THE STATE OF THE

ECONOMY:

WHAT WERE SAID AND NOT

SAID IN THE SONA

Joseph Anthony Lim

Professor, Economics, Ateneo de Manila University

PART 1

WITH HIGH PNOY

GROWTH, WAS

POVERTY

REDUCED?

COMPLICATIONS IN USING GOV’T

POVERTY MEASURES

The government changed its definition of the poverty threshold somewhere in the 2000s.

So we have to be careful which years are using the same definition

Can we mix the results of FIES and APIS?

Different questions, but almost same in terms of income

size of samples very different, but still representative nationally?

The President mixed FIES and APIS in his SONA 2014, claiming an improvement in poverty picture from 2012 to 2013

PIDS and other economists objected to this.

See next table

CHALLENGE: MAKING GROWTH MORE INCLUSIVE.

COURTESY OF A. BALISACAN ADB PPT PRESENTATION,

INT’L POLICY ADVISORY GROUP (IPAG) MEETING, AUG 3 – 4, 2015

0

10

20

30

40

50

60

70

80

Poverty incidence (%) based on $1.25 threshold

Indonesia Malaysia Philippines Thailand Viet Nam

34.40

26.60 26.3025.20

28.80 28.6027.90

24.6025.80

17.2015.00

20.00

25.00

30.00

35.00

40.00

199

1

200

3

200

6

200

9

201

2

201

3

201

4

201

5

PH poverty incidence (%) based on official thresholds, 1991-2013

Annual estimates First semester estimates MDG 1 target (17.2%)

Sources: WDI, PSA.

• Weak performance in poverty reduction relative to the country’s neighbors.

RESULTS OF THE FIES

AND APIS SURVEYS

• The MDG goal of halving poverty incidence

from 1990 to 2015 will most likely not be

achieved by the Philippines

• Poverty reduction from 2010 to 2014 much to

be desired

• Admitted by Sec. Arsy Balisacan

• Admitted by Sec. Butch Abad

PART II

SOCIAL SERVICES

AND SOCIAL

INDICATORS

RESULTS OF SOCIAL PROGRESS

IMPERATIVE SURVEY: APRIL 2015

• Out of 133 countries, the Philippines' score remained stagnant and its

rank deteriorated from 56 to 64 from 2014 to 2015.

• It scored well (compared to countries with similar GDP per capita) in

personal freedom and choices, access to basic knowledge and tertiary

education, information and communication technology.

• It scored badly in basic human needs (especially personal safety) and

some health indicators such as premature deaths from non-

communicable diseases and obesity rates.

• It also fared badly in the ecosystem sustainability component

(especially depletion of water resources) and press freedom.

• This shows that high economic growth doesn’t necessarily lead to

social progress.

THE GOVERNMENT’S ANTI-POVERTY STRATEGY

Ang Conditional Cash Transfer (CCT) Program/ Pantawid PamilyaPilipino Program (4Ps): increased from 760,000 families in 2010 to 4.4M HHs in Mar 2015

Pros:

o Promote education and skills of economy / eradicate child labor

o Mothers more healthy – children more healthy – a healthier labor force

o Above long-run in terms of results, explains the lack of poverty reduction

o In the short run, the cash subsidies should reduce poverty immediately (no data yet to prove this)

o Acc. to The Economist (EIU), CCT helped increase consumption of lower income groups

THE GOVERNMENT’S ANTI-POVERTY STRATEGY

The Conditional Cash Transfer (CCT) Program/ Pantawid PamilyaPilipino Program (4Ps)

Cons:

o Large ‘leakages’ -- ADB cites PIDS 2013 study that 30% of CCT funds do not go to the poor.

o Pnoy in his SONA says angrily this is based on 2009 data, before his term. But studies show the danger of leakages in CCT Program, NEVER meant as a criticism of his admin.

o CCT program very expensive (P62.6 billion for 2014) acc to some legislators

o Could the money have been better served in more and improved social services for the low income sector – public facilities in health, education, sanitation, rural infrastructure, etc.?

WHAT ARE THE STRATEGIES FOR HEALTH?

PhilHealth Universal Program for the indigents, SONA claims poorest 2 tiers

now covered, using sin tax revenues

• Are we using private health providers? For outside lowest 2 tiers, have to pay more?

• So far only in-patient programs. Where is outpatient program? In the pipeline

Preventive health care? Ongoing immunity programs, HIV increasing

dangerously. Plan? Sanitation problems, food safety

Plans to privatize and modernize public hospitals e.g. National Orthopedic

Hospital, Fabella Memorial Hospital. Improved quality assurance but more

expensive? PhilHealth vital but only two tiers covered. Private health providers

similar to ObamaCare. PPP very strong here, can backfire if not implemented

well.

Accessibility & quality of health centers, high costs of medicines, Generics

(BFAD quality assurance problem/captured regulator?)

STRATEGIES FOR EDUCATION?

• Policies on QUALITY of education and vocational training?

• New classrooms/K-12/ Aug college opening – impact depends on

QUALITY of education – no mention of plan to improve QUALITY

• Issue of public teachers' pay and quality of basic and secondary

schools – again no plan.

• Curriculum and textbooks issues. Quality issues again. Perceived

low quality/ corruption in DEPED textbooks

• Employing IT in knowledge education and pedagogy/ S & T

institutes/ ratings of our universities in Asia very lackluster. Plan?

• Jeffrey Sachs in ADB IPAG meeting Aug. 3-4 emphasized QUALITY

of education and S&T, R&D subsidies in businesses and academe

as distinguishing successful and unsuccessful developers.

PART III

ECONOMIC

GROWTH AND

CONFIDENCE

0

2

4

6

8

10

12

14

Growth rate of GDP (% per year): Selected Asian Countries –

Courtesy of Jesus Felipe ADB ppt for Int’l Policy Advisory Group

(IPAG) Mtg. Aug 3 – 4, 2015

Korea, Rep. of China, People's Rep. of India Indonesia Philippines

POTENTIAL LABOR PRODUCTIVITY

AND LABOR FORCE GROWTH RATES:

COURTESY OF JESUS FELIPE, SAME PPT AS PREVIOUS

0

2

4

6

8

10

Po

ten

tial

lab

or

pro

du

cti

vit

y g

row

th r

ate

PRC India Indonesia Philippines Rep. of Korea

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Lab

or

forc

e g

row

th r

ate

(fi

ltere

d)

PRC India Indonesia Philippines Rep. of Korea

THE PHILIPPINE ECONOMY ON A HIGHER GROWTH TRAJECTORY SINCE THE BEGINNING OF THE CURRENT DECADE (?: QM MINE). COURTESY OF DIR GEN ARSENIO BALISACAN, PPT IN ADB IPAG

2015*

2016*

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

GDP in 2000 billion Php, 1960-2016*

20

Real GDP growth

6.2% (2010-2014)

Source: PSA. *Projected

Structural break of

potential real GDP at

around 2009

1997-

1998

2008-

2009

Source: WDI.

Philippine growth from 2010-2014 is the second-highest

among major emerging economies in Asia, next only to China.

Courtesy of A. Balisacan

0%

2%

4%

6%

8%

10%

12%

1960-1969 1970-1979 1980-1989 1990-1999 2000-2009 2010-2014

Ave

rag

e g

row

th (

%)

Average growth of GDP per decade (in constant 2005 prices)

China

Indonesia

Malaysia

Philippines

Thailand

Viet Nam

• Caveat on 2nd highest growth

claim in 2010-2014

• only in East Asia, doesn’t include

India, Banglad

• doesn’t include Laos, Myanmar

and Cambodia

ERAP

SIGNIFICANT POINTS OF CHART

In terms of GDP (blue line), the Pnoy

years seem to be highest among the

three regimes, caveat:

•Erap and Pnoy – just a few years

compared to GMA’s long years

•There were significant fluctuations in

all three growths.8/6/2015

SIGNIFICANT POINTS OF CHART

In terms of GNI or Gross National Income (orange line),

• Growth in GMA years seem to be highest among the three

administrations, especially during 2003 to 2005

• Growth in OFW remittances seem to be much higher in GMA and Erap

years compared to Pnoy years, caveat:

• Half of the years under Pnoy saw GDP growth below that of GNI

growth

• There is a break in the source of data in the 2009 and pre-2009

years as compared to the post-2009 years, meaning OFW inflows

may be understated under Pnoy or overstated under GMA/ Erap

• But still, most likely, OFW remittances grew less under Pnoy –

evidence in President’s SONA on # of OFWs leaving8/6/2015

HIGHER GROWTH AND CONTRIBUTION

OF INDUSTRY AND MANUFACTURING

• Industry and Service growth rate highest under

Pnoy, but the biggest improvement is growth of

industry

• This is confirmed as we see share contribution to

growth in industry higher under Pnoy.

• Biggest component of industry is

manufacturing, the others are construction,

EGW and mining

WORST PERFORMANCE OF AGRICULTURE

UNDER PNOY

• Both Pnoy and GMA saw declining and very low growth

and contribution of agricultural sector

• Pnoy smallest growth and share contribution of

agriculture compared to GMA and Erap

• Food security not achieved – declining prod’n at

home, volatile food and commodity prices abroad.

• Increased agri productivity and higher food supply not

achieved.

• Cheaper food prices not achieved.

• Despite lower growth in exports and OFW inflows

• This was due to higher business and foreign investor confidence

Investment upgrades Moody’s, Fitch, S&P

Improvements in governance (perceived) and fiscal balance

• Due to higher government construction and gov’t spending – DAP

• Higher growth and contribution of investments (gross domestic capital formation) due to

• Higher confidence more private investments

• Higher govt construction higher public investments

Higher Pnoy GDP Growth (2011-2014)

than GMA Growth (2002-2008)

DIFFERENCES IN NATURE OF GROWTH:

PNOY YEARS, 2011-2014 COMPARED TO GMA YEARS, 2002-2008

Higher growth and higher contribution to growth of investments under Pnoy compared to GMA or

Erap

• Good for productive capacity if investments in right placesManufacturing and Industry: Higher growth and higher contribution to growth vis-à-vis service

sector under Pnoy.

• Yield more productive employment,

• Learn new and better technology,

• Higher skills and multiplier effects,

• if again in right sectors.Domestic Economy: Pnoy period relied more on domestic demand

• Should have been conducive to expanding productivity and technology

of economic sectors.

FALL IN GDP & GNP GROWTH: 1ST

QTR OF 2015

Big Shock: 1st Q of 2015 saw GDP growth slowing to 5.2%

compared to 6.6% in 4th Q of 2014, 5.6% in 1st Q of 2014

compared to 6.6% from market expectations (based on ‘experts’ predictions).

GNP growth 1st Q of 2015 even lower – 4.7%

Lost 2nd Place status to China as country with highest growth in middle income

countries in East Asia (Malaysia and Vietnam) – SONA not updated!

Government Explanation:

Low exports (bad world conditions)

Low government investment (delayed partly due to DAP prohibition by SC)

Not posed by government: Can it be due to a fall in confidence? (consumption, gov’t spending)?

Mamasapono incident – early 2015

SC declares unconstitutionality of DAP – 2nd half 2014 to early 2015

ASEAN Ranking in Global Competitiveness

Courtesy of Phouphet Kyophilavong, ppt at ADB IPAG Mtg., Aug 3 – 4, 2015

Sources: World Economic Forum, The Global Competitiveness Report 2013-2014

Basic Requirements Efficiency Enhancers Innovation

GC

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Institu

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Infr

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Singapore 2 3 2 18 2 2 1 1 1 7 34 17 9

Malaysia 24 29 29 38 33 4 10 25 25 51 26 20 25

Brunei 26 25 58 1 23 55 42 10 10 71 131 56 59

Thailand 37 78 47 31 81 66 34 62 62 78 22 40 66

Indonesia 38 67 61 26 72 64 50 3 103 75 15 37 33

Philippines 59 79 96 40 96 67 82 100 100 77 33 49 69

Vietnam 70 98 82 87 67 95 74 56 56 102 36 98 76

Laos 81 63 84 93 80 111 54 44 44 113 122 78 68

Cambodia 88 91 101 83 99 116 55 27 27 97 92 86 91

Myanmar 139 141 141 125 111 139 139 98 98 148 79 146 143

2010 2014Change

since 2010

Global Competitive Index 85 52 33

Institutions 125 67 58

Macroeconomic environment 68 26 42

Goods market efficiency 97 70 27

Financial market dev't 75 49 26

Technological readiness 95 69 26

2010 2014Change

since 2010

Global Competitive Index 85 52 33

Labor market efficiency 111 91 20

Business sophistication 60 46 14

Infrastructure 104 91 13

Higher education & training 73 64 9

Innovation 111 52 5

Market size 37 35 2

Health & primary education 90 92 -2

BUSINESS AND FOREIGN INVESTOR CONFIDENCE

In the Global Competitiveness Report of World Economic Forum:

From 2010 to 2014 the Philippines overall ranking improved from 85

to 52

In the governance area, Philippines jumped 50 ranks from 117 to 67

In ethics and corruption, RP jumped 54 ranks from 135 to 81.

But the Global Competitiveness Report also shows bad results

Bad Infrastructure -- we are stuck in rank 91

Airport infrastructure (rank 108), Seaport infrastructure (rank 101).

Peace and order/ security situation (rank 89) and the threat of

terrorism on businesses (110).

CREDIT RATING AGENCIES IMPROVE PHILIPPINES TO INVESTMENT

GRADE (BBB): FITCH MAINTAINS BBB- (MIN) IN MAR 2015

Strong points:

Improving macro:

fiscal position,

high credit growth,

continuing current account surplus, OFW inflows,

employment and BPOs

Weak points:

Weak government standards and political stability based on WB Ease of Doing Business

Low Per Capita Income compared to other BBB countries (small market size)

Excessive Lending to the property sector

ECONOMY REMAINED RESILIENT AND STABLE

COURTESY OF DIWA GUINIGUNDO, BSP, ADB IPAG MTG AUG. 3 – 4, 2015

Key Macro Indicators2002-2006

Average

2007-2012

Average2013 2014

Sustained growth momentum Real GDP growth (2000=100), in % 5.1 5.0 7.2 6.1

Manageable inflation Headline inflation (2006=100) 4.4 4.5 3.0 4.1

Robust external payments

dynamics

Current Account Balance

(% of GDP)1.6 3.8 4.4 5.9

GIR (in months of imports) 3.9 9.0 11.6 10.4

External debt (% of GDP) 61.0 37.2* 28.8* 27.3*

External debt service ratio

(% of exports of goods, receipts of

services & primary income)

14.7 7.4 8.2* 6.4*

Sound and stable

banking system

Non-performing loans

(% of total loans)11.1 3.1 2.6** 2.1**

Capital Adequacy Ratio

(consolidated basis)17.6 16.8 17.7 16.99 (end-Sept)

Improved fiscal position Fiscal balance (% of GDP) -3.4 -2.1 -1.4 -0.6

*BPM6-based concept

** Gross NPL

PHILIPPINES RANKED 1ST

IN “RESILIENCE” AMONG SELECTED

EMERGING MARKETS: COURTESY OF D. GUINIGUNDO, SAME PPT

• Pnoy growth highly sensitive to confidence

• Investments have higher growth, the higher the GDP growth based

on confidence.

• Industry and manufacturing have higher growth than service

growth, the higher (more confident) GDP growth

• 1st Q of 2014 also unexpectedly low compared to market

expectations: (govt construction and spending also down;

destruction caused by Yolanda – gov’t bungling in Yolanda)

• Thus insight: constructive govt investments and expenditures go

hand in hand with confidence-driven growth

INSIGHTS ABOUT THE NATURE OF P’NOY GROWTH: SUMMARY

INSIGHTS ABOUT THE NATURE OF P’NOY GROWTH: SUMMARY

• Growth started to falter 1st Q of 2014 – 5.6% contrary to market expectations

• Growth in 2014 below gov’t target – 6.1% vs target of 6.5 – 7.5%

• Growth in 1st Q of 2015 – 5.2%, below market expectations, most likely will not achieve gov’t target of 7% - 8% growth in 2015

• Fall in growth simultaneous with fall in confidence and falling ability of government to pump prime the economy.

• Falling absorptive capacity of govt departments in 2014 to 2015

• Prohibition on DAP in 2014 and 2015

• Mamasapano and dismal government construction in 1st Q of 2015

• Poor gov’t construction and spending 1st Q of 2014

• Yolanda and high rice/ garlic prices in 1st Q of 2014

CONFIDENCE DRIVEN GROWTH: SUSTAINABLE?

Confidence driven growth due to:

strong traditional ‘macroeconomic fundamentals’– low inflation, strong

fiscal position, lower debt to GDP ratio, growing credits, strong

external positions (growing foreign reserves)

perceived improvements in governance

Increased government investments and spending

• Perceived ‘good governance’ is fading due to some disillusionment and uncertainty

on the coming administration. Will corruption at the very top come back again???

• World conditions more volatile: impending increase in Fed rate hike. China slowing

growth and volatile financial markets. Eurozone very weak, US and Japan recovery

slow

• Obviously economic confidence cannot be sustained without HARD WORK, without

relying on domestic economy and winning the confidence of the masses (the bosses)

– social and political cohesion important for confidence!

2015 GROWTH AND BEYOND?

• Philippine growth in 2014 of 6.1% missed government target of 6.5% to 7.5%

• Philippine growth in 2015 most likely will again be below government target of 7% to 8% -- given our 1st Q growth of 5.2%

• IMF downgraded Philippine growth in 2015 from 6.7% to 6.2% (just this July)

• But some say growth will increase artificially in 2015/2016 –election spending

• Growth in 2016 and beyond depends a lot on who will become next President -- again personality led – Binay, anyone? Confidence fading

• More volatilities in the global economy & financial markets

ON UNEMPLOYMENT AND UNDEREMPLOYMENT

• Using Labor Force Survey of National Statistics Office, some

improvement in unemployment from Jan 2010 to April 2015

• Most improvement in unemployment came from April 2014 to April

2015

• Less convincing improvement in underemployment from 2010 to

latest surveys

• Improvement for underemployment came from July 2013 to April

2015, but stagnancy and some deterioration before that

• Overall, there may be some improvements in unemployment and

underemployment but they are not striking

8/6/2015

Period Unemployment Rate Underemployment Rate

Jan-15 6.6 17.5

Jan-14 7.5 19.5

Jan-13 7.1 20.9

Jan-12 7.2 18.8

Jan-11 7.4 19.4

Jan-10 7.3 19.7

Apr-15 6.4 17.8

Apr-14 7 18.2

Apr-13 7.5 19.2

Apr-12 6.9 19.3

Apr-11 7.2 19.4

Apr-10 8.0 17.8

UNEMPLOYMENT: USING SWS SURVEYS

• Jobless rate not improved in 2014, from 25.2% in 2013 to

25.4% in 2014

• Jobless rate was not really different in 4th Q of 2014, 27%,

from that of 4th Q 2013, 27.5%.

• But latest SWS survey saw improvement in Mar 2015,

with jobless rate going down to 19.1%.

• But the improvement came only in the last survey.

only one point in time

not very convincing

WHERE IS ECONOMIC STRATEGIZING?

Growth conducive to domestic demand in high

growth period 2012-2014 (6.8%, 7.1%, 6.1%):

Reliant on domestic economy and domestic demand

Promoting industry and manufacturing sectors

And encouraging investments and government spending

But terrible in agriculture

Goal: Facilitate structural transformation from low to high

productivity areas/sectors of the economy, & make growth more

inclusive and enrivonmentally sustainable• Building efficient infrastructure: Transport, logistics, flood control

• Upgrading skills and capacity for innovations: Education, health,

social protection

• Deepening reforms in economic regulation: Ease of doing

business

• Investing in disaster risk management and community resilience

• Securing just and lasting peace in Mindanao

Current efforts to addressing the key constraints to inclusive growth.

Courtesy of A. Balisacan, same as previous ppt cited.

NEED FOR ECONOMIC STRATEGIZING

Economic strategizing in such conducive domestic demand

growth:

Regional equality promotion (partly infrastructure but also local

economy development, interlinking of regions and urban/rural,

across sectors, more pro-poor IRA)

Technological at skills upgrade in key economic sectors (agri,

ind, serv)

Joint planning and implementation, dialogue and partnership

among public and private sectors – genuine PPP & interlinking

of sectors instead of just BOT or subcontracting private

providers

NEED FOR ECONOMIC STRATEGIZING

Economic strategizing in such conducive domestic demand growth:

Institutionalize the required planning /strategizing and genuine Public/ private partnership – delivery and coordination in infrastructure, legal structures, technology, skills, marketing knowhow, incentives, interlinking among sectors and areas. – need planners, engineers, nationalist businessmen, lawyers, etc. (maybe less economists?)

The Roadmap program of DTI: Asec Rafaelita Aldaba &

Usec Adrian Cristobal Jr worth supporting? Car program

mentioned in SONA, but not the Roadmap project (why?)

ENVIRONMENTAL CONCERNS

• Green economy and sustainable development (we are

paying lip service but no holistic and integrated

program).

• Climate change and disaster management

• Natural Resource Protection

• Pollution Control

• Depletion of Water Resources

• Energy

• Sewerage, Sanitation

• Can all these be done only via

• - the markets and private sector?

• - PPP in the limited BOT/ subcontracting sense?

• - Need PPP in the broadest sense

• - Need good governance in economic mgt

• Obvious is the need for genuine governance that is

• - performance-based, efficient, and ‘may puso’

• - not just ‘walang mahirap kung walang kurap’

• - nor is it just ‘alisin ang wang/ wang’

• (this is miseducating the citizenry)

• Need instutionalization of good, enlightened, and efficient governance WITH A HEART

at the political levelat the social levelat the economic level

• Need ‘software’ INSTITUTIONS and DIRECTION, not just hardware INFRASTRUCTURE and HUMAN CAPITAL

• This is the main challenge facing Pnoy growth and Daang Matuwid

• We need another catch phrase Daang May Patutunguhan (pwedeng matuwid, deadendnaman).