Successes and challenges in

implementing structural reform

The case of the Philippines

Arsenio M. Balisacan, PhDSecretary of Socioeconomic PlanningRepublic of the Philippines02 February 2015, Clark, Philippines

2

Key messages

• The Philippines has been implementing structural reform: Good governance + good economics• It has yielded for us quite good results• But the task is far from complete.• International cooperation can facilitate the

process of deepening structural reform.

3

The Philippine context: Late 80s to early 90s

• The Philippines embarked on significant structural reforms • Breaking up of monopolies in selected

industries (telecoms, airline, water and power utilities)• Deregulation of the oil industry • Establishment of an independent

monetary authority• Liberalization of the banking sector • Tariff reform and import liberalization

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Philippine context: Focus of Aquino administration is to address the key constraints to growth and its weak translation to people’s wellbeing.

Massive investment in infrastructure and human capital development

Effective regulatory systems and strong regulatory capacity

Peace and human security, especially in Mindanao

Disaster preparedness and management, social protection

Credible institutions,Good governance

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Our strategies are aligned with ANSSR Five Pillars

More open, well-functioning, transparent and competitive markets

Better functioning and effectively regulated financial markets

Labor market opportunities, training and education

Sustained SME development and enhanced opportunities for women and for vulnerable populations

Effective and sustainable social safety net programs

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Recent reforms have yielded positive results. Broadly, reforms have been evidence-based, focused on the most binding constraints to growth.

Strong governance and anti-corruption

agenda Restored confidence

Game plan for competitiveness

Rise in Global Competitiveness and Ease of Doing Business rankings

Further opening up of sectors

Growth in tourism and services; resurgence of manufacturing

Sound fiscal management and

PPPs

Higher spending for human capital investment (education, training, health, CCT) and infrastructure

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The Philippines is no longer the “sick man” of Asia.

1960-1969 1970-1979 1980-1989 1990-1999 2000-2009 2010-20130.0

2.0

4.0

6.0

8.0

10.0

12.0

Average GDP growth (in %, 2005 prices)

ChinaIndonesiaMalaysiaPhilippinesThailandVietnam

Source: WB

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19461949

19521955

19581961

19641967

19701973

19761979

19821985

19881991

19941997

20002003

20062009

2012 -

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

GDP in 2000 billion Php, 1960-2014

The Philippine economy is on a higher growth trajectory since the beginning of the current decade. Average growth in 2010-2014 is the highest 5-year average growth since the mid-1970s.

Real GDP growth6.3% (2010-2014)

6.1% (2014)7.2% (2013)6.8% (2012)

Source: PSA

Structural break of potential real GDP at around 2009

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The shift in the growth trajectory has come alongside structural transformation.Services sector has expanded while the share of the agriculture and industry sectors in GDP decline.

1980-1984 2010-20130%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

16 11

41

32

4356

Shares of agriculture, industry, and services, 1980-1984 and 2010-2013

ServicesIndustryAgriculture

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Employment share of agriculture has been decreasing; share of services substantially increasing; but increase in share of industry has been marginal.

1980-1984 2010-2013

51.7

32.3

13.9

15.2

34.3

52.5

Employment shares of agriculture, industry, and servicesAgriculture Industry Services

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Lessons learned: 1. Sustaining growth and making it inclusive requires good governance and sound economic policies and strategies.

But the task is far from complete.

GOOD GROWTHRapid, Sustained,

and Inclusive

GOOD GOVERNANCE

GOODECONOMICS

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Source: Philippine Statistics Authority

Employment and poverty have become more responsive to growth, but still need to be improved.

Poverty Statistics*, First Semester (%)

2006 2007 2008 2009 2010 2011 2012 20130

5

10

15

20

25

30

35

28.8 28.6 27.9

24.9

14.2 13.3 13.4

10.7

individuals in poverty individuals in extreme poverty

*using national poverty line

2010 2011 2012 2013 20146.5

6.6

6.7

6.8

6.9

7.0

7.1

7.2

7.3

7.4

7.3

7.0 7.0

7.1

6.8

Average annual unemployment rate (%)

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Lessons learned: 2. Piece-meal approach won’t work.

• Structural reforms have winners and losers. • Reform agenda has to be a comprehensive package

- to harness synergy & complementarity of reform components• Massive investment in technology, physical and human

capital to level playing field and equalize opportunities.• Social protection, insurance and safety nets in view of

“creative destruction”, apart from disaster risks

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Lessons learned:3. Strong and credible leadership, political capital needed to build constituencies and counter vested / narrow interests.

Good governance and sound economic policymaking and management feed into each other.

Long term vision and planning must be put in place by a coalition of reform champions, with support from global community.

GOOD GROWTHRapid, Sustained,

and Inclusive

GOOD GOVERNANCE

GOODECONOMICS

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The scope for international cooperation

• Potential gains from competition and opening up of the economy are massive. • SMEs need to be brought into the global value chain to make

growth inclusive.• Facilitate the movement of services along global value chains.• Comparative advantage needs to be carefully evaluated.• Reduce behind-the-border barriers.

• Advocacy for deeper regulatory reforms • Reforms toward greater competitiveness have to be

deepened.• Capacity building to improve efficiency and effectiveness of

regulations.

Successes and challenges in

implementing structural reform

The case of the Philippines

Arsenio M. Balisacan, PhDSecretary of Socioeconomic PlanningRepublic of the Philippines02 February 2015, Clark, Philippines