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The Philippines Under 'Aquinomics’. Presentation on the Economic Performance and Outlook for MEPI. Cielito F. Habito, Ph.D. Professor of Economics & Director, Ateneo Center for Economic Research & Development Ateneo de Manila University. Overview. Where We Have Been: 50 Years A Laggard

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The Philippines Under


Presentation on the Economic Performance and Outlook for MEPI

Cielito F. Habito, Ph.D.

Professor of Economics & Director,

Ateneo Center for Economic Research & Development

Ateneo de Manila University

  • Where We Have Been: 50 Years A Laggard
  • Where We Are Now: Key Economic Trends
  • What It All Means for Filipinos
  • Outlook & Imperatives
    • Economic Drivers & Downers
    • The Challenge of Inclusive Growth
    • Where We Need to Push
    • Outlook for Pharmaceuticals
    • Long Term Prospects
fifty years a laggard
Fifty Years A Laggard
  • In 1960, average income in RP was twice that of Thailand; now it is the reverse
  • Other East Asian economies’ GDP grew annually at 3.6-6.0%; RP only grew 1.4%
  • Per capita GDP has grown 19 times in China, 8 times in Thailand, 6 times in Malaysia & Indonesia, but only 2 times in RP
  • At current rates of per capita income growth, WB estimates it would take RP >200 years to reach the average per capita GDP of the OECD (developed) countries

Top Heavy GrowthBottom-Heavy Needs

  • Narrow: Growth is propelled primarily by a few leading sectors and geo-graphic areas
  • Shallow: Weak linkages to rest of economy – e.g., low domestic value-added exports
  • Hollow: Jobless growth; poverty-increasing growth

Top-Heavy Growth,Bottom-Heavy Needs

  • Poverty incidence rose from 30% in 2003 to 33% in 2006, and 37% in 2009 (NSCB)
  • Real per capita income fell 10% nationally, and fell in 50 provinces between 2003 and 2006 (NSCB)
  • Basic education enrollment rates dropped in 75% of provinces between 2002 & 2004 (PHDR 2009)
  • Wide disparities in life expectancy across provinces: Low - 53.4 (Tawi-tawi); High - 74.6 (La Union) (PHDR 2009)
a.k.a.Broad-Based Growth:





Inclusive Growth

assessing economic performance the pitik test
Assessing Economic Performance: The “PITIK Test”

The Essential Yardsticks (P-T-K):

  • Price Stability(Presyo)
  • Jobs (Trabaho)
  • Incomes (Kita)

Ateneo Center for Economic

Research and Development

The Economy Last Year & Now:Good News &Bad News

  • Prices: Rose faster than in 2009, but more slowly than projected; now ticking up again
  • Jobs:Jobs caught up with labor force growth – but job quality remains a challenge
  • Incomes/Output: Strong Overall
    • Manufacturing surged
    • Services saw robust growth
    • But agriculture declined

Ateneo Center for Economic

Research and Development

The Economy Last Year & Now:Good News &Bad News

  • Investment and Exports: strong rebound, even with dropping foreign investment inflows
  • Balance of Payments: favorable last year; has now turned negative
  • Peso: appreciating with weak dollar and amid “currency war”
  • Net Income Inflows: slows to single digit growth; now facing new threats
  • Fiscal Deficit: too big for comfort


Inflation Trends







2007 2008 2009 2010 2100



Incomes/Production (GDP):

2010: Renewed Industrial Vigor

  • Surge in Private Construction (19.1%) and Durable Equipment (25.7%)
  • Exports up 33.7% in Dollar values (25.6% in real terms)
  • Consumption growth surges in Q4 (7% from normal 4-5%)
  • Manufacturing up by double digits
  • Private services (esp. media) up 8.8% (media surged 31.4% in Q1)
  • Spoiler: Agriculture declines 1% (but bounced back in Q4)
gross regional domestic product 2008 2009
Gross Regional Domestic Product, 2008-2009

Bicol Region grew


4 Regions declined


Private Investment Surges…

Govt Spending Takes the Background


… even as FDI dips

Inflows Down, But Intentions Up

Top 2 Sources: Japan, Netherlands

89% in Manufacturing


The Economy in Human Terms

  • Poverty rose from 24.9% (2003) to 26.5% (2009) [Under old definition: 30% (‘03) to 33% (‘06) to 37% (‘09)]
  • No. of poor Filipinos up by 970,000, or 185,000 families between 2006 and 2009 (Poverty line: P7,017/month per family of 5)
  • Net elementary school participation rate down from 97% in 2001 to 85% in 2008
  • Net high schol participation rate down from 66% to 62%
  • Malnutrition incidence went up in most provinces
self rated poverty 49 of filipinos feel poor q4 2010
Self Rated Poverty: 49% of Filipinos feel poor (Q4-2010)

Lowest since Cory Aquino – but is it really?

sws q1 10 puzzle self rated poverty down but hunger up
SWS Q1-’10 Puzzle:Self-Rated Poverty Down But Hunger Up
  • Of the 4 million households reporting hunger in March 2010, only 2.6 million rated themselves as Poor.
  • A significant 1.4 million who suffered from hunger did not consider themselves to be Poor.
  • Living standards had dropped so low that standard of “poorness” has dropped (misery loves company)
why 2011 should be better
Why 2011 Should Be Better
  • Recovery from El Niño
  • Resurgence in investment (especially domestic)
  • Proven “immunity” to global slowdown
  • Remittances continue growth
  • “Rebalancing” of Asian growth toward more internal, intra-regional demand
why 2011 should be worse
Why 2011 ShouldBe Worse
  • Possible double-dip recession (W-shaped recovery) in the West?
  • European economies under threat
  • Middle East unrest and new inflation pressures
  • Peso appreciation (mixed effect)
  • Japan earthquake/tsunami and nuclear disaster
  • Medium Term: Heavy debt burden and continued fiscal pressures
where is the peso going
Where is the Peso Going?






achieving inclusive growth where to push
Achieving Inclusive Growth:Where To Push
  • Revenues: Restore tax effort to 17%; mostly from collection/compliance boost; sin taxes, trim excess tax perks
  • Infrastructure:Massive catch-up program needed; needs above revenue boost &/or better BOT rules
  • Investment:Now exceeded by savings; confidence boost needed
  • Democratize Growth: Massive SME boost, asset reform, competition policy (esp. with PLDT-Digitel merger)
agriculture agribusiness
Agriculture & Agribusiness
  • End of El Niño droughts
  • Rebound from 4-quarter decline
  • Ongoing budget reforms promise positive results
  • DA to “steer” while LGUs “row”
  • Remittance-fueled consumer food demand may taper in short term due to external developments
tourism allied industries
Tourism& Allied Industries
  • Focused investments under Tourism Act of 2009 underway
  • Pocket open-skies policy to lower costs, hike tourist arrivals
  • Improved peace prospects in Mindanao; tourism a major thrust in Mindanao 2020 Plan
  • “Appreciation lag” of Peso vs. neighboring currencies can make PH relatively more attractive
business process outsourcing
Business Process Outsourcing
  • Sustained demand growth projected for long term
  • Indian firms now moving into Philippines
  • Need to address dwindling skilled recruitable personnel
  • Important driver of real property development sector
  • Private construction is on a rebound (19.1% growth in 2010)
  • Massive infrastructure push (GAA & PPPs) is imperative & inevitable
  • Revenue performance needs clear improvement; PPP policy environment needs constant improvement
  • Huge unmet demand in low to medium-cost housing
  • Electronics: Continued dominance
  • Food & Beverages: Rising average incomes; elastic demand for processed food steady medium to long-term growth
  • Design-based manufactures: Innate competitiveness (e.g. Cobonpue, Lhuillier)
  • Projected annual PH market growth rate to 2015: 6.9% (BMI)
  • Drivers:
    • Cheaper Medicines Act (Elastic demand leads to higher gross sales)
    • Mergers/industry consolidation (Greater stability)
    • Universal PhilHealth coverage by 2015 (Wider market)

Economic Outlook: 2011

  • Presyo:
    • Inflation projected to inch upward to 5-6%
  • Trabaho:
    • Marginal improvement at 7-8% unemployment
  • Kita:
    • Consensus GDP growth projection: 5-6%
long term outlook building on inherent strengths
Long Term Outlook:Building on Inherent Strengths
  • Exceptionally rich natural & human resources
  • Strategic geography (transshipment, shipbuilding/repair, tourism)
  • Favorable global, regional trends (e.g. aging, medical tourism, outsourcing)
  • Resilient, adaptable people, in high demand worldwide
  • Completing the picture: Good

Governance is key!

checklist for good governance
Checklist For Good Governance
  • Quality Appointments to Cabinet, revenue and regulatory agencies
  • Zero Tolerance for Corruption: an unequivocal policy
  • Decentralized Governance where NG “steers,” LGUs “row”
  • Participatory Mechanisms:bring people to the gov’t & gov’t to the people
  • Streamline Government Processesto reduce cost of doing business

Post Script:

Stories from the Countryside

  • Bgy. Lopero, Jose Dalman, Z Norte

Carabaos, Not Fertilizers:A Farmer’s Plea

  • Magsaysay, Davao del Sur

Diversified Organic Farming System: A Mayor’s Lament

  • Upland Barangay, Sarangani

Horses vs. FMR: A Pragmatic Farmer

  • Bottom-up devt; Solutions need not be sophisticated nor expensive!

Thank You!