscal Sustainability: An Integral Part of the Effective GovernanceAgendaDebt has stabilized and should come down further

Manageable deficits will translate to a sustainable path for the government debt

NG Debt 2008-2011

Debt is on a clear path of stabilization

Proposed Medium-Term Debt Path 2010-2016 (% of GDP)

P hp Bn % of GDP

Program Actual

end-Oct

Program

Source: Department of FinanceSource: Department of Finance


15/46

Maintaining Long-Term Financial HealthProactively managing the liability profile

Source: Bureau of the Treasury

The Philippines takes advantage of sufficient domestic liquidity and gradually veers towards domestic financing

Share of Domestic and Foreign Debt by Creditor (as % of Total National Government Debt)


16/46

Maintaining Long-Term Financial HealthProactively managing the liability profile

Prudent financing strategies minimize foreign exchange risk and increase funding self-sufficiency

Domestic and Foreign Financing

Program

ActualJan-Nov

Program

Sources: Department of Finance


17/46

Improving Domestic Debt ProfileIncreased depth and liquidity of the domestic government securities market have provided for longer maturitiesand reduced local interest rates

%3 1 %2 8 %3 2 %2 5

%2 0

%3 6 %3 9 %3 4

%3 1%2 8

%3 3 %3 3 %3 5

%44%52

%0

%1 0

%2 0

%3 0

%40

%50

%60

%7 0

% 8 0

%9 0

%1 0 0

2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 Jan-Nov 2010

Lo ng-term Med ium-term Sho rt-term

Note: Weighted average annual yields of Philippine government securities


Note: Weighted average annual yields of Philippine government securities


Declining local borrowing ratesDeclining local borrowing ratesLengthening domestic debt maturitiesLengthening domestic debt maturities

Source: Bureau of the Treasury Source: Bureau of the Treasury

.4 63

.6 1

%4

%6

% 8

%1 0

%1 2

%1 4

%1 6

%1 8

2 0 0 1 2 0 0 3 2 0 0 5 2 0 0 7 2 0 0 9

year borrowing rate5 year borrowing rate1 0 year borrowing rate2 5


18/46

Accomplishments in Liability ManagementThe ROP successfully diversified its capital structure through pursuit of various initiatives

Issuance of 25-year Global Peso Notes (GPN)

Improves currency composition of NG debt and reduces foreign exchange risk

Priced at a 23% discount to the local benchmark thereby reduces borrowing cost

Further builds the GPN yield curve in support of other borrowers particularly for infrastructure projects

Bond Exchange Achieved a maturity and duration extension of 9.1 years and 5.3 years respectively

Generated NPV savings of about US$5.6M and cash interest savings of US$69.6M per annum

Approx. US$1.7M of bonds maturing from 2011-2017 were retired in the exchange


19/46

The Reform Budget of 2011Enforcing good governance principles; Ensuring spending that is driven by strategic priorities

2009

Actual

2010 NEP* 2010 GAA** 2011 GAA**

Php Bn 1,434.1 1,541.0 1,540.6 1,645.0

% of GDP 18.7 18.5 18.5 18.2

Growth Rate(gross)

6.8

* National Expenditure Program** General Appropriations Act

Source: Department of Budget and Management Source: Department of Budget and Management

Governance Principles in 2011 and Beyond

Zero-Based Budgeting Approach

Bias for the Poor and Vulnerable

Private-Public Partnerships

Fiscal Responsibility

Transparency, Accountability and Good Governance


20/46

The Reform Budget of 2011Enforcing good governance principles; Ensuring spending that is driven by strategic priorities

Source: Department of Budget and Management Source: Department of Budget and Management

Disbursements by Expense ClassFY 2011

Allocation by Sector FY 2011


21/46







Agenda



22/46

Effective Monetary Policy Supportive and StableThe Philippines strikes a delicate but effective policy balance between policy accommodation in support of economicgrowth and controlling inflation

3.5%

Sources: Bangko Sentral ng Pilipinas, Asian Development Bank Asian Development Outlook 2010 Update

Well calibrated monetary policy kept inflation rate in 2010 at 3.8% well-within the target range of 3.5-5.5%

Favorable inflation outlook and benign inflation environment has given the BSP some flexibility to keep policy rates steady

Latest BSP projections show inflation staying within the target range of 3.0-5.0% for 2011

Upside risks to inflation include a potential rebound in oil prices, additional increase in rice prices, potential increase in theprice of other non-oil commodities, the impact of adverse weather conditions on agriculture, petitions for electricity rateadjustments, and a stronger-than-expected domestic economic recovery that could induce demand-side price pressures

Inflation remains well-contained within targets

Inflation (%)

0

2

4

6

8

10

12

14

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Headline Target (LE) Target (HE)


23/46

Inflation Projections

2011

3.0- 5.0%

4.4%

4.0%

4.5%

Inflation Outlook for 2011Viewed to be moderate and easily manageable by leading organizations

Sources: Bangko Sentral ng Pilippinas, Asian Development Bank Asian Development Outlook 2010 Update, International Monetary Fund World Economic Outlook October 2010,World Bank Philippines Quarterly Update, Sept 2010, Moodys Asia-Pacifi c Sovereign Mid-Year Outlook 2010

Official Targets


24/46

Money Supply and Credit Remain SupportiveWith inflation well under control, the Republic has the capacity to keep domestic interest rates and moneysupply supportive of further economic growth

Liquidity and interest rates remain supportive of growth

M3 in Billions PHP

Healthy but prudent banking sector credit expansion

Commercial Bank Loan Growth (net, y-o-y)

Sources: Bangko Sentral ng Pilipinas

The Philippines is able to keep domestic interest rates and money supply broadly accommodative with respect to growth,illustrative of the degree of financial flexibility the Republic enjoys due to its sound management of inflation

Credit extended by commercial banks is growing at a healthy pace and is conducive to the further expansion of businessactivities

3.0%

5.0%

7.0%

9.0%

11.0%

13.0%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0

P H P B n

M3 Bank Lending Rates Reverse Repurchase Rate

Dec 2010:P4,396.8

Dec 2010:7.7%

Dec 2010:4.00%


25/46

Source: Bangko Sentral ng Pilipinas

Maturing Banking Sector Has Performed Well In CrisisThe risk of a banking crisis is minimal due to demonstrated resilience during the recent downturn as well as healthylevels of growth and capitalization

Solid asset growth in line with economic expansion

Total Asset Size and Asset Growth

Strong capitalization above international norms

Capital Adequacy Ratio

Continuously strong profitability

ROE

BSP Regulatory Requirement of 10%

International Standard of 8%

15.2%

16.2%

8%

10%

12%

14%

16%

18%

20%

2001 2002 2003 2004 2005 2006 2007 2008 2009 - Jun-10

Solo Consolidated

11.2%

0%

2%

4%

6%

8%

10%

12%

14%

2001 2002 2003 2004 2005 2006 2007 2008 2009 Jun-10


26/46

Improving Asset Quality Underpins the Soundness of thePhilippine Banking System

The resilience demonstrated by the Philippine banking systemis highlighted by the decrease in system-wide NPL and NPAlevels even at the heart of the global financial crisis

Improving asset quality has minimized the risk of a potentialbanking-system led crisis

NPL coverage ratios have strengthened as insurance againstpotential future asset deterioration, and underpin theconservative nature of the banking system

While NPLs have shrunk, NPL coverage ratios have strengthened

NPL coverage ratio (%)

The proportion of loans past due has decreased substantially

Billions PHP (LHS) and Percentage (RHS)

System-wide NPL level has shown sustained improvement eventhrough the crisis

Billions PHP (LHS) and Percentage (RHS)

122.3

3.9%

4.4%

100110120

130140150160170180190200

M a r - 0 6

J u n - 0

6

S e p - 0

6

D e c - 0

6

M a r - 0 7

J u n - 0

7

S e p - 0

7

D e c - 0

7

M a r - 0 8

J u n - 0

8

S e p - 0

8

D e c - 0

8

M a r - 0 9

J u n - 0

9

S e p - 0

9

D e c - 0

9

M a r - 1 0

J u n - 1

02%

4%

6%

8%

10%

Non-Performing Loans (lhs) NPL Ratio (rhs) NPA Ratio (rhs)



27/46







Agenda



28/46

-3.3

-8

-7

-6

-5-4

-3

-2

-1

0

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

*Others includes Net unclassified items, an offsetting account to the ov erstatement or understatement in either receipts or payments of the recorded BOP c omponents vis--vis the overall BOP positionSource: Bangko Sentral ng Pilipinas, National Stati stical Coordination Board

Sound External Payments PositionBalance of Payments and external dynamics have remained key credit assets as the economy rebounds from globalcrisis on the back of rapid export growth and robust remittances and BPO receipts

Balance of Payments

(Billions USD)

GDP growth in 2010 boosted by swift export growth

Total Exports (Billions USD)

Balance of Trade improving as exports become more competitive

Balance of Trade (Billions USD)

*

25%

6%

24%

43%43% 44%

28%

37%34% 36%

37%46%

30%

11%

01

23456

N o v - 0

9

D e c - 0

9

J a n - 1

0

F e b - 1

0

M a r - 1 0

A p r - 1 0

M a y - 1

0

J u n - 1

0

J u l - 1 0

A u g - 1

0

S e p - 1

0

O c t - 1 0

N o v - 1

0

D e c - 1

00%10%

20%

30%

40%

50%

Total Exports FOB (lhs) YoY Growth (rhs)

* BOP grew to a surplus of US$14.4 billion as of end-December 2010 * BOP grew to a surplus of US$14.4 billion as of end-December 2010

E t l D bt S i R ti I i


29/46

External Debt Service Ratios ImprovingExternal debt service and interest payments becoming more manageable

Improving external debt service and foreign interest payments metrics underscore the strengthening of external finances

Debt Service as % of Exports of Goods and Receipts from Services and Income

Source: Bangko Sentral ng Pilipinas Selected Economic and Financial Indicators October 8, 2010, Moodys Country Credit Statistics Workbook Country Statistics Excel Data

9.6

579

11131517192123

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010FExternal Debt Service Burden

External debt ratios have been cut by half in less than six years

External Debt / GDP (%)

I i l R R d L l


30/46

External resiliency fortified by soaring FX reserves

Gross International Reserves, Billions USD

International Reserves at Record LevelsSupported by strong and sustained remittance growth

Reserve holdings more than cover debt payments

International Reserves / External ST Debt


Gross international reserves expanded to a record US$62.4bn in 2010. GIR grew to US$63.5bn as end-January 2011.

Large stockpile of international reserves provide a healthy buffer against external shocks reserve holdings can cover 11 x the countrys short-term external debt on original maturityGrowing international reserves are structural in nature and are supported by strong remittance flows as well as abooming business process outsourcing (BPO) industry

15.7 16.4 17.1 16.218.5

23.0

33.837.6

44.2

63.562.4

0

10

20

30

40

50

60

70

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 end-Jan'11

1,106.6

0%

200%

400%

600%

800%

1000%

1200%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 end-Jan'11

Robust Remittances and Booming BPO Sector Structurally


31/46

BPO sector has grown quicker than the net services trade balance

Billions USD

Service sector is becoming a positive net contributor to CA

Contributions to CA in Billions USD

Robust Remittances and Booming BPO Sector StructurallySupport the Current Account

Remittances have tripled in a decade and provide atremendous external financing cushion

Billions USD


Remittances continue to contribute greatly to the Philippinescurrent account and are up by 8.2% in 2010

The Business Process Outsourcing (BPO) industry is one of the Philippines most promising sectors and is one of thedriving factors behind the improving net services tradebalance

Global trend of outsourcing is expected to accelerate and willbenefit the Philippines disproportionately given the Republicswell-established competitive advantages in the BPO sector

I i g I t ti l I t t P iti


32/46

Improving International Investment PositionInternational assets have nearly doubled in five years while the net international investment position has trendedtowards a more sustainable equilibrium

International assets and investment position have steadily increased over the past decade, demonstrating thePhilippines increasing international stature

Billions USD


Strengthening and Stable Currency


33/46

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

97 98 99 00 01 02 03 04 05 06 07 08 09 10

Indonesian Rupiah South African Rand Turkish Lira

Latvian Lats Guatemalan Quetzal Phil ippine Peso

Strengthening and Stable CurrencyReduced likelihood of destabilizing depreciation suggests lower default probability

Peso substantially more stable compared to peer currencies

Annual Standard Deviation of % change of daily FX rates

The Peso has strengthened both vis--vis the USDand on a real effective exchange rate basis

* Effective exchange rate based on Bank for International Settlement (BIS) figuresSource: Bangko Sentral ng Pilipinas, Bank for International Settlements; Bloomberg

PhP per USD and REER*

Philippines CDS Levels are Tighter than Higher Rated Peers


34/46

Philippines CDS Levels are Tighter than Higher Rated PeersMarket validation of the countrys credit strengths

Source: Bloomberg. Note: State Bank of India used as a proxy for the Indian sovereign

India, Baa3/BBB-/BBB-, 191.9

Indonesia, Ba1/BB/BB+, 148.2

Vietnam, B1/BB-/B+, 366.3

Philippines, Ba3/BB/BB, 141.2

Turkey, Ba2/BB/BB+, 175.7

Brazil, Baa3/BBB-/BBB-, 118.0Peru, Baa3/BBB-/BBB-, 113.8

25 Feb 2011 Closing 5-Yr CDSLevels and Ratings (M/S&P/F): PHLs CDS curve is historically below that of

Indonesia despite being rated two notcheslower by Moodys

S&P upgraded PHL sovereign credit rating toBB from BB- in November 2010

Moodys also changed PHLs credit outlook toPositive from Stable in January 2011

PHLs CDS curve is historically below that of Indonesia despite being rated two notcheslower by Moodys

S&P upgraded PHL sovereign credit rating toBB from BB- in November 2010

Moodys also changed PHLs credit outlook toPositive from Stable in January 2011

0 bps

200 bps

400 bps

600 bps

800 bps

1000 bps

1200 bps

1400 bps

Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10

S p r e a

d ( b

p s )

Agenda


35/46







Agenda


Clear Mandate from the Filipino People


36/46

Source: Bloomberg

Candidate Party ResultsVotes %

Benigno "Noynoy" Aquino Liberal 9,564,943 42.49Joseph Estrada PMP 5,927,990 26.33Manny Villar Nacionalista 3,333,558 14.81Gilberto Teodoro Lakas Kampi CMD 2,480,185 11.02Eddie Villanueva Bangon Pilipinas 722,857 3.21Richard Gordon Bagumbayan-VNP 270,981 1.20Nicanor Perlas Independent 33,730 0.15

Jamby Madrigal Independent 30,533 0.14John Carlos de los Reyes Ang Kapatiran 28,297 0.13

Election day

Clear Mandate from the Filipino People A stable political environment resulting in improved investor confidence

0

100

200

300

400

500

600

2-Mar-09 2-May-09 2-Jul-09 2-Sep-09 2-Nov-09 2-Jan-10 2-Mar-10 2-May-10

A clean victory for Aquino bolstered his administrations legitimacy and paves the way for a stable political environment

Philippines 2010 Presidential Elections Results

The markets were not affected before or after the elections

Philippines 5 Year Sovereign CDS

Agenda


37/46







Agenda


BSP Policies Supportive of Economic Growth


38/46

Monetary Policy

Inflation is expected to fall within the Governments target range of 3% to 5% for 2011 and 2012

Closely monitor emerging price pressures and coordinate as necessary with concerned government agencies on possible

measures to address supply-side concernsKeep track of domestic liquidity conditions given the prospect of strong foreign exchange inflows

Pursue economic modeling and research initiatives to further develop the BSPs forecasting and policy analysis capability

Provide an adequate and timely supply of currency to meet consumption and production needs of the economy

Implement other innovative modes of asset cleanup to facilitate a more vigorous unloading of bad assets in the banking system

Implement revised risk-based capital adequacy framework in line with the provisions of Basel II in 2011

Implement a time-bound prompt corrective action (PCA) framework to provide a comprehensive approach to problem bank

resolution in close coordination with other financial regulators such as the Philippine Deposit Insurance Corporation (PDIC)Harmonize corporate governance standards with other financial regulators

Enhance existing risk-based supervision technologies in line with internationally accepted standards and best practices

Improve existing regulatory framework particularly the issuance of amendatory rules on liquidity risk management andoutsourcing frameworks

Enact key legislations such as the BSP Charter Amendment, Collective Investments Schemes Law (CISL), Payments SystemsAct (PSA), Financial Sector Taxation and Pre-Need Code of the Philippines

Pursue initiatives to promote a deep domestic capital market that will complement the presence of a resilient banking system

Financial Sector Policy

BSP Policies Supportive of Economic GrowthFurther strengthening price stability objective, enhancing stability of the banking system, further deepening the domesticcapital market

BSP Policies Supportive of Economic Growth


39/46

Social Advocacies

Facilitate greater access to credit and other financial services for micro, small and medium enterprises(MSMEs)

Promote greater public awareness of basic economic and financial issues and financial empowerment(e.g. Economic and Financial Learning Program EFLP)

Promote broad-based financial literacy, particularly for OFWs and their family beneficiaries

External Sector Policy

Continue to benchmark BSP systems and processes against international best practices to ensureconfidence in the countrys payments and settlements systems.

Maintain a market-determined exchange rate

Build-up comfortable level of reserves for self-insurance against external shocks

Ensure the continued effective management of the countrys external debt

BSP Policies Supportive of Economic GrowthFortifying the countrys external payments position, creating an environment of equal opportunities

Strengthening the Governments Balance Sheet


40/46

Administrative Measures

Restructure and strengthen the Large Taxpayer Service

Set-up BIR key performance indicators and public actual resultsImprove VAT refund mechanism and enhance risk-based audit on such refund

Revitalize the RATE, RATS and RIPS programs of government

Establish appropriate performance standards and evaluations

Maintain a transparent and productive tax audit program

Legislative Reforms

Push for the enactment of Deficit-Neutral (PAYGO) Bill; Seeks to establish deficit-neutral rules towards responsible financialmanagement, and a burden sharing framework between the executive and legislative branches of government

Finalize proposed Fiscal Incentives Rationalization Bill; Seeks to remove redundant incentives to reduce the fiscal costs andensure that incentives will be given only to those who need them

Push for GOCCs Reform Bill; Promotes financial viability and fiscal discipline in GOCCs and strengthens the role of the State inits governance and management

Push for Amendments to the Build-Operate-Transfer (BOT) Law; Seeks to remove the maximum 60-day period for competitivebidding for unsolicited proposals; allow s the government to reimburse proponents of unsolicited proposals in exchange for government bidding out projects proposed by proponents on an unsolicited basis without the right to match

Debt Management

Create a Debt and Risk Management Unit at the Department of Finance to conduct more aggressive options to optimizesavings

Set up comprehensive debt management system including contingent liabilities and PPP-related fiscal risks

Diversify modes, instruments and currency mix and introduce innovative terms and features

Subject to rigid test of project viability and procurement processes projects funded out of borrowing whether or not government-to-government, automatically guaranteed under GOCC charters and under BOT or PPP arrangements

Commitment to FiscalConsolidation

Revenue Enhancement and Debt Management

Reforms

g gIncrease revenues and widen tax base while pursuing parallel efforts to reinforce tax administration and ensure efficientexpenditure management program

Strengthening the Governments Balance Sheet


41/46

Continue adoption of the multi-year budgeting system to improve predictability of funding and integrate policy

with resource allocation.Continue adoption of Organizational Performance Indicator Framework to enable channeling resources towhere it best produces desired results and outcome

Implement functionalities in the Philippine Government Electronic Procurement System such as a) virtual storefor electronic purchasing; b) expanded supplier registry as a centralized electronic database of allmanufacturers, suppliers, distributors, contractors and consultants registered in the system; c) introduction of fees and charges to sustain operations and maintenance of the system; d) e-payment system to enhance thefunctionality of the virtual store; e) e-bid facility for electronic bid evaluation of all types of procurement; and f)uploading of the Annual Procurement Plan for every government procuring entity.

Strengthening of the internal control system; finalize the Philippine Government Internal Audit ManualContinue adoption of Zero-Based Budgeting Approach; to ascertain whether the program objectives/outcomesare being achieved

Promote transparency and accountability safeguards in the budget process; Require the posting of details of program beneficiaries and location of projects in agency websites- approved budgets, performance measuresand targets, annual procurement plan, contracts awarded, name of contractors/suppliers/ consultants, targetedand actual beneficiaries, utilization of funds, status of implementation and program/projectevaluation/assessment reports

Strengthen Contingent Liability Management (CLM) through the preparation of the CLM Plan

Implement Public Financial Management and the Government Integrated Financial Management InformationSystem to harmonize and integrate the budgeting, accounting and auditing systems of the government to makeit more transparent, accountable and performance-oriented

Continue implementation of the Government Rationalization Program which aims to build a smaller bureaucracyand improve public service delivery

Commitment to FiscalConsolidation

ExpenditureManagement Reforms

g gRaise revenues and widen tax base while pursuing parallel efforts to reinforce tax administration and ensure efficientexpenditure management program

Source: Draft Medium Term Philippine Development Plan (MTPDP) 2011-2016 Source: Draft Medium Term Philippine Development Plan (MTPDP) 2011-2016

Ensuring Enabling Business Environment Reforms


42/46

Make the business environment ever more predictable, reliable and efficient Upgrade the Business Name Registration System (BNRS); Simplify business registration requirements

and procedures; Review of procedures being undertaken by SEC, BIR, League of Cities and

Municipalities, and DILG Streamline Business Permits and Licensing System (BPLS); Simplify the minimum standards which theLGUs will be required to implement

Implement the Philippine Business Registry; Provide single window online transaction processing system Strengthen the National Economic Research and Business Assistance Center (NERBAC); Reduce

processing time for business licensing and registrationIncrease merchandise exports

Organize massive information campaign on the benefits of trade agreements Pursue productive collaboration with PCCI and other non-governmental organizations supportive of DTIs

international trade agenda Implement sector specific focused interventions; more inbound less outbound missions; selective trade

fair participationProtect consumer rights

Increase enforcement activities Stricter implementation of product testing and compliance standards; database sharing with BOC and

Bureau of Product Standards to ensure monitoring of incoming shipments that require an ImportCommodity Clearance

Enhance consumer education and advocacy Pursue enactment of consumer-related laws

Develop SMEs Capacitate SMES by rewarding performers; make available training courses Formulate of the National SME Development Plan 2011-2016 Implement Rural Micro-Enterprise Promotion Program

Continued Efforts toImprove the BusinessEnvironment

Empowering the private sector

Focus on Infrastructure


43/46

Luzon grid needs a total additional capacity of 11,900 MW onwards to 2030

Focus on InfrastructureMainstream access to reliable energy services and fuel and achieve greater energy supply security

Visayas grid needs a total additional capacity of 2,150 MW onwards to 2030

Mindanao grid needs a total additional capacity of 2,500 MW onwards to 2030

Investment Requirements (2010-2030)

Sector Total

in Billion Php in Billion US $

Fossil Fuel Resources 543.93 12.09

Renewable Energy Resources 902.48 20.05

Alternative Transport Fuels 41.37 0.92

Power and Transmission Development 342.54 7.61

Downstream 59.61 1.32

Sub-Total 1,889.93 41.99

Cost of power plant construction included in the Investment Cost of Renewable EnergyProjects

62.74 1.39

Total 1,827.19 40.60

Focus on Infrastructure


44/46

InvestmentOpportunities

Mainstream access to reliable energy services and fuel and achieve greater energy supply security

Power Sector Infrastructures in power generation, Greenfield generation projects, possible JVs with proponents of indicative projects, NPC plants and NPC-

IPP contracts for privatization, Competitive power market, Electricity trading in the WESM, transition from a government-supervised MarketOperator to an Independent Market Operator, Supply/aggregation business, Metering service provider, Missionary electrification, New Power Providers

Oil and Gas Twelve (12) petroleum contract areas in shallow to deep waters with total hectarage of 7,920,000, possible JVs with existing service

contractors

Coal Three (3) available contract areas for exploration and development, possible JVs with existing service contractors

Renewable Energy Possible JVs with existing Geothermal Service Contractors for exploration, Hydro frontier areas available for pre-development phase,

possible JVs with the existing service contractors for hydro

Alternative Fuels Bio-ethanol production capacities for transport

Natural Gas Strategic infrastructure in Luzon, LNG terminals in Southern Mindanao

Energy Efficiency & Conservation Promotion and utilization of EE & C Technologies

Accelerate the exploration and development of oil, gas and coal resources Aggressively develop renewable energy potential Intensify development and utilization of environment-friendly alternative energy resources/technologies Strengthen and enhance energy efficiency and conservation program

Strategies

Conduct of Open and Competitive Selection Process (OCSP) and direct negotiation for frontier areas in awarding RE Service Contracts Conduct of Philippine Energy Contracting Round (PECR) Develop/Institute optimal price setting in the energy industries Promote transparency in pricing of refined petroleum products Public Private Partnership Conduct of Energy Investment Forum

Programs

Focus on InfrastructureFROM DRAFT FITCHPRESENTATION


45/46

Public-private partnership program to help provide the foundations for growth

Projects ready for 2011

Focus on infrastructure to support facilities for tourism, agriculture, social services, and growth centersProvide incentives to stimulate private resourcesEnsure competition, fairness and transparencyProvide assistance in preparation of business cases, pre-FS, full FS, detailed engineering, tender document, etcFast-track project approval processProtect public interestCreate the PPP Center

PPP DevelopmentStrategies

Executive Order No. 8: Reorganizing and Renaming the Build-Operate and Transfer (BOT) Center to the Public-PrivatePartnership (PPP) Center of the Philippines and Transferring its Attachment from the Department of Trade and Industry to theNational Economic and Development Authority and for other Purposes (9 September 2010)

Source: Public-Private Partnerships (PPP) Brochure, November 2010 Edition Develo ments in the PPP Pro ram

Priority PPP Projects(2010 Prices in PhP Million)

MRT/LRT Expansion Program: Privatization of LRT 1 Operation and Maintenance (DOTC/LRTA) 7,700.0MRT/LRT Expansion Program: Privatization of MRT 3 Operation and Maintenance (DOTC/LRTA) 6,300.0MRT/LRT Expansion Program: LRT 1 South Extension Project (DOTC/LRTA) 70,000.0New Bohol Airport Development (DOTC/MIAA/CAAP) 7,600.0Puerto Princesa Airport Development (DOTC/MIAA/CAAP) 7,600.0New Legaspi (DARAGA) Airport Development (DOTC/CAAP) 3,200.0

Privatization of Laguindingan Airport Operation and Maintenance (DOTC/MIAA/CAAP) 1,500.0NAIA Expressway (Phase 2)(DPWH) 10,590.0

CALA Expressway-Cavite side section (27.5 km) (DPWH) 11,790.0

Daang Hari/SLEX Road Project (4 km) (DPWH) 325.8

Total 126,605.8


46/46

Daylight in the Philippines: Accelerating Progress

Year-End Philippine Economic Briefing

March 4, 2011L. Fisher Hotel, Bacolod City

rop yeb presentation draft - 28feb2011 (for bacolod)-1

Documents