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CER:PHI 2003-08
COUNTRY
ECONOMIC
REVIEW PHILIPPINES
August 2003
CURRENCY EQUIVALENTS (as of 31 July 2003)
Currency Unit
− peso (P)
P1.00 = $54.675 $1.00 = P 0.0183
ABBREVIATIONS
ADB – Asian Development Bank ASEAN − Association of South East Asian Nations BIR BOC
− −
Bureau of Internal Revenue Bureau of Customs
BSP − Bangko Sentral ng Pilipinas DMC – Developing member country FDI – foreign direct investment GDP − gross domestic product GFI – government financial institution GNP − gross national product GOCC − government-owned and -controlled corporation LGU − local government unit MDG − Millennium Development Goal MTEF − Medium-Term Expenditure Framework MTPDP − Medium-Term Philippine Development Plan NPA − Non-performing asset NPC − National Power Corporation NPL − Non-performing loan OFW − overseas Filipino workers PRC − People’s Republic of China SARS − severe acute respiratory syndrome SEER − sector effectiveness and efficiency review SME − small- and medium-scale enterprise SPV − Special Purpose Vehicle T-bill − Treasury bill US − United States VAT − value-added tax WTO – World Trade Organization
NOTE
In this report, "$" refers to US dollars.
CONTENTS
EXECUTIVE SUMMARY i MAP iv I. RECENT ECONOMIC DEVELOPMENTS 1 A. Growth, Employment, and Investment 1 B. Fiscal Developments 3 C. Monetary and Exchange Rate Challenges 4 D. External Trade and Balance of Payments 5 II. ECONOMIC PROSPECTS AND POLICY ISSUES 7 A. Short- and Medium-Term Macroeconomic Prospects 7 B. Key Development Policy Issues 9 C. Risks and Challenges 14 STATISTICAL APPENDIX 16
This report was prepared by Xuelin Liu, Country Economist, PhCO, Southeast Asia Department, under the guidance of Shamshad Akhtar, Deputy Director General, Southeast Asia Department and Tom Crouch, Country Director, Philippines Country Office. Technical and administrative support were provided by Cynthia V. Reyes, Associate Programs Analyst, PhCO and Marlene B. Albutra, Sr. Administrative Assistant, PhCO.
EXECUTIVE SUMMARY
The Philippine economy continued to show resilience despite global uncertainties, a subdued world economy, the Iraq war, continuing civil strife in Mindanao, and the severe acute respiratory syndrome (SARS) epidemic. The economy grew by 4.4% in 2002, which was above the average post-crisis level, but below the average during 1994–1997. High population growth continued to constrain more rapid growth of per capita income. The primary driver of economic growth was private consumer spending, buoyed substantively by $7.2 billion remitted by overseas workers. The services sector again contributed most to output growth, supported by a sharp recovery in industry. Agriculture growth contracted slightly, affected by the El Niño weather pattern. Investment, on the other hand, continued its slump, dropping to 15.6% of gross national product (GNP), the lowest since the mid-90s and the lowest among the major economies of ASEAN; this has serious implications for future growth prospects.
While there are indications that in 2003 the Government will arrest the 5-year slide in budget deficits, fiscal imbalance is the achilles heel of the economy and its management has become the primary barometer for assessing the Government’s ability—and its credibility—to deliver on its wider economic program. Since 1998, the increasingly high deficits have been cushioned by record low domestic interest rates, a liquid banking sector, subdued demand for credit from the private sector, and good access to international capital markets. However, the level of the deficit now threatens economic stability. The costs of the deficit to achieving broader economic and social objectives have begun to emerge, evidenced by a growing budget share (29% of budget expenditure in 2003) for debt service, less optimistic assessments by international credit rating agencies and fund managers, and greater pressure on resource allocation for priority projects. The solution lies mostly in enhancing tax revenues, which continued to erode in 2002, forcing the government into containing the deficit’s slide rather than progressing on its reduction. The deteriorating tax effort has caused increased recourse to borrowing for financing development, is denying the Philippines resources for high priority new investment and maintenance of existing assets, and limiting spending on social services to meet the commitments for progress on the Millennium Development Goals. While primarily a revenue problem, there are important expenditure-side elements to the fiscal consolidation challenge. Expenditures have been cut to the “minimum survival level”, as the Government moves progressively to achieving its goal of a balanced budget by 2009. Recent improvements in revenue performance should be sustained. Further expenditure compression will be counter-productive, and fiscal space for urgent spending should be created through streamlining the bureaucracy and greater efficiency.
Despite fiscal pressures, prudent monetary management by the Bangko Sentral ng
Pilipinas (BSP) facilitated the lowering of inflation. This helped stabilize the yields on the auction of T-bills that had a ripple effect on reducing the interest rates. Both the overnight lending and overnight borrowing rates of BSP stabilized since March 2002, but were lowered in June 2003 following interest rate cuts by the United States (US) Federal Reserve Bank. The external current account registered a larger surplus in 2002. After a precipitous slide in 2001, Philippines exports grew in 2002, helped by recovery in the global electronics market (54.5% of export earnings) and strong non-Japan regional trade, including rapid growth in market share of the People’s Republic of China. Up to March 2003, Philippine exports had 12 consecutive months of gains, although for the balance of 2003 the weakened dollar may reduce demand from the US (the largest market). Substantive recent improvements in the legal framework for economic and governance reform include enactment of legislation to (i) help reduce the overhang of banks’ bad debts, (ii) improve efficiency and reduce costs of public procurement, (iii) enable the financial sector to comply with international best practices in anti-money laundering, (iv) enfranchise overseas Filipinos for national elections, and (v) prohibit trafficking in persons. However, urgent action is
ii
required on other economic reform legislation pending in Congress, including bills related to power sector privatization, reform of the Bureau of Internal Revenue (BIR), indexation of excise taxes, removal of the documentary stamp tax on secondary stock transactions, and increases in remuneration for the judiciary. The often-prolonged process for legislative approval has heightened the debate on political reform and the need for stronger coordination between the executive and legislative branches of the Government.
The Philippines’ success in managing the potential damage from the SARS epidemic, and its balanced approach to the July coup attempt, demonstrated the country’s increased capacity in responding to unexpected shocks. However, the Philippines faces the challenge of addressing contagion of another type—from perceptions that the economy is becoming less competitive and provides a less attractive destination for investment. The country has (i) slipped in its ranking for corruption (Transparency International), competitiveness (World Economic Forum), and foreign direct investment (FDI) performance benchmarked against potential (UNCTAD World Investment Report); (ii) had its long-term sovereign credit rating and outlook downgraded by S&P’s and Moody’s; and (iii) been given a 12-month cure period (to February 2004) by California Public Employees’ Retirement System (CalPERS) as an investment market. Foreign chambers of commerce located in Manila have highlighted the urgent need to address weaknesses in the investment climate, declining proficiency in English (an important source of competitive advantage), corruption, and inadequate infrastructure; and to improve security.
The economy’s resilience will continue to be tested over the next couple of years as the global economic outlook remains subdued and, domestically, the authorities grapple with the deficit problem and the nation’s attention is focused on elections in May 2004. Uncertainty has been a persistent partner of the Philippines in recent years, and seems likely to continue to influence economic performance and investor perceptions. Uncertainties exist with contenders for the Presidency in the 2004 elections and the policies that will be pursued by the new administration; the coup attempt in July 2003 injects further dimensions of uncertainty. Achieving projected growth of 4% in 2003 and 4.5% in 2004 will depend on the pace of domestic economic reform, a supportive global economy, and no further shocks.
Economic Scorecard Strengths • Resilient growth; 2002 expansion highest since 1997 • Strong private consumption growth; domestic-led growth • Growing remittances from overseas workers • Recovery in exports; healthy international reserves • Low inflation • External debt rising, but servicing manageable • Enactment of important economic legislation • Effective management of the SARS epidemic Vulnerabilities • Fragile fiscal position Ø low tax-GNP ratio Ø interest payments preempting a growing share of the budget Ø low and declining discretionary expenditure Ø increasing contingent liabilities
• Investment-GNP ratio low and declining • Investment climate uncertainties • Persistently high nonperforming loans causing weak bank
intermediation • Delays in important economic legislation • High population growth dampening impact of economic growth • Corruption, governance, and peace and order issues
iii
Gross Domestic Product Growth
4.5
-0.6
3.44.04.4
5.04.4
3.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1994 to1997
average
1998 1999 2000 2001 2002 2003 2004
%
In 2002, growth accelerated, but remains lower than pre-crisis levels.
Gross Domestic Investments
0
5
10
15
20
25
1997 1998 1999 2000 2001 2002
% GNP
Private Public Total
Declining investment compromises future growth prospects.
External Debt
68.165.865.169.8
53.0
64.8
15
25
35
45
55
65
75
1997 1998 1999 2000 2001 2002
% GNP
02468101214161820
%
Total Debt/GNP (%) Debt Service (%)ST Debt/Total Debt (%)
A favorable debt profile has cushioned the impact of the rising debt stock.
Fiscal Performance
-5
0
5
10
15
20
25
30
1997 1998 1999 2000 2001 2002
% GNP
-5
0
5
10
15
20
25
30
% TotalExpend.
Deficit/GNP (%) Tax Effort/GNP (%)Interest Payments/Total Expd (%) Disc Expd/Total Expd (%)
The steady erosion of tax effort is reflected in rising deficits, rising interest payments, and declining discretionary expenditures.
Foreign Exchange Earnings
-2
0
2
4
6
8
10
1997 1998 1999 2000 2001 2002
$bn
-20.0
-10.0
0.0
10.0
20.0
%
OFW remittances ($bn) Exports Growth Rate (%)
Economic performance depends critically on OFW remittances and exports Key economic legislation has been passed recently; other measures are in Congress.
Legislative Agenda
Government Procurement Act (December ’02) Special Purpose Vehicle Act (January ’03) Overseas Absentee Voting Act (February ’03) Anti-Money Laundering Amendment Act (March ‘03) Anti-Trafficking in Persons Act (May ‘03)
Fiscal Responsibility bill National Autonomous Revenue Agency bill Excise Tax bills (sin taxes; vehicles) Documentary Stamp Tax bill Transco Franchise bill Payment for Judiciary bill
iv
I. RECENT ECONOMIC DEVELOPMENTS
A. Growth, Employment, and Investment
1. Aggregate Growth and Sector Performance
1. The Philippines experienced stronger economic recovery in 2002 as real gross domestic product (GDP) grew by 4.4%. While this was higher than the average growth after the Asian crisis it is below the average growth rate of 5% during 1994-1997 (Figure 1). In line with recent trends, economic growth was driven by continued expansion in the services sector, and revival of the industry sector that grew by 3.7% after a sluggish performance in 2001 (Table A.1). The gross national product (GNP) grew by 4.5%, benefiting from the P75 billion net factor income flows (mainly remittances of overseas Filipino workers) from abroad (NFIA). As a result, per capita GNP grew by 5.7% in 2002, reaching $1,033.7, as against $977.7 in 2001.
Figure 1. Growth of GDP and Sectoral Components(1985 constant prices)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
1994-97 ave. 1998 1999 2000 2001 2002
%
GDP Industry Services Agriculture
2. Agriculture growth, which continues to contribute 20% of GDP and provides employment for 33% of the work force, decelerated from 3.7% in 2001 to 3.3% in 2002 due to the effects of the El Niño weather pattern (Table A.2). Agricultural performance has been affected by a combination of low productivity, inability to maintain, expand and modernize infrastructure due to budgetary constraints, and inequitable land ownership. Support to rural small- and medium- scale enterprises (SMEs) could help farmers gain easier access to markets and inputs. Despite some progress in land distribution under the Comprehensive Agrarian Reform Program (CARP), the extremely high concentration of farmland ownership continues to perpetuate rural income inequality. 3. Industry, accounting for one-third of GDP in 2002, rebounded by 3.7%, compared with growth of 0.9% in 2001, and contributed about 1.4 percentage points to the overall output growth. Recovery in the manufacturing sector was supported by both the domestic market and the improved global demand for electronics and garments. Greater product and market diversification and improved productivity (affected adversely by the poor quality of the country’s infrastructure and support facilities) will improve industry’s competitiveness and reduce its vulnerability to external factors. Accounting for 46% of the total value added, the services sector expansion of 5.4% in 2002 was the main contributor to overall growth (Table A.2). The services sector growth was led by trade, transportation, communication, and storage subsectors. Trade liberalization in accordance with the Asian Free Trade Area (AFTA) Agreement will further boost the services industry.
2
2. Employment and the Labor Market 4. Employment has by and large grown more slowly than the labor force (Table A.4). Consequently, the unemployment rate has been over 11% since the mid-1990s (higher than the trends observed in other ASEAN countries), and is more pronounced among women than men. Even higher has been the underemployment level (at 17.0%); however, it did decline slightly in 2002.1 Expansion and diversification in agriculture and industry would be key to absorbing the growing ranks of the labor force, as the service sector is already absorbing 47.4% of the workforce. 3. Investment and Savings 5. On the demand side, personal consumption was strongly supported by spending on household products, transport and communication services and contributed almost 60% of GDP growth in 2002. In contrast, the investment-GNP ratio in 2002 remained low at only three quarters its level in 1997 (Table 1). The investment climate in the Philippines is adversely affected by complicated investment procedures, high transaction costs, infrastructure constraints, and growing competition for foreign direct investment (FDI).
Table 1: Investment and Savings (% of GNP)
Item 1997 1998 1999 2000 2001 2002
Gross Domestic Investment 23.8 19.3 17.8 19.9 19.4 18.1 Public 4.8 4.4 4.2 3.7 3.2 3.4 Private 19.0 14.9 13.6 16.2 16.2 14.7
Gross Domestic Savings 18.7 21.6 26.1 27.2 21.1 23.1 Public 4.3 1.4 0.8 (0.6) (1.0) (1.8) Private 14.4 20.2 25.4 27.8 22.1 25.0
Resource Gap/Surplus (5.1) 2.3 8.3 7.3 1.7 5.0
GNP: gross national product. Source: National Economic and Development Authority.
6. While the gross domestic savings rate rose to 23.1%, it remains significantly low and 4 percentage points below 2000 levels. The Philippines’ savings rate is lower than that of its neighbors; in 2002, Malaysia’s rate was 44.9% and Thailand’s was 31.0%.2 Negative public savings, a high propensity to consume, and weakness in the financial intermediation process all contribute to the low savings effort of the Philippines. Also savings-investment gap reflected the net capital outflows in the balance of payments. Investment rate was even lower in recent years, reflecting (i) low lending of the banking sector caused by the conservative practices after the 1997-98 financial crisis and inefficient banking management system, such as high non-performing loans (NPL); (ii) a small, underdeveloped and fragmented capital market; and (iii) the unfavorable investment environment in the country.
1 Unemployment may be underestimated as the number of people engaged in unpaid family work and visibly underemployed
(those working less than 40 hours a week) increases. 2 Asian Development Bank, Asian Development Outlook 2002.
3
B. Fiscal Developments 7. The consolidated fiscal deficit3 in 2002 reached an unsustainable level close to P231.3 billion (5.4% of GNP) or 30% more than the targeted level in absolute terms and reflected a 1.1 percentage points increase in the fiscal deficit-GNP ratio over 2001 level (Table 2). The National Government's budget deficit of 4.9% of GNP, which accounts for the bulk of the consolidated fiscal deficit, contributed primarily to the overall fiscal slippage (Table A.8). The root cause of the fiscal imbalance is the low revenue-GNP ratio. At the national level, the revenue-GNP ratio fell by about 5.5 percentage points below 1997 levels. The deficit of government-owned and -controlled companies (GOCCs) grew partly because of higher capital expenditure requirements of the Light Rail Transit Authority and continuing losses of the National Power Corporation (NPC).
Table 2: Public Sector Deficit and Surplus (% of GNP)
1997 1998 1999 2000 2001 2002 Consolidated Public Sector Deficit (1.0) (3.0) (3.2) (4.4) (4.3) (5.4) Of which: National Government 0.1 (1.8) (3.6) (3.8) (3.8) (4.9) Central Bank (1.0) (0.9) (0.7) (0.6) (0.6) (0.4) GOCCs (0.7) (1.4) (0.2) (0.6) (0.6) (1.1) OPSF (0.0) 0.0 0.1 0.0 0.0 0.0 Others 0.6 1.0 1.2 0.7 0.5 0.9 GOCC = Government-owned and -controlled corporation; OPSF = Oil Price Stabilization Fund, which was eliminated in 2001. Note: Figures may not add up to total due to rounding. Source: Department of Budget and Management, Department of Finance. 8. National Government Revenues. Public sector revenues consist of taxes, tariffs, charges, and proceeds from privatization. About 87% of the revenues are generated from taxes, with about 50% from income tax. Excise tax and value added taxes contribute close to 12-14% of the total tax revenues each. Due largely to continued weaknesses in tax administration, tax collections declined from 16.3% of GNP in 1997 to only 11.6% in 2002 (Table 3). Besides these trends, the shortfall in tax revenues in 2002 was also due to the fall in revenues from interest incomes as interest rates fell, concentration of growth in lightly taxed agriculture and export sectors, and lower collections from import duties. The Bureau of Internal Revenue (BIR) is strengthening tax collections by tightening tax administration and pursuing taxpayers through reminders for the tax payment, expanding the electronic filing and payment system for taxes, setting up a payment warning system for taxpayers, and sanctioning firms at the expiration of the 5-day VAT compliance period. These enhancements helped improve revenue collections in the last quarter of 2002, but it could not compensate for the revenue shortfalls in the preceding three quarters of 2002. 9. National Government Public Expenditures. The public expenditure-GNP ratio stagnated at 18-19% during 1997-2002. Current expenditures declined slightly in 2002 as a proportion of GNP, mainly due to the tight revenue situation. The difference between revenues and mandatory expenditure obligations (wages, interest, and other transfers) decreased from 3.3% of GNP in 1998 to almost none in 2002, leaving an ever-smaller share for discretionary spending. The sharpest cut in discretionary spending was in the maintenance and operating expenses. The high fiscal deficits have forced the Government to borrow more, and the interest payment obligations rose from 16.6% of total expenditures in 1997 to 23.9% in 2002. In 2002,
3 The Philippines' consolidated (public sector) fiscal deficit includes those of the National Government, local government units,
central bank restructuring fund, and the government-owned and -controlled companies (GOCCs).
4
capital outlays increased slightly as a percentage of GNP, largely because of the increase in investment funding.
Table 3: National Government Finance (% of GNP)
1997 1998 1999 2000 2001 2002
Aggregate Expenditure 18.6 18.3 18.8 18.6 18.1 18.1 Current Operating Expenditure 16.6 16.7 16.7 16.7 15.4 15.2 Personal Services 6.0 6.2 5.3 5.2 6.1 6.2 Maintenance & Operating Expenses 4.3 4.2 4.5 4.3 2.2 1.9 Allotment to LGUs 2.8 2.6 3.1 2.9 2.4 2.6 Interest Payments 3.1 3.6 3.4 4.0 4.5 4.3 Capital Expenditure 1.9 1.6 2.0 1.7 2.7 2.9 Aggregate Revenue 18.7 16.5 15.3 14.7 14.4 13.2 Tax Revenue 16.3 14.9 13.8 13.2 12.5 11.6 Nontax Revenue 2.4 1.6 1.5 1.5 1.8 1.6 Overall Surplus/ (Deficit) 0.1 (1.8) (3.6) (3.8) (3.8) (4.9) GNP = gross national product, LGU = local government unit Sources: Department of Budget and Management, Bureau of Treasury. 10. The growing fiscal deficit has necessitated high recourse to domestic borrowings through bank loans, bonds, and Treasury bills. The outstanding debt of the National Government rose to 65.6% of GNP in 2002 compared with 60.7% of GNP in 2001 (Table A.9b).
B. Monetary and Exchange Rate Management
11. In 2002, monetary policy aimed at easing money supply growth, while maintaining price stability and taking into account the risks associated with exchange rate movements and their impact on inflation. Generally low inflation amid the global economic downturn provided some space for a more relaxed monetary policy and the Bangko Sentral ng Pilipinas (BSP) continued to closely monitor developments in the domestic and international markets and adopted policy responses to restrain inflation. In the first quarter of 2002, BSP cut its policy rates three times by a cumulative 75 basis points, bringing the overnight lending and borrowing rates to 7.0% and 9.5%, respectively (Figure 2). No further adjustments were made until July 2003 when BSP cut the policy interest rates by 25 basis points in response to the interest cut by the US Federal Reserve Bank. Following the decline in interest rates, the rates on T-bill auctions also decreased steeply. The average 91-day T-bill rate in 2002 was 5.4%, compared with 9.9% in 2001 (Figure 2). Besides issuing T-bills and bonds to finance the growing fiscal deficit, the Government issued an aggregate of $2.8 billion of international bonds in 2002, compared with $420 million in 2001. The downgrade by international rating agencies in 2002 and early 2003 resulted in wider spreads on sovereign foreign issues. 12. BSP adopted inflation targeting as its key policy objective and set the target inflation rate at 4.5-5.5% for 2002. Prudent monetary policy coupled with the lower demand for private credit, and low inflation for food products and nonfood products (except for fuel) resulted in lowering inflation to 3.1% in 2002, the lowest since 1988. The adjusted consumer price index of food,
5
which accounts for more than 50% of the price basket, increased by 2.7% in 2002. Also price increases were moderate across all other commodity groups, notably services, housing, and energy-related products.
Figure 2. Selected Domestic Interest Rates and Inf lat ion Rate
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
1998.1 1998.2 1998.3 1998.4 1999.1 1999.2 1999.3 1999.4 2000.1 2000.2 2000.3 2000.4 2001.1 2001.2 2001.3 2001.4 2002.1 2002.2 2002.3 2002.4
%
91-day T-bills BSP Lending Rate BSP Borrowing Rate Inflation
13. Fiscal pressures coupled with increased uncertainties caused by local and regional terrorist activities and the forthcoming presidential and national elections in 2004 contributed to depreciation of the peso. The peso started to depreciate in July 2002 from about P50 to $1 and fell to a low of P55.1 in March 2003 due to the war in the Middle East, security concerns in Mindanao, and lingering concerns over the budget deficit. The real effective exchange rate4 has shown a declining trend since 1996, which has helped improve the competitiveness of Philippine goods (Table A.11). The peso’s stability since March 2003 (mainly due to BSP’s implementation of a number of measures to curb the speculative demand for dollars and to moderate volatility) was upset by the coup attempt in the late July 2003, which caused some sell-off of the domestic currency. D. External Trade and Balance of Payments
14. The overall balance of payments position strengthened in 2002 as the current account surplus surged from $1.3 billion (1.7% of GNP) in 2001 to $4.2 billion (5.1% of GNP) in 2002 (Table 4). A combination of surplus in the balance of trade in goods, lower net outflows in services, and higher net inflows in the income account and current transfers strengthened the current account position. After a contraction of 16.2% in 2001, merchandise exports rose by 10.1% in 2002, boosted by recovery in the global demand for electronics (Table A.12). Semiconductors and garments are the top contributors to the growth of merchandise exports. Imports grew by 6.2% in 2002, compared with a 4.5% contraction in 2001. With imports growing slower than exports, the trade balance registered a surplus of $408 million in 2002 compared with a deficit of $743 million in 2001. Exports and imports of services still posted negative growth, but less than in 2001. Higher remittances from overseas Filipino workers (OFWs) helped capital flows and reflected in part the increase in the number of OFWs, particularly professional, technical, and service workers. Although net portfolio investment increased in 2002, the overall capital and financial account remained in deficit because of large capital outflows and lack of direct investments (Table A.13). 4 The real effective exchange rate index of the peso is the nominal effective exchange rate index (NEERI) multiplied by the ratio of
the domestic price index to the weighted price index of the countries whose currencies comprise the NEERI basket. NEERI is the weighted average exchange rate of the peso against a basket of foreign currencies unadjusted for the effects of inflation.
6
Table 4: Trade and Current Account Balance ($ billion)
Item 1997 1998 1999 2000 2001 2002
Merchandise Exports 25.2 29.5 34.2 37.3 31.2 34.4 Annual Growth Rate (%) 22.8 16.9 16.0 9.0 (16.2) 10.1 Merchandise Imports 36.4 29.5 29.2 33.5 32.0 34.0 Annual Growth Rate (%) 14.0 (18.8) (0.9) 14.5 (4.5) 6.2 Trade Balance (11.1
) (0.03) 4.9 3.8 (0.7) 0.4
Services 5.7 1.1 (5.0) (2.4) (2.1) (1.3) Annual Growth Rate (%) (16.2
) (80.0) (338.1
) 10.4 15.6 38.3
Transfers 1.1 0.4 0.5 0.4 0.4 0.5 Current Account Balance (CAB) (4.4) 1.5 7.2 6.3 1.3 4.2 CAB as % of GNP (6.3) 1.6 9.0 7.8 1.7 5.1
Source: Bangko Sentral ng Pilipinas , Department of Economic Research.
15. Gross international reserves have increased significantly since 1997 and are equivalent to 5 months cover relative to imports of goods and payment of services and income. In 2002 reserves included the proceeds from the floatation of the zero coupon notes issues by the National Power Corporation (NPC) and bond issuance of the Power Sector Assets and Liabilities Management Corporation (PSALM)’s in Japanese yen to fund the NPC’s foreign exchange requirements5. The increase in reserves was partly offset by the debt service requirements of the National Government and BSP. The gross foreign exchange reserve level was equivalent to three times the level of outstanding short-term accounts and is deemed acceptable under international standards (Table A.14). The net international reserves amounted to $12.8 billion at the end of 2002, higher than the $11.4 billion in December 2001. 16. The rise in key external debt indicators (debt-GNP ratio and debt service ratio) necessitates careful monitoring, although the maturity and currency mix of external debt appears reasonable. The increase in 2002 of total outstanding external debt (Table 5) resulted essentially from foreign exchange revaluation adjustments on non-dollar-denominated debt, and also from government borrowings. The average maturity of medium and long-term debts was 16.5 years; that of public external debt was 19.1 years and that of the private sector was 10.5 years. As of end-2002, close to 90% of the external debt carried medium- to long-term maturities and only 10% had short-term maturities. Public sector external debt accounts for 66.4% of outstanding external debt; private sector external debt (mostly telecommunication and power companies) accounts for the remaining 33.6% (Table 5). In terms of currency mix, dollar-denominated debt accounts for 55% of the total, Japanese Yen for 27%, and the rest from other currencies.
5 Asian Development Bank, December 2002, $500 million, Proposed Partial Credit Guarantee (PCG) for Fixed Rate Bond Issues
by the Power Sector Assets and Liabilities Management Corporation for the Power Sector Reform Program.
7
Table 5. Total External Debt and Debt Servicing in the Philippines
Item 1997 1998 1999 2000 2001 2002
External Debt to GNP Ratio (%) 53.0 69.8 65.1 65.8 68.1 64.8 Debt Service Ratio (%) 11.6 11.7 14.1 12.4 15.8 16.4 Total External Debt ($ billion) 45.4 47.8 52.2 52.1 52.4 53.9 Share by Borrower (%) Public 47.1 48.0 52.2 50.9 48.0 52.0 Government Banks 4.8 5.0 5.3 5.7 5.1 5.5 Bangko Sentral 7.5 10.5 9.3 9.5 11.2 8.9 Private Banks 13.2 11.3 8.0 6.8 5.7 5.8 Private 27.5 25.3 25.4 27.1 29.9 27.8 Share of Short-Term Debt (%) 18.6 15.0 11.0 11.4 11.6 10.3 Total Debt Service ($ billion) 5.6 5.1 6.6 6.1 6.6 7.4
Principal Interest
3.0 2.6
2.8 2.3
3.8 2.8
3.1 3.1
3.7 2.9
4.9 2.5
Source: Bangko Sentral ng Pilipinas.
II. ECONOMIC PROSPECTS AND POLICY ISSUES
A. Short- and Medium-Term Macroeconomic Prospects
17. In line with the Medium-Term Philippine Development Plan (MTPDP) for 2001–2004, the Government is targeting an average annual GDP growth of 4.6-5.5% during 2003-2004. To achieve the target and sustainable poverty reduction, the MTPDP identifies six key areas: (i) keeping political and economic stability, supported by fiscal, monetary, and exchange rate policies to achieve a low budget deficit, low inflation, and a sound balance of payments position; (ii) promoting peace and security, vital for maintaining sustainable growth and attracting investments; (iii) supporting good and effective governance by improving transparency, reducing graft and corruption, strengthening partnerships with civil society and business, and carrying out consultations with people; (iv) implementing poverty reduction programs–-particularly in basic education, health and shelter; and strengthening social protection for the most vulnerable sectors through the social welfare system and safety nets; (v) agriculture modernization with social equity by accelerating agrarian reforms, improving rural infrastructure, and implementing land reforms; and (vi) adopting conducive policies to reduce unemployment and avoiding declines in income, including policies to control population growth. 18. The Philippine economy has shown substantial resilience in recent years. The country’s potential vulnerability to the external environment will continue to be tested, as the global economic outlook for 2003 is likely to be affected by slow growth in the United States, Europe, and Japan where recessionary concerns have emerged.6 Asia’s economic growth is currently forecast at 5.3% in 2003, reflecting the slower growth of the world economy and the impact of the severe acute respiratory syndrome (SARS) epidemic.7 Considering the effects of SARS (Box 1) and other events, the Philippines’ economic growth is expected to be 4.0% in 2003.
6 Asian Development Bank, Asian Economic Outlook 2003. 7 Fan, Emma Xiaoqin, Asian Development Bank: ERD Economic Policy Brief #15, May 2003, SARS: Economic Impacts and
Implications .
8
Box 1: SARS Epidemic and the Philippines
The Philippines recorded only a few cases of SARS; however, the epidemic is expected to depress slightly short-term growth in the Philippines due to regional contagion and domestic effects. The impact of SARs is anticipated to have been transmitted to the economy principally through reductions in tourism (consumer spending, air travel, hotel accommodation), and possibly some budgetary implications as efforts were launched to monitor and enhance public care facilities. The Philippines is expected to be the least affected of the larger Southeast Asian countries, mainly for these reasons:
(i) Tourism receipts (accounting for about 3% of GDP) make a relatively small contribution to total income, and the reduction of tourism receipts from international travelers was partly offset by increased in-country tourism;
(ii) WHO classified the Philippines as an “affected country” for only a limited period; (iii) The negative effects on remittances from OFWs (accounting for about 8% of GDP) will be
minimal, as disruption to travel of OFWs to destination countries was short -lived; and (iv) Trade with ASEAN, PRC, and the Philippines’ larger trading partners was not affected
substantially, although some effect will be felt as business travel was curtailed and supply lines faced some disruption, especially due to some factory closures in the PRC.
The epidemic in Asia lasted for one quarter in 2003 (March-June 2003). Southeast Asia is expected to incur a drop in regional GDP of 0.5 percentage points; for the Philippines, the loss is estimated to be at around 0.2 percentage point of GDP.
19. Agricultural growth is expected to return to a more moderate level in 2003 because of the tapering off of the El Nino weather effect; while growth in the industry sector should remain at the same level as in 2002, as the expected strengthening in the global economy is offset by continued weaknesses in domestic industry, including a sluggish investment demand. Growth in services should remain robust, given the economy’s increasing technological sophistication in such areas as computer software and information technology services. On the demand side, consumption will continue to be strong, supported by the continued flow of remittances and the export sector will gain momentum more slowly. 20. Growth is unlikely to be adversely affected by sharp oil price rises: the possibility of oil price rises associated with the Iraq war have quickly receded, and the underlying assumption of the Philippine budget of oil price in the range of $25-28 per barrel is likely to be met. Similarly, the interest rate assumptions underlying the budget seem reasonable: 91-day T-bill rates to average 8-9% in 2003, compared with the 5.4% average in 2002. Although BSP reduced the domestic benchmark rates by 25 basis points in June 2003, the spreads on the Philippine sovereign debt have widened recently, especially due to the large budget deficit, weaker perceptions by investors, and lower ratings given by international credit rating agencies. 21. Economic growth in 2004 is expected to rise to 4.5% provided the Philippines is able to address some of its serious infrastructure constraints. Agriculture will continue to grow at a slow pace due to weak transport and irrigation systems in the rural areas, but industry will present stronger growth because of the revival of the world economy and industrial demand in 2004. The services sector will continue to do well. On the demand side, aggregate demand will likely continue to be led by consumption and net exports. Investment is projected to rise as the external climate improves further. 22. Without stronger economic growth and with high population growth, unemployment is likely to remain at around 10% in 2003 and 2004. During 2003-2004 inflation should remain at low levels – the Government’s target of 4.5% should be met – notwithstanding some upward
9
pressure from higher oil prices in the early months of the year and the effect of a weaker peso on import prices. In 2004 inflation could accelerate due to further strengthening of domestic demand. Domestic liquidity is expected to grow faster over the next 2 years if inflation remains under control. 23. Assuming some degree of fiscal consolidation, the budget deficit is likely to be reduced by 0.5% of GNP per year during 2003-2004. This can only be realized if BIR and the Bureau of Customs (BOC) keep engaged in strong resource mobilization. BIR hopes to improve its tax collections this year to 10% of GNP (about P433 billion), about one percentage point higher than the official target for 2003. 24. The trade and current account balances should improve further as export growth continues to outpace import growth. The overall balance of payments is projected to be in surplus though increments in the current account surplus will be partly offset by capital outflows in 2003. In 2004, the global economy will be more stable, with expectations of world peace and order achieved after the Iraq war. Thus in 2004, the improving trend in the external current account is expected to continue. Capital outflows are expected to reverse direction as the effect of higher investment incentives and financial reforms starts to be felt. B. Key Development Policy Issues
1. Public Resource Management 8
25. Fiscal consolidation is the primary macroeconomic challenge facing the Philippines. Until 1997, the Philippines was in a fiscal surplus situation. Since 1998, fiscal deficits were financed through low-cost domestic borrowings as the banking sector enjoyed a fair degree of liquidity given the subdued private sector credit demand. There was also easy access to international financial markets. In recent years, the fiscal deficit increased sharply and its size is unsustainable. Besides squeezing public expenditures, the fiscal deficit has generated pressure on domestic interest rates and increased spreads for Philippine sovereign debt in international markets. Further expenditure compression will compromise future growth prospects. Recognizing this, the Government has taken or initiated several measures, including: (i) strengthening monitoring and follow-up of large taxpayers, (ii) undertaking intensive audits on tax payments, (iii) filing bills in Congress on indexation of excise taxes to inflation and on redefining automobiles to remove excise tax loopholes, (iv) improving the VAT collection, and (v) rationalizing fiscal incentives to encourage investment. In early 2003 BIR imposed the VAT on activities of persons in the practice of professional services. To prevent tax evasion and corruption, BIR is taking measures to minimize under-declaration of income by companies and self-employed professionals, and a computerized system for payment is being operationalized. Tax revenues will increase from the proposed adjustment in excise taxes, and the imposition of a limit on taxpayers' expenses that are deducted from taxable income. Fuller restructuring of BIR is awaiting approval of legislation that will lead to the establishment of an autonomous revenue authority (Box 2).
8 For a comprehensive assessment, see Government of the Philippines, Asian Development Bank, World Bank, April 2003,
Improving Government Performance: Discipline, Efficiency, and Equity in Managing Public Resources – A Public Expenditure, Procurement, and Financial Management Review.
10
Box 2: Reforming the Bureau of Internal Revenue
BIR and BOC comprise the primary tax agencies of the Philippines. In 2002 BIR generated 87% of the National Government’s total tax revenues, but its collections are well below potential. In May 2003 President Arroyo proposed a National Autonomous Revenue Agency Bill to create an independent tax authority. The President noted “an urgent need to reverse the declining tax effort attributable primarily to weak tax administration, corruption, and institutional constraints in the BIR.” (Business World, 27 May 2003, p2). DOF has estimated the annual revenue losses due to corruption at BIR at P242 billion. Recognition of this has resulted in the launching of comprehensive reform at BIR. The reforms will focus on rationalization and simplification of the tax system, reliance on information technology to make the taxation system more effective, establishment of a warning system for taxpayers and tax collections, and implementation of Executive Order (EO 114) to restructure BIR into a taxpayer-focused organization, commencing in the first quarter of 2003. Capacity building and human resources development are also key elements in improving BIR’s performance.
26. On the expenditure side, the Government has adopted the Medium-Term Expenditure Framework (MTEF) to prioritize and rationalize expenditures. A system of Sector Efficiency and Effectiveness Reviews (SEER) has been launched to enhance program planning and implementation and technical efficiency in sectors. The structure of the civil service (including wages, salaries, and benefits), which preempts 35% of the national public expenditures,9 has been reviewed by a Presidential Commission for Effective Governance that has examined ways of streamlining, downsizing and closing, where feasible, public sector agencies. Effective implementation of the 2003 Procurement Reform Law is expected to reduce leakage in public sector procurement.10 27. Aside from the fiscal stress, the Government has to deal with quasi-fiscal obligations of the growing contingent liabilities estimated to be $62 billion, equivalent to 80% of GNP and 230% of the Government outstanding external debt. Besides the obligations of agencies such as the Philippine National Bank, the former Central Bank, and NPC, the Government has obligations of wide-ranging contingent liabilities such as those associated with the insurance scheme for bank deposits, unfunded liabilities of the public pension scheme, guarantees on risks associated with build-operate-and-transfer (BOT) contracts, and loan guarantees extended to GOCCs and government financial institutions (GFIs). As a continuation of the recent public expenditure review (Footnote 8), ADB and the World Bank will discuss with the Government ways to address some key issues, including (i) development of an inventory and management of all implicit and explicit contingent liabilities which, among others, should involve specific criteria for issuance of guarantees and specified guarantee limits per transaction/entity, (ii) encouraging auditors to assess the implications of such liabilities on the balance sheet of GOCCs and assess its operational and financial implications for the entities concerned, and (iii) examining the budgetary implications and risk management of guarantees.
9 Total public employment is about 1.5 million, comprising 1.44 million in general government and 91,000 in GOCCs and GFIs.
Within the public sector, the National Government has about 970,000 employees, LGUs employ about 345,000; and the armed forces employ about 125,000.
10 In October 2001, Procurement Watch Inc, estimated that leakages through procurement could be in the range of P95 billion in 2001, equivalent to 83% of the public sector budgeted allocation for procurement and equivalent to twice the expenditure budget of Department of Education. Experience under World Bank projects in the Philippines indicates potential savings of up to 40% in the prices of school textbooks and drugs by using such improved procurement practices. See: Government of the Philippines, Asian Development Bank and World Bank, Improving Government Performance: Discipline, Efficiency, and Equity in Managing Public Resources – A Public Expenditure, Procurement, and Financial Management Review, April 2003.
11
2. Population Management and Millennium Development Goals
28. At its current growth rate of almost 2.4% per year, the Philippines’ population will double in 30 years to 160 million. In view of the high population growth and modest GDP growth, the Philippines has lagged behind its neighbors in per capita income growth over the past 25 years.11 The growing population places tremendous stress on the country’s limited resources and infrastructure facilities, and complicates the task of reducing poverty and achieving targets stipulated by the Millennium Development Goals (MDGs). In addition, it is becoming increasingly difficult for the Philippines to generate jobs for the growing number of new entrants to the workforce each year; more new graduates are taking longer to find employment. Improving population management is critical and could be achieved through an appropriate incentive structure that encourages late marriages, late child-bearing, and wider birth spacing.12 29. The Philippines has signed on to achieving the MDGs by 2015 in eight key areas, including eradicating extreme poverty, providing basic amenities such as safe drinking water, achieving universal primary education, promoting gender equality, reducing child mortality, and improving maternal health. Recent joint reviews by the Government and the United Nations 13 indicate that while the Philippines is on track in some areas, it needs to accelerate progress during 1990-2000 in other areas if it is to meet the MDG targets by 2015 (Figures 3-6). A more balanced fiscal position, institutional strengthening and policy reforms are required to provide a more conducive framework for facilitating the realization of the MDG targets.
Figure 3 Figure 4 Proportion of Population in Extreme Poverty Elementary School Participation Rate
24.3
16.8
12.2
0
5
10
15
20
25
30
1990 1995 2000 2005 2010 2015
%
9 6 . 9
1 0 0
85.1
7 5
8 0
8 5
9 0
9 5
1 0 0
1 0 5
1990 1 9 9 5 2 0 0 0 2005 2 0 1 0 2 0 1 5
%
11 During 1975-2000, average annual per capita GDP growth was: PRC for 7.7%; Indonesia for 4.0%; Republic of Korea for 6.1%;
Malaysia for 4.1%; Philippines for 0.7%; Singapore for 5.2%; Thailand for 4.9%. 12 Herron, A. N. and E.M. Pernia. 2003. Population, Human Resources, and Employment. In The Philippine Economy: Development
Policies and Challenges , edited by A. Balisacan and H. Hill. New York: Oxford University Press. 13 United Nations, March 2002, Philippines Country Study on Meeting the Millennium Development Goals, Government of the
Philippines and the United Nations, January 2003, Philippines Progress Report on the Millennium Development Goals.
- - - current rate of progress ___ rate of progress to meet target
- - - current rate of progress ___ rate of progress to meet target
12
Figure 5 Prevalence of Malnutrition among 0-5 year olds
3 4 . 53 2 . 0
17.0
0
5
10
15
20
25
30
35
40
1 9 9 0 1 9 9 5 2 0 0 0 2 0 0 5 2 0 1 0 2 0 1 5
% u n d e r w e i g t
Figure 6 Proportion of Families with Access to Safe
Drinking Water
78.5
86.8
73.7
6 5
7 0
7 5
8 0
8 5
9 0
1 9 9 0 1 9 9 5 2 0 0 0 2 0 0 5 2 0 1 0 2 0 1 5
%
3. Strengthening Governance 30. The Macapagal-Arroyo Government has declared combating corruption one of its top priorities. The Presidential Commission for Effective Governance is developing an integrated reform action plan for administrative reforms, including: (i) The Reengineering the Bureaucracy Bill is now pending in Congress; (ii) MTEF and SEER were introduced to improve planning, programming, and budgeting; the
public procurement system, considered a major source of development expenditure “leakage,” was overhauled under the Government Procurement Reform Act (December 2002);
(iii) The New Government Accounting System is being implemented; (iv) The Action Plan for Judicial Reform, approved by the Supreme Court in December 2000, is
being implemented; (v) Enhanced citizen participation is expected under the local government devolution and
under the new law (February 2003) that enfranchises overseas Filipinos; (vi) Corporate governance reforms include enhanced oversight by the Securities and
Exchange Commission and implementation of the Securities Regulation Code (2000); (vii) Effective implementing the Amendments to the Anti-Money Laundering Act (AMLA)14 has
involved lowering the threshold for reporting transactions, expanding the scope of financial crimes, and enhancing government powers in investigations. The amendments are expected to improve governance of financial transactions and reduce financial crimes.
(viii) The Anti-Trafficking in Persons Act was introduced in May 2003 to provide the framework for prevention and prosecution. Among others, the Act prohibits minors from engaging in armed combat, illegal recruitment, and sexual exploitation.
14 The Anti-Money Laundering Act (AMLA) (Republic Act 9160) was enacted in September 2001 to improve the transparency of
financial transactions and enhance the business climate.
- - - current rate of progress ___ rate of progress to meet target
- - - current rate of progress ___ rate of progress to meet target
13
31. Nevertheless, corruption, lack of predictability, inadequate transparency, and low levels of accountability in some public activities continue to be identified as serious economic constraints that lower investment incentives and increase the costs of doing business in the Philippines. A strengthened resolve to vigorously implement governance initiatives should be demonstrated.
4. Promoting the Private Sector
32. The Philippines is predominantly a private-sector economy: The private sector accounts for over 90% of GDP and employment. Private sector activity is largely concentrated in SME businesses and only less than 1% of enterprises are large. Besides being hit by the 1997 Asian crisis, the private sector faces some long-standing issues including infrastructure constraints, weaknesses of the financial system, lack of industrial competitiveness and transparency of the legal and regulatory framework, and problems with effective enforcement of contracts. The Government has launched a number of initiatives to address these problems. Of notable significance are the wide-ranging infrastructure sector reforms (Box 3) and the efforts underway to strengthen the banking system as well as diversify the financial markets.
Box 3: Infrastructure Sector Reforms
The Government has taken significant steps in implementing power sector restructuring and privatization since the Electric Power Industry Reform Act was promulgated in June 2001. The Energy Regulatory Commission (ERC) approved unbundled tariffs as required by the Act and in May 2003 issued performance-based guidelines for the regulation of the tariffs of the unbundled transmission and distribution utilities. On this basis, the privatization of the National Transmission Corporation (TRANSCO) is being undertaken during 2003. This will be the country’s first major privatization transaction since the Supreme Court’s decision in early 2003 to nullify private contracts for the almost-completed new Manila airport; as evidenced by the failed first bidding in mid-July 2003, the negative effect on investor perception of decisions like this needs to be managed carefully. The Government is also in the process of establishing a wholesale electricity spot market that will allow the privatization of electricity generation companies. Restructuring and privatization is expected to improve the power industry's efficiency and reduce upward pressure on electricity tariffs, which are among the highest among DMCs. In transport sector, the major development priorities in the medium term will involve improvements of existing roads, airports, ports, and railways and inter-modal connections as well as improved access in underserved rural areas. To achieve these objectives, extensive sector reforms and institutional strengthening to build capacity and increase management efficiency as well as increased private sector participation will be necessary. The key Northern Luzon Expressway, linking Manila and the Clark industrial area, was recently bid out to the private sector. In water sector, the provision of sufficient water supply to urban and rural people is the primary target of the Government in the medium term. Challenges remain in the areas of pursuing a rational pricing system and improving water data collection. In all sectors, establishing credible, technically competent and independent regulatory authorities is a key requirement. 33. The banking system, which dominates the financial system of the Philippines, has shown signs of weakness as profitability declined given the stagnation of credit growth and the increase in the level of non-performing assets (NPA)15 that grew from 7.5% of total bank assets in 1997 to 28.8% in 2002. Unlike the neighboring countries, the Philippines has left NPLs and NPAs within the commercial banks and encouraged them to undertake work out or improve credit recovery. In view of recent increase in NPLs, in January 2003, the Government introduced the Law for Special Purpose Vehicle (SPV) and commercial banks are now looking at options to transfer their NPLs to SPVs and setting up asset management companies with foreign strategic partners and fund managers. Under the supportive implementing rules and
15 Non-performing assets (NPA) refers to non-performing loans plus real and other properties owned or acquired by the banks.
14
regulations for SPVs, an AMC that intends to acquire land should be at least be 60% Filipino-owned, and have a minimum authorized capital stock of P500 million with a minimum subscribed capital of P125 million. While SPVs should be incorporated primarily to acquire and dispose of NPAs of banks and other financial institutions, they are empowered to issue equity or investment unit instruments for the purpose of acquiring, managing, improving and disposing NPAs it acquires. A speedy activation of SPVs will help accelerate resolution of NPLs and NPAs and pave the way for increased lending activity by the bank sector. The Government has simultaneously launched capital market reforms, which are aimed to strengthen the Securities Exchange Commission (SEC) to ensure effective enforcement of regulations, and restructure the Philippine Stock Exchange whose governance and modernization are critical to restore investor confidence.16 C. Risks and Challenges
34. The most critical risk to higher, sustainable economic growth is the persistently low investment rate, affected by persistently low savings and weaknesses in the incentive regime for investors. Improved banking performance and a strengthened capital market would facilitate efficient financial intermediation. Public investment is constrained by the fiscal deficit, for which the Government has adopted a fiscal consolidation program. Strengthening the fiscal position would allow greater flexibility in development spending. 35. Investor sentiment, especially for foreign sources of finance, are affected adversely by (i) global and internal security issues; (ii) industrial competitiveness; (iii) infrastructure constraints; (iv) problems with financial intermediation; (v) recent downgrades by international credit rating agencies such as Standard & Poors, Moody’s, and Fitch; (vi) relatively low ranking on widely publicized surveys on corruption, competitiveness, and attractiveness for investors17; and (vii) uncertainty related to recent decisions involving high-profile projects, such as the new Manila airport and Manila east water supply concession. These issues are compounded by problems of weak governance and adequacy of the legal and regulatory framework. On the other hand, the country must look to the private sector for generating income and employment opportunities, and provision of a greater amount of essential infrastructure, including social services. 36. Uncertainty has been a persistent partner for the Philippines in recent years. The attempted coup in July 2003 is the latest in a series of unexpected events with potential to derail the economy. Following the Asian economic crisis, which did not impact as severely on the Philippines as it did on some other developing member countries (DMCs), the Philippines has been buffeted in succession by impacts from the collapse of global IT trade and attack on the World Trade Center in 2001, the 2002 Bali bombing, and the Iraq War and the SARS epidemic in 2003. On the domestic front, the continuing civil strife in Mindanao, timing of key economic legislation and implementation of policy reforms, the uncertainty about the presidential candidates for next year’s elections, and on the likely policies to be pursued by the new administration, complicate projecting medium-term economic prospects. 37. The full effects of the failed coup are not yet clear. This complicates assessing whether the event has caused mild, short-term disruption, or whether it will have more damaging, long-term effects. Even if the short-term effects are relatively mild, the event has deepened the 16 Asian Development Bank, November 2001, $75 million, Non-Bank Financial Governance Program, and the proposed 2003 loan
for Second Non-Bank Financial Governance Reform Program. 17 See: UNCTAD, 2002: World Investment Report – Transnational Corporations and Export Competitiveness; Transparency
International, 2002: Corruption Perceptions Index 2002; World Economic Forum 2002: Global Competitiveness Report; American Chamber of Commerce of the Philippines, Inc, March 2003: The Roadmap to More Foreign Investment; World Bank, September 2001: Combating Corruption in the Philippines - An Update.
15
instability with long-term economic consequences. In a qualitative sense the coup adds greater fragility to an economy already facing serious uncertainties, and makes it more vulnerable to external shocks and adverse domestic developments. 38. On the positive side, the immediate confrontation was quickly and bloodlessly resolved. This showed a mature and balanced approach to problem solving as was evident from the Government’s sensible response to the SARS epidemic in the first quarter of the year, and shows the capacity of the authorities to deal effectively with a crisis. The Government’s credibility will be tested over the next few months by the manner in which it addresses the causes and handles prosecution of the protagonists. As the Government addresses what it believes to be an orchestrated attempt to change the administration using unconstitutional means, it will be important that it is not unduly distracted from the urgent economic management tasks, and avoids delays to the legislative agenda and policy implementation. 39. The coup attempt adds to the already considerable degree of political uncertainty – a climate not conducive to a more bullish economic outlook. On the economic front, the immediate, quantifiable impacts were an increase in the Government’s borrowing cost, a slump in the stock market, and depreciation of the peso. Potential borrowing costs increased due to increased spread on Philippines sovereign dollar bonds,18 and demand for increased yields by investors on domestically issued Treasury bills.19 While these movements do not imply an inability of Government to service its debt, they have the potential to increase the already-high debt service share (29% in 2003, and rising) of budget expenditure, further eroding resources for discretionary spending. More difficult to assess is the impact on investor confidence. Even if on its own the failed coup has marginal impact, it is one more unfortunate event that adds to the growing list of disturbances that must damage investor perceptions.
18 Philippines sovereign bonds are rated two notches below investment grade. After a sharp drop following the attempted coup, the
spread has narrowed and is presently about 410 basis points above comparable U.S. Treasury bills. 19 On 4 August at the bi-weekly auction the Government rejected all bids for $173 million equivalent in 91-day pesos T-bills as banks
demanded higher yields. The rejected bids were for yields of 5.849%, almost 70 basis points higher than at the previous (pre-coup) auction on 21 July.
16
Table A.1: Key Economic Indicators
Item 1997 1998 1999 2000 2001 2002 A. Income and Growth 1. GNP per Capita ($, current) 1,166.8 911.7 1,044.9 1,009.0 977.7 1,033.7 2. GDP Growth (%) (in constant prices) 5.2 (0.6) 3.4 4.4 3.0 4.4 a. Agriculture 3.1 (6.4) 6.5 3.4 3.7 3.3 b. Industry 6.1 (2.1) 0.9 4.9 0.9 3.7 c. Services 5.4 3.5 4.0 4.4 4.3 5.4 3. GNP Growth (%) (in constant prices) 5.3 0.4 3.7 4.8 3.5 4.5 B. Savings and Investment (at current market prices) (Percent of GNP)
1. Gross Domestic Savings 18.7 21.6 26.1 27.2 21.1 23.1
2. Gross Domestic Investment 23.8 19.3 17.8 19.9 19.4 18.1
C. Money and Inflation 1. Inflation in Consumer Prices (1994=100) 5.9 9.7 6.7 4.4 6.1 3.1 2. Broad Money Growth (M3) (%) 20.9 7.4 19.3 4.6 6.8 9.5 D. Government Finance (% of GNP) 1. Revenue 18.7 16.5 15.3 14.7 14.4 13.2 2. Expenditure 18.6 18.3 18.8 18.6 18.1 18.1 3. Overall Surplus/Deficit 0.1 (1.8) (3.6) (3.8) (3.8) (4.9) E. Balance of Payments 1. Merchandise Trade Balance (% of GNP) (13.0) (0.0) 6.2 4.8 (1.0) 0.5
2. Current Account Balance (% of GNP) (6.3) 1.6 9.0 7.8 1.7 5.1
3. Export ($) Growth (annual percentage
change) 22.8 16.9 16.0 9.0 (16.2) 10.1
4. Import ($) Growth (annual percentage
change) 14.0 (18.8) (0.9) 14.5 (4.5) 6.2
F. External Payments Indicators 1. Gross International Reserves ($ billion) 8.8 10.8 15.1 15.0 15.7 16.2
2. External Debt Service (% of exports of
goods and services) 11.6 11.7 14.1 12.4 15.8 16.4 3. External Debt (% of GNP) 53.0 69.8 65.1 65.8 68.1 64.8 Memorandum Items: GDP (current prices, P billion) 2,426.7 2,665.1 2,976.9 3,308.3 3,673.7 4,022.7 GNP (current prices, P billion) 2,528.3 2,802.1 3,136.2 3,496.9 3,918.7 4,290.2 Population (million) 73.5 75.2 76.8 78.4 78.6 80.4 GDP = gross domestic product, GNP = gross national product, NEDA = National Economic and Development Authority. Sources: National Statistical Coordination Board, Bangko Sentral ng Pilipinas, National Economic and Development Authority.
17
Table A.2: National Income Accounts by Sector of Origin
(In constant 1985 prices) Sector 1997 1998 1999 2000 2001 2002
A. In P billion
Agriculture, Fishery, Forestry 185.0 173.2 184.5 190.7 199.6 206.2
Grains (Rice and Corn) 40.5 31.9 42.4 43.9 45.4 45.8
Livestock and Poultry 39.0 41.5 43.5 45.3 47.7 50.2
Industry 320.7 313.8 316.7 332.3 348.2 361.2
Mining and Quarrying 10.3 10.6 9.7 10.7 10.1 15.3
Manufacturing 223.7 221.2 224.7 237.3 244.1 252.6
Construction 57.3 51.8 51.0 51.7 61.2 59.2
Elect.,Gas and Water 29.4 30.3 31.3 32.6 32.8 34.2
Services 387.5 400.9 417.0 435.5 454.0 478.7
Trans., Comm. and Storage 55.1 58.6 61.7 68.2 74.2 80.8
Trade 135.3 138.6 145.4 152.9 161.5 170.8
Finance and Housing 90.8 93.5 94.7 95.1 95.4 97.9
Other Services 106.3 110.1 115.3 119.3 122.9 129.3
Gross Domestic Product 893.2 887.9 918.1 958.4 1,001.7 1,046.1
Net Factor Income from Abroad 37.5 46.5 51.2 57.7 71.4 75.0
Gross National Product 930.7 934.4 969.3 1,016.1 1,073.1 1,121.0
B. Annual Changes (%)
Agriculture, Fishery, Forestry 3.1 (6.4) 6.5 3.4 3.7 3.3
Grains (Rice and Corn) 1.0 (20.9) 32.7 3.4 3.5 0.8
Livestock and Poultry 6.4 1.8 2.9 4.1 5.1 5.2
Industry 6.1 (2.1) 0.9 4.9 0.9 3.7
Mining and Quarrying 1.7 2.8 (8.4) 10.0 (6.5) 51.0
Manufacturing 4.2 (1.1) 1.6 5.6 2.9 3.5
Construction 16.2 (9.6) (1.6) 1.4 (5.0) (3.3)
Elect,Gas and Water 4.8 3.3 3.1 4.2 0.7 4.3
Services 5.4 3.5 4.0 4.4 4.3 5.4
Trans., Comm. & Storage 8.2 6.5 5.3 10.4 8.8 8.9
Trade 3.9 2.4 4.9 5.2 5.6 5.8
Finance and Housing 8.0 3.0 1.2 0.4 0.4 2.6
Other Services 3.8 3.6 4.7 3.5 3.0 5.2
Gross Domestic Product 5.2 (0.6) 3.4 4.4 3.0 4.4
Net Factor Income from Abroad 6.8 23.9 10.0 12.8 12.5 5.1
Gross National Product 5.3 0.4 3.7 4.8 3.5 4.5 Source: National Statistical Coordination Board.
18
Table A.3: Agricultural Production
Item 1997 1998 1999 2000 2001 2002
Area Harvested ('000 ha) Rice 3,842.3 3,170.0 3,999.8 4,038.1 4,065.4 4,046.3 Corn 2,725.9 2,354.2 2,642.2 2,510.3 2,554.8 2,395.5 Banana 338.4 327.7 372.1 348.0 386.7 398.1Coconut 3,314.4 3,115.8 3,118.8 3,119.7 3,119.7 naSugarcane 375.2 343.6 390.3 394.9 387.1 naAbaca 112.5 106.3 111.4 106.8 107.1 naRubber 92.9 93.1 91.5 81.0 78.1 naCoffee 150.1 148.4 151.3 137.0 137.0 naProduction ('000 mt) Rice 11,269.0 8,554.8 11,786.6 12,389.4 12,954.9 13,27.7 Corn 4,332.4 3,823.2 4,584.6 4,511.1 4,626.6 4,319.3 Banana 3,773.8 3,492.6 4,570.6 4,155.7 5,059.4 5,264.5Coconut 13,182.5 11,597.6 12,504.0 12,994.7 13,207.8 naSugarcane 22,273.1 17,333.4 23,777.8 24,491.0 24,961.7 naAbaca 67.1 71.2 73.1 77.2 74.6 naRubber 221.3 222.8 214.6 216.3 215.1 naCoffee 129.9 122.2 117.4 126.3 132.1 naYield (mt/ha) Rice 2.9 2.7 2.9 3.1 3.2 3.3 Corn 1.6 1.6 1.7 1.8 1.8 1.8 Banana 11.2 10.7 12.3 11.9 13.1 13.2Coconut 4.0 3.7 4.0 4.2 4.2 naSugarcane 59.4 50.4 60.9 62.0 64.5 naAbaca 0.6 0.7 0.7 0.7 0.7 naRubber 2.4 2.4 2.3 2.7 2.8 naCoffee 0.9 0.8 0.8 0.9 1.0 na ha=hectare, mt=metric ton, na=not available Note: Yield data are calculated. Source: Bureau of Agricultural Statistics.
19
Table A.4: National Accounts by Expenditure Shares
In Constant 1985 Prices (P billion)
Item 1997 1998 1999 2000 2001 2002
Personal Consumption Expenditure 684.3 707.9 726.6 752.1 779.0 810.8 Government Consumption 71.7 70.3 75.0 79.6 75.4 77.2 Capital Formation 235.1 196.9 192.9 203.6 244.0 235.5 Fixed Capital 230.6 204.9 200.2 206.4 231.2 236.7 Construction 104.4 98.8 98.6 101.1 119.4 119.8 Public Construction 39.8 42.9 49.5 52.7 70.5 66.3 Private Construction 64.6 55.9 49.1 48.4 48.9 53.5 Durable Equipment 112.1 91.8 87.3 90.4 95.9 100.6 Breeding Stocks and Orchard Development 14.1 14.2 14.3 14.9 15.8 16.3 Changes in Stocks 4.5 (8.0) (7.3) (2.8) 12.8 (1.2) Exports 465.3 367.4 380.8 448.1 430.3 445.8 Imports 567.7 484.2 470.7 489.5 508.0 532.2 Trade Balance (102.4) (116.8) (89.9) (41.4) (77.7) (86.3) Statistical Discrepancy 4.4 29.8 13.6 (35.5) (19.0) 9.0 Gross Domestic Product 893.2 887.9 918.2 958.4 1,001.7 1,046.1 Net Factor Income from Abroad 37.5 46.5 51.2 57.7 71.4 75.0 Gross National Product 930.7 934.4 969.3 1,016.1 1,073.1 1,121.0 Source: National Statistical Coordination Board.
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Table A.5: National Accounts by Expenditure Shares In Constant 1985 Prices
Growth Rates (%) Item 1997 1998 1999 2000 2001 2002 Personal Consumption Expenditure 5.0 3.4 2.6 3.5 3.6 4.1 Government Consumption 4.6 (1.9) 6.7 6.1 (5.3) 2.4 Capital Formation 11.7 (16.3) (2.0) 5.5 13.6 (3.5) Fixed Capital 11.5 (11.2) (2.3) 3.1 7.1 2.4 Construction 14.6 (5.3) (0.3) 2.6 18.1 0.3 Public Construction 20.9 6.4 15.3 6.6 33.8 (6.0) Private Construction 11.0 8.0 (12.2) (1.5) 1.0 9.4 Durable Equipment 9.2 (18.1) (5.0) 3.6 (3.2) 4.8 Breeding Stocks and Orchard Development 7.9 0.3 1.2 3.7 1.5 3.3 Exports 17.2 (21.0) 3.6 17.7 (3.4) 3.6 Imports 13.5 (14.7) (2.8) 4.0 3.5 4.7 Trade Balance (0.6) (14.1) 23.0 53.9 (72.3) (11.1) Gross Domestic Product 5.2 (0.6) 3.4 4.4 3.0 4.4 Gross National Product 5.3 0.4 3.7 4.8 3.5 4.5 Source: National Statistical Coordination Board.
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Table A.6: National Accounts by Expenditure Shares In Constant 1985 Prices (Percentage Distribution)
Item 1997 1998 1999 2000 2001 2002
Personal Consumption Expenditure 73.5 75.8 75.0 74.0 72.6 72.3 Government Consumption 7.7 7.5 7.7 7.8 7.0 6.9 Capital Formation 25.3 21.1 19.9 20.0 22.7 21.0 Fixed Capital 24.8 21.9 20.7 20.3 21.5 21.1 Construction 11.2 10.6 10.2 10.0 11.1 10.7 Public Construction 4.3 4.6 5.1 5.2 6.6 5.9 Private Construction 6.9 6.0 5.1 4.8 4.6 4.8 Durable Equipment 12.0 9.8 9.0 8.9 8.9 9.0 Breeding Stocks and Orchard Development 1.5 1.5 1.5 1.5 1.5 1.5 Changes in Stocks 0.5 (0.9) (0.8) (0.3) 1.2 (0.1) Exports 50.0 39.3 39.3 44.1 40.1 39.8 Imports 61.0 51.8 48.6 48.2 47.3 47.5 Trade Balance (11.0) (12.5) (9.3) (4.1) (7.2) (7.7) Statistical Discrepancy 0.4 3.2 1.4 (3.5) (1.8) 0.8 Gross Domestic Product 96.0 95.0 94.7 94.3 93.4 93.3 Net Factor Income from Abroad 4.0 5.0 5.3 5.7 6.6 6.7 Gross National Product 100.0 100.0 100.0 100.0 100.0 100.0 Source: National Statistical Coordination Board.
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Table A.7: Trends in Labor Force and Employment Item 1997 1998b 1999 2000 2001 2002
Working Age Population ('000) a 45,770 44,995 46,321 47,640 48,929 50,344 % growth 2.6 (1.7) 2.9 2.8 2.7 2.9 Labor Force ('000) 30,355 29,674 30,759 30,911 32,809 33,936 % growth 2.1 (2.2) 3.7 0.5 6.1 3.4 Labor Force Participation Rate (%) 66.3 65.9 66.4 64.9 67.1 67.4 Employment ('000) 27,715 26,631 27,742 27,453 29,155 30,062 % growth 1.9 (3.9) 4.2 (1.0) 6.2 3.1 of which: Agriculture ('000) 11,314 10,091 10,774 10,181 10,850 11,122 % growth (2.8) (10.8) 6.8 (5.5) 6.6 2.5
Industry ('000) 4,631 4,542 4,515 4,454 4,713 4,694 % growth 4.5 (1.9) (0.6) (1.4) 5.8 (0.4)
Services ('000) 11,771 11,999 12,453 12,817 13,593 14,246 % growth 5.9 1.9 3.8 2.9 6.1 4.8
Unemployment Rate (%) 8.7 10.3 9.8 11.2 11.1 11.4
Underemployment Rate (%) 22.1 19.4 22.1 21.7 17.2 17.0 aRefers to population 15 years old and over. bFrom 1998 onwards, series is based on 1995 population projections, earlier years are based on the 1980 population projection. Sources: National Economic and Development Authority, National Statistics Office.
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Table A.8: National Government Expenditures and Revenues (P million)
Item 1997 1998 1999 2000 2001 2002 Total Disbursements 470,279 512,496 590,160 648,974 710,755 777,882
Current Operating Expenditures 419,401 467,920 524,240 585,396 601,723 650,690
Personal Services 150,437 172,889 166,975 182,723 238,943 266,000 Maintenance and Other Operating Expenses 108,050 118,303 141,591 149,313 88,024 83,410
Allotment to LGUs 70,968 72,036 96,401 99,816 92,154 109,835
Interest Payments 77,971 99,792 106,290 140,894 174,834 185,861
Subsidies 5,892 4,739 6,765 9,064 7,768 5,584
Tax Expenditures 6,083 161 6,218 3,585 - -
Capital Outlays 47,918 43,478 61,195 60,408 105,088 124,566
Infrastructure 13,465 10,465 13,916 17,295 75,771a 93,300a
Corporate Equity 1,579 769 1,532 536 484 1,486
Capital Transfers to LGUs 14,534 13,722 17,700 19,674 24,466 27,780
Other Capital Outlay 34,453 33,013 47,279 43,113 - -
CARP Land Acquisition and Credit 2,641 2,000 - 2,315 4,367 2,000
Net Lending 1,381 329 3,193 2,634 3,944 2,626
Revenues 471,843 462,515 478,502 514,762 563,732 567,141
Tax Revenues 412,165 416,585 431,686 460,034 489,859 496,372
Bureau of Internal Revenue 314,697 337,175 341,319 360,802 388,679 394,549
Bureau of Customs 94,800 76,005 86,497 95,006 96,232 96,250
Other Offices 2,668 3,405 3,870 4,226 4,948 5,573
Non-tax Revenues 59,678 45,534 46,524 53,352 71,882 69,717
BTr Income 35,352 22,535 26,180 30,764 46,413 47,194
Fees and Other Charges 13,160 21,046 16,021 17,936 24,296 21,932
Sale of Assets 9,428 1,717 4,183 4,646 1,173 591
Others - 236 140 6 - -
Grants 1,738 396 292 1,376 1,991 1,052
Overall Surplus (Deficit) 1,564 (49,981) (111,658) (134,212) (147,023) (210,741)
Financing 1,564 (49,981) (111,658) (134,212) (147,023) (210,741)
Change in Cash (32,564) (17,089) 38,984 3,810 (22,229) 1,117 BTr=Bureau of Treasury, CARP=Comprehensive Agrarian Reform Program, LGUs=local government units. aIncludes other capital outlays. Source: Bureau of Treasury.
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Table A.9a: Public Debt Outstanding
Item 1997 1998 1999 2000 2001 2002
A. Public Internal Debt (P billion) National Government 749.7 850.9 978.4 1,068.2 1,247.7 1,471.2 Local Government na na na na na na Government Corporations 9.1 11.5 24.6 49.1 53.1 77.3 Monetary Institutions 0.0 0.0 0.0 0.0 0.0 0.0
Total 758.8 862.4 1,003.0 1,117.3 1,300.8 1,548.5 C. As Percent of GNP National Government 29.7 30.4 31.2 30.5 31.8 34.3 Local Government Government Corporations 0.4 0.4 0.8 1.4 1.4 1.8 Monetary Institutions 0.0 0.0 0.0 0.0 0.0 0.0
Total 30.0 30.8 32.0 32.0 33.2 36.1
GNP= gross national product; na = not available.
Source: Bangko Sentral ng Pilipinas.
Table A.9b: National Government Outstanding Debt (P billion)
Item 1997 1998 1999 2000 2001 2002Total 1,350.6 1,496.2 1,775.3 2,166.7 2,384.9 2,815.5Internal Debt 749.7 850.9 978.4 1,068.2 1,247.7 1,471.2Foreign Debt 600.9 645.3 796.9 1,098.5 1,137.2 1,344.3 As Percent of GNP Total 53.5 53.4 56.6 62.0 60.9 65.6Internal Debt 29.7 30.4 31.2 30.5 31.8 34.3Foreign Debt 23.8 23.0 25.4 31.5 29.1 31.3Source: Bureau of Treasury
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Table A.10: Domestic Liquidity and Components of Money Supply
(P billion)
Item 1997 1998 1999 2000 2001 2002
Assets 1,608 1,679 1,938 2,079 2,164 2,351 Net Foreign Assets (77) 141 329 343 405 541 Net Domestic Assets 1,685 1,539 1,609 1,737 1,759 1,810 Of which: Public Sector Credits 468 460 529 581 645 727 Private Sector Credits 1,455 1,411 1,394 1,507 1,462 1,480
Other itemsa (238) (332) (315) (351) (347)
(397) Liabilities 1,608 1,679 1,938 2,079 2,165 2,351 Domestic Liquidity (M4) 1,499 1,622 1,887 2,013 2,111 2,298 (% growth) 25.1 8.2 16.3 6.7 4.9 8.9 Domestic Liquidity (M3) 1,066 1,145 1,365 1,427 1,525 1,670 (% growth) 20.9 7.4 19.3 4.6 6.8 9.5 Narrow Money 258 282 394 387 388 470 (% growth) 16.4 9.0 40.0 (1.8) 0.3 21.2 Quasi-Money 796 857 964 1,036 1,133 1,196 (% growth) 21.9 7.7 12.5 7.5 9.3 5.6 Deposit Substitutes 12.1 6.1 7.2 4.2 4.0 3.4
(% growth) 81.7 (49.3) 17.6 (41.5) (5.5)
(15.3) Other Liabilitiesa 108 57 51 66 54 53 Ratio of M3/GNP (%) 42.2 40.8 43.5 40.8 38.9 38.9 GNP= gross national product. aRevised to reclassify accounts of residents from foreign accounts to domestic. Source: Bangko Sentral ng Pilipinas.
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Table A.11: Exchange Rates
Nominala Nominal Effective Real Effective
Year (P/$) Indexb Indexb
1981 7.9 101.2 106.8 1982 8.5 100.9 110.0 1983 11.1 78.5 86.4 1984 16.7 53.4 82.9 1985 18.6 48.2 89.3 1986 20.4 38.9 70.0 1987 20.6 35.6 64.3 1988 21.1 33.2 65.6 1989 21.7 32.8 70.1 1990 24.3 28.8 66.2 1991 27.5 25.1 66.0 1992 25.5 26.5 73.2 1993 27.1 25.0 72.2 1994 26.4 24.9 76.5 1995 25.7 24.7 80.3 1996 26.2 24.9 87.0 1997 29.5 23.5 84.2 1998 40.9 17.5 67.2 1999 39.1 18.2 73.3 2000 44.2 16.6 68.7 2001 51.0 14.7 64.2 2002 51.6 14.2 63.4
aPeriod average. bDecember 1980 = 100. Against major trading partners (US, Japan, EMU and UK).
Source: Bangko Sentral ng Pilipinas.
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Table A.12: External Sector Balances of Trade and Capital Flows ($ billion)
Item 1997 1998 1999 a 2000 a 2001 a 2002 a
A. Current Transactions Merchandise Trade Exports 25.23 29.50 34.21 37.30 31.24 34.38 Imports 36.36 29.52 29.25 33.48 31.99 33.98 Balance (11.13) (0.03) 4.96 3.82 (0.74) 0.41 Nonmerchandise Trade Inflows 22.84 13.92 4.80 3.97 3.15 3.06 Outflows 17.14 12.78 7.52 6.40 5.20 4.32 Balance 5.70 1.14 (2.71) (2.43) (2.05) (1.26) Income 0.00 0.00 4.46 4.44 3.67 4.55 Transfers Inflows 1.67 0.76 0.61 0.55 0.52 0.59 Outflows 0.59 0.32 0.10 0.12 0.07 0.09 Balance 1.08 0.44 0.51 0.44 0.45 0.50 Current Account Balance (4.35) 1.55 7.22 6.26 1.32 4.20
B. Capital and Financial Account Medium- and Long-Term Loansb Availment 7.72 6.03 - - - - Repayment 2.90 3.29 - - - - Balance 4.82 2.74 - - - - Trading of Bonds in the Sec. Marketb (0.68) (1.08) - - - - Resale of Bonds 3.07 3.31 - - - - Purchase of Bonds 3.75 4.39 - - - - Net Foreign Investments Non-Res. Investments in the Phils. 0.84 2.02 17.09 11.86 13.07 11.58 Resident Investments Abroadd 0.08 0.34 19.42 16.02 14.14 13.67 Total (Net) 0.76 1.67 (2.33) (4.16) (1.07) (2.09) Short-Term Capital, Netb 0.50 (1.52) - - - - Change in NFA of KBsc 1.19 4.35 (2.46) 0.88 (0.78) (0.24) Purchase of Collateral 0.00 0.00 0.00 0.00 0.00 0.00 Capital and Financial Account, Net 6.59 0.19 (2.33) (4.12) (1.08) (2.10)
C. Others (0.36) 0.10 - - - - Monetization of Goldb 0.11 0.12 - - - - Revaluation and Other Adjustmentsb (0.47) (0.02) - - - -
D. Net Unclassified Items (5.25) (0.47) (1.30) (2.65) (0.44) (1.43)
Overall Surplus/Deficit (-) (3.36) 1.36 3.59 (0.51) (0.19) 0.66
(As percent of GNP) (3.90) 2.00 4.50 (0.60) (0.25) 0.79 NFA= net foreign assets, KBs= commercial banks, GNP= gross national product. a BSP has adopted the new framework for BOP compilation and reporting, or the 5th edition of BOP Manual of IMF (BPM5) starting within the comparative 1999-2000 BOP Report. b Not indicated in the new BOP format. cThis is shown as a memo item in the BPM5 format. .d These are resident investments in foreign countries. Source: Bangko Sentral ng Pilipinas
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Table A.13: External Trade Details
($million)
Item 1997 1998 1999 2000 2001 2002
Exports
Coconut Products 835 831 466 577 532 484
Sugar and Products 99 100 71 57 32 47
Fruits and Vegetables 458 446 455 528 552 544
Other Agro or Forest Products 508 466 476 486 427 453
of which, Fish, Fresh or Preserved 292 306 287 321 287 298
Mineral Products 762 592 646 650 537 519
Manufactured Products 21,462 25,843 31,309 33,988 28,340 31,181
of which, Electrical Parts and Equipment 13,028 17,137 21,166 22,179 16,699 18,583
of which, Garments 2,349 2,356 2,267 2,563 2,403 2,391
Imports
Capital Goods 14,369 12,051 11,828 12,162 11,438 13,532
of which, Power Generating 3,804 2,568 2,396 2,471 1,972 1,784
Raw Materials 14,634 11,584 12,600 15,163 14,953 14,788
Semi-processed Materials 12,989 10,416 11,083 13,825 13,585 13,372
of which:
Textile Yarn, Fabrics, Made-Up Articles 919 789 844 804 800 812
Embroideries 357 346 332 310 284 296
Electrical Parts and Equipment 5,407 4,634 4,708 7,309 7,291 6,944
Mineral Fuels 3,074 2,020 2,433 3,877 3,372 3,273
Consumer Goods 3,091 2,623 2,644 2,523 2,483 2,576 Source: Bangko Sentral ng Pilipinas.
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Table A.14: External Debt and Gross International Reserves ($ billion)
Item 1997 1998 1999 2000 2001 2002
A. Total External Debt 45.4 47.8 52.2 52.1 52.4 53.9
By Type of Debt
Medium- and Long-Term 37.0 40.6 46.5 46.1 46.3 48.3 Short-Term 8.4 7.2 5.7 5.9 6.0 5.6
By Borrower 45.4 47.8 52.2 52.1 52.4 53.9
Public Entity 21.4 22.9 27.2 26.5 25.1 28.0 Private Entity 12.5 12.1 13.3 14.1 15.7 15.0 Bangko Sentral 3.4 5.0 4.8 4.9 5.9 4.8 Government Banks 2.2 2.4 2.7 3.0 2.7 2.9 Private Banks 6.0 5.4 4.2 3.5 3.0 3.2
By Creditor 45.4 47.8 52.2 52.1 52.4 53.9
Commercial Bank 8.9 8.6 8.9 9.5 9.5 9.4 Suppliers 2.4 1.6 1.7 1.6 1.9 2.1 Multilateral Institutions 8.6 10.1 10.2 9.7 9.6 9.0 Bilateral Debt 13.3 14.9 16.4 15.3 14.5 15.6 Other Creditors 12.3 12.7 14.9 16.0 16.9 17.8
B. Gross International Reserves 8.8 10.8 15.1 15.0 15.7 16.2
Net International Reserves 6.6 8.0 11.9 11.3 11.4 12.8
(Percentage Distribution)
Total External Debt 100.0 100.0 100.0 100.0 100.0 100.0 By Type of Debt Medium- and Long-Term 81.4 85.0 89.0 88.6 88.5 89.7 Short-Term 18.6 15.0 11.0 11.4 11.6 10.3
By Borrower 100.0 100.0 100.0 100.0 100.0 100.0 Public Entity 47.1 48.0 52.2 50.9 48.0 52.0 Private Entity 27.5 25.3 25.4 27.1 29.9 27.8 Bangko Sentral 7.5 10.5 9.3 9.5 11.2 8.9 Government Banks 4.8 5.0 5.3 5.7 5.1 5.5 Private Banks 13.2 11.3 8.0 6.8 5.7 5.8
By Creditor 100.0 100.0 100.0 100.0 100.0 100.0 Commercial Bank 19.5 18.0 17.1 18.2 18.1 17.4 Suppliers 5.2 3.3 3.2 3.0 3.6 3.9 Multilateral Institutions 19.0 21.0 19.6 18.6 18.2 16.7 Bilateral Debt 29.3 31.2 31.5 29.5 27.8 29.0 Other Creditors 27.0 26.5 28.6 30.8 32.4 33.1
Source: Bangko Sentral ng Pilipinas.
