1. The Republic of the Philippines
Good Governance is Good Economics
October 2013

2. Table of Contents
I.
Executive Summary..................................................................
3
II.
Institutionalizing Good Governance……………………………..
8
III. Robust Improvements in Economic and Financial Metrics
Healthy, Sustained and Inclusive Growth……………………………
Rapidly Strengthening Public Finances and Debt Dynamics……..
Supportive and Stable Monetary Conditions and Healthy Banking
Sector……………………………………………………………….......
Strong External Position………………………………………………
15
19
27
IV. Improving Investment Climate……………………………………
40
Mindanao - Peace Leading towards Progress…………….......
45
VI. Outlook……………………………………………………………..
50
-
V.
36
2

3. Contents
I.
Executive Summary
3

4. Executive Summary
Pushing forward on all fronts
Improving Governance
and Effective
Policymaking
Rapid and Resilient
Economic Growth

Steep change in economic
growth with a 6.8% increase in
GDP in 2012, and 7.6% in
1H2013


Broad-based quality of growth
with increases across
consumption, public spending,
and investments


Upward revisions of 2013
growth forecast for the
Philippines by World Bank
from 6.2% to 7%; ADB from
6% to 7%

The Philippine economy is on
track to meet the Philippine
Development Plan average
growth target of 7- 8% for the
medium term

Focus on improved governance
is paying off with notable
improvements in the ROP’s
ranking in 3rd party indicators
Passage of sin tax and
reproductive health laws, etc.
demonstrate improved
government effectiveness and
firm commitment to implement
difficult reforms
Three years into office, the
Aquino Administration’s net
satisfactory rating remains in
the very good territory at
+66%*

ROP has run a primary surplus
since 2011

Aug 2013 fiscal surplus of
PhP 21.9 bn reflects the Republic’s

ability to raise revenues amid robust,
strategic and high-impact spending. .
Jan-Aug 2013 deficit of Php82.6 bn
is within the Q1-Q3 program

Jan-Aug 2013 revenue grew 12%

yoy to Php1,139.2bn indicative of
continued revenue buoyancy along
with accelerated spending growth
of 13% yoy to Php1,221.8bn



Much improved debt dynamics with
declining NG debt ratio of 49.5% of

GDP as of 1H2013, longer
maturities and increased share of
PHP-denominated debt

ROP is now a net external creditor
with foreign exchange reserves
exceeding gross external debt

*2nd Quarter 2013 SWS Survey
Progress in Investments
and Infrastructure
Development
Stronger Fiscal and
Government Finances
The portion of the budget that is
spent on interest servicing will
decline to 15.5% of total budget in
2014 from 17.1% in 2012 and a
high of 31.6% in 2005 and 33.2% in
1988
Investors beginning to take note
of improving investment climate
and governance in the ROP
Infrastructure development is
accelerating with private and
public construction increasing
22.1% in the 1H 2013
Budgetary allocation for public
infrastructure increased by
17.7% in 2013
Philippines posted the highest
FDI growth rate of 54% in
ASEAN in 2012
BOI-PEZA approved
investments increased 36.6% to
Php285.6bn in 1H 2013, led by
electricity, gas, steam & air
conditioning supply (55.9%)
followed by real estate activities
(22.2%)
4

5. Executive Summary
Sharp increase in economic growth
Recent Economic Performance Reflects ROP’s Strong Economic Base
Contribution to GDP Growth, in percentage points

Strong economic growth in 2012 thru 1H2013 has been
broad-based in nature and supported by all components of
GDP
 Private consumption is robust and remains a major
contributor to GDP growth, highlighting healthy
consumer confidence in the economy
 Capital formation increased significantly at the end of
2012 and the 1H2013, particularly in the construction
sector, as investment and infrastructure development
began to take off

2Q2013 growth of 7.5% yoy outperformed market
consensus of 7.2% yoy. The growth trend demonstrates the
nation’s robust growth momentum
GROSS DOMESTIC PRODUCT
By Origin
1. Agri., Hunting, Forestry and Fishing
Agriculture and Forestry
Fishing
2. Industry
Mining and Quarrying
Manufacturing
Construction
Electricity, Gas and Water Supply
3. Services
Transport, Comm., Storage
Trade & Repair of Motor Vehicles, Motorcycles, Personal and
Household Goods
Financial Intermediation
Real Estate, Renting and Business Activities
Public Administration and Defense; Compulsory Social Security
Other Services
2012
6.8
1H2013
7.6
0.3
0.3
0.0
2.2
0.0
1.2
0.8
0.2
4.3
0.6
0.2
0.1
0.1
3.4
(0.0)
2.2
1.1
0.1
4.1
0.3
1.3
1.0
0.5
0.8
0.3
0.8
1.0
0.8
0.3
0.7
Strong Economic Fundamentals to position the economy to adjust smoothly to effects of QE tapering and
slow down in regional growth

On 23 September 2013, the IMF mission led by Rachel van Elkan noted that the Philippines is “expected to remain strong at 6.75% in 2013
and 6% in 2014
 In the first half of 2013, growth of 7.6% was underpinned by dynamic private and public demand such as robust consumption and
investment
 On the impact of Fed’s prospective tapering of asset purchase, IMF states that “when tapering does eventually begin, the Philippines’
strong fundamentals—including strong current account receipts, its net creditor status, steady reductions in public debt, and low foreign
participation in government securities markets—position the economy to adjust smoothly to the accompanying capital flow reversal and
slow down in regional growth.”
5
Philippine National Statistical Coordination Board (NSCB)

6. Executive Summary
Government financial strength continues to improve
ROP’s Debt Story Reflects Prudent Fiscal Management
ROP’s debt stock has shown consistent improvement in recent years
and the government has several tools to manage amortization

 As of 2012 the Bond Sinking Fund amounted to
Php825bn
General Government Consolidated Debt Adjustment
GG Debt vs. National Debt (as % to GDP)
56
3 June Moody's Data (Nat'l Govt Debt)
25 July Moody's Data (Gen Govt Debt)
54
52
 The debt amortization schedule is front-loaded with domestic
debt, which the government has been able to easily refinance
owing to deep, captive domestic markets
50
48
46.6
46
44
42
2009
Foreign Currency Debt Exposure Has Been Reduced
GG Debt as % to GDP
80
Foreign
70
Domestic
60
50
21.8
40
30
20
10
Q1
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
16.7
1998
0
40.7
40
2010
2011
2012
2013F
2014F
Amortization Schedule is Manageable
500
450
400
350
300
250
200
150
100
50
0
GG Debt vs. National Debt (in Php bn)
H2 2012
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038-…
 General government consolidated figures are now published
and available publicly. GG figures significantly benefit ROP
in view of offsetting of intragovernmental holdings
External
Domestic
6
Source: Moody’s

7. ROP Achieves Investment Grade from Fitch, S&P and Moody's
Improved credit metrics across the board over the past 7 years
2005 vs. 2012
2005
2012
Fitch Ratings
BB
BBB- (Mar 2013)
Standard and Poor’s
BB-
BBB- (May 2013)
Moody’s Investors Service
B1
Baa3 (Oct 2013)
4.8
6.8
GDP Per Capita1 (USD), PPP concept
3,061
4,431
GNI Per Capita1 (USD), PPP concept
3,855
5,834
National Government Interest (% of Revenue)
36.7
20.4
Fiscal Balance (% of GDP)
(2.6)
(2.3)
General Government Debt (% of GDP)
59.2
40.6
Gross International Reserves (US$ billions)
18.5
83.8
OFW Remittances (US$ billions)
10.7
21.4
Gross External Debt (% of CAR)
89.9
65.3
Import Cover (months)
3.8
12.0
Current Account (% of GDP)
1.9
Change
2.8
Sovereign Credit Ratings
GDP Growth Rate
Source: Bangko Sentral ng Pilipinas (BSP), National Economic and Development Authority (NEDA), Department of Finance (DOF)
1/ At current prices
7

8. Contents
II.
Institutionalizing Good Governance
8

9. Pipeline Developmental Reforms and Programs
Accelerating reforms to achieve sustainable and inclusive growth
2013 and Beyond:
Tax Incentives Management
and Transparency Act
2013 and Beyond:
Rationalization
of Fiscal Incentives Law
2013 and Beyond:
Amendments to the
Bangko Sentral ng Pilipinas Charter
2013 and Beyond:
Customs Modernization and
Tariff Act (CMTA)
2013 and Beyond:
Amendments to the Cabotage Law
2013 and Beyond:
Amendments to RA8974 or the Act to
Facilitate the Acquisition of Right-ofWay
2013 and Beyond
2013 and Beyond:
Amendments to the Build Operate
Transfer Law or RA 7718
2013 and Beyond:
Rationalization of the Mining Fiscal
Regime
2013 and Beyond:
Amendments to the Anti-Money
Laundering Act
2013 and Beyond:
Removal of Investment Restrictions
in Specific Laws cited in the
Foreign Investment Negative List
(FINL)
2013 and Beyond:
Site or Location for National
Government Infrastructure Projects
and For Other Purposes
January 2014:
Implementation of Basel
III
2013 and Beyond:
Full implementation of the
Government Integrated Financial
Management Information Systems
(GIFMIS) in 2013
9

10. Widespread Support of the Aquino Administration
Strong mandate by the public to improve governance
The Aquino Administration attains record-high very good net satisfaction rating
Net Satisfaction with General Performance of the National Administration (%), February 1989-June 2013
C.AQUINO
RAMOS
ESTRADA
ARROYO
B.AQUINO
80
+66
60
40
20
0
-20
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
-40
-60
Administration has strong national mandate and viewed
as sincere in fighting graft and corruption
Real progress being made in helping the poor
Net Satisfaction with the National Administration on
Eradicating Graft and Corruption (%), March 1987-June 2013
Net Satisfaction with the National Administration on
Helping the Poor (%), December 1993-June 2013
10
Source: The 2013 SWS Survey Review, 23 September 2013, Social Weather Station National Surveys
Net figures (% Satisfied minus % Dissatisfied) correctly rounded.

11. Results are Significant - Good Governance is Winning Out
ROP has shown improvements in governance and competitiveness indicators
The sustained high trust ratings of the President provide the impetus to drive the governance reform agenda. The
reforms that the Republic have been implementing in past years are already bearing fruit as confirmed by improved
rankings of the country from third party assessors
• Zero Based Budgeting to
improve expenditure
management
Strong
political
will to
pursue
and
implement
difficult
reforms
• Pocket Open Skies to
support tourism potential
• Peace Agreement to
unleash Mindanao’s
potential
• Sin Tax Law to further
strengthen the fiscal
position
• Reproductive Health Act
to improve family health
planning
• Judicial Reform to
enhance the regulatory
environment and ensure
level playing field
Third Party Report
Transparency International
2012 Corruption Perception
Index
World Bank
2013 Worldwide Governance
Indicators’
Government Effectiveness*
IMD
2013 World Competitiveness
Report
Heritage Foundation
2013 Economic Freedom
Index
Thomson Reuters/INSEAD
Asia Business Sentiment
Survey**
(Q3 2013 vs Q2 2013)
Grant Thornton
2013 Global Dynamism Index
Latest
Previous Change
105/179
129/183
up 24
58
57
up 1
38/60
43/59
up 5
97/177
107/179
up 10
100
94
up 6
21/60
46/50
up 25
* Percentile Ranking
* * % of Respondents with positive outlook on the Philippines
11

12. A Structurally More Competitive Nation
Improvements in competitiveness to support long-term growth prospects
Consistent improvements for the Republic in the World Economic Forum Global Competitiveness Rankings
Global Competitiveness Rankings
2010 - 2011
2013 -2014

The Philippines has improved by 26 spots in
the WEF Global Competitiveness Rankings
since 2010
Overall Rank
85
26
59
Institutions
125
46
79

Ranking of #59 (out of 148 countries) places
the ROP in the upper 40% percentile rank
Infrastructure
104
8
96

Macroeconomic Environment
68
28
40
Health and Primary Education
90
-6
96
Sub-rankings in Institutions,
Macroeconomic Environment and Financial
Market Development have in particular
improved dramatically, improving 46, 28,
and 27 places, respectively
Higher Education and Training
73
6
67
Goods Market Efficiency
97
15
82
Financial Market Development
75
27
48
Labor Market Efficiency
111
11
100
Technological Readiness
95
18
77
Market Size
37
4
33
Business Sophistication
60
11
49
Innovation
111
42
69
 Improving governance and the
economy have been key areas of focus
for the Aquino Administration
 Supports the notion that good
governance is indeed good economics
and the two are inextricably linked
 Proof that ROP is making real progress
in improving governance and
institutions
12
Source: World Economic Forum Global Competitiveness Rankings

13. Progress Made in Reaching Development Plan Targets
2011-16 Philippine Development Plan goals now closer to reality
Notable progress being made in the ROP’s five major guide posts for the PDP
Target1
Progress
 Average GDP growth of 7- 8%
Rapid, Inclusive and
Sustained Economic
Growth
 Step-up change in GDP growth in 1H2013 to 7.6% yoy
 Increase investment/GDP to 22% by 2016
 Preliminary BSP study estimates potential output is now 6-7%
 Improved government finances with reduced
fiscal deficit-to-GDP ratio to 2.0% by 2016
 Significant uptick in public investment in 1H2013 with construction
and fixed capital formation growing in double-digits
 Investment /GDP ratio of 20.5%* in 1H2013
Anti-Corruption and
Transparent,
Accountable
Government
Poverty Reduction
and Empowerment of
the Poor
Just and Lasting
Peace and the Rule
of Law
Integrity of the
Environment and
Climate Change
Mitigation
1 Based
2 United
on Philippine Development Plan 2011-2016
Nations Office for Disaster Risk Reduction
*current prices
 Improve institutions and governance
 Increase government transparency and
public access to information
 Improve public’s trust in the government
 Ensure equitable and inclusive growth
 Reduce poverty incidence to 16.6%
 Effective social protection and strengthen
social safety nets for the poor
 Reach negotiated settlement to all armed
conflicts
 Increased internal stability
 Improve the Philippines ability to adapt and
mitigate climate change and capacity to deal
with natural disasters
 Improve air quality and water quality
 Closer performance monitoring of agencies with Account
Management Teams deployed to 9 major departments in 2013
 Open Data initiatives, including Freedom of Information Bill
(under discussion) to provide wider access to data
 Bottoms-up Budgeting prioritizing the Local Poverty Reduction
Action Plans of the poorest municipalities
 Sin tax revenues to help enroll the poor in universal healthcare
 Conditional cash transfer program to the poor to benefit 3.8
million households in 2013
 Breakthrough peace settlement agreement reached with Moro
Islamic Liberation Front (MILF)
 Stable political environment with the Administration sustaining
a net satisfaction rating of +66% as of Q2 2013 SWS Survey
 Philippines’ disaster preparedness lauded by the UNISDR2 and EU
 Progress made in mainstreaming climate change adaptation and mitigation
initiatives in agriculture
 Launched Project NOAH which provides more accurate, integrated, and
responsive disaster prevention and mitigation system, especially in highrisk areas throughout the Philippines.
13

14. Passage of Landmark Sin Tax Law
Sin tax to improve general health outcomes and boost government revenues
“Today, we are again making history: for the past 15 years, we have been trying to reform the tax structure of
imposing excise tax on tobacco and alcohol products. After 15 long years, we have finally succeeded.”
President Aquino, December 20, 2012
Key Provisions
Passage of the Sin Tax
 Republic Act No. 10351 (“sin tax law ”) was approved by the legislature and finally signed into law in December 2012 after being first introduced over
15 years ago in 1997
 Introduces higher taxes on tobacco and alcohol product based on a revised tiering system and will gradually increase over the next several years
 Sin tax is expected to generate an additional Php248.5 bn revenues in the first 5 years from 2013 to 2017 of which Php34 bn is expected to be
realized in 2013
 An estimated 69% of sin tax collections is expected to come from tobacco products in the first year
Highlights the Strength and Resolve of
the Aquino Administration
 Passage of the sin tax after being
held-up for 15 years demonstrates the
strength of this Administration’s
mandate and ability to push through
tough legislation
 Provides additional impetus and
momentum to push through other
tough legislation
Significant Additional Revenue
Generation
Projected Incremental Revenues
(Php bn)
2013
33.96
2014
42.82
2015
50.63
2016
56.86
2017
64.18
2013-2017*
248.49
* May not add up due to rounding
Aligned with Objective of Equitable
and Inclusive Economic Growth
 Majority of incremental revenues will
be earmarked for health programs,
including enrolling the poor into the
universal healthcare program and
upgrading of hospitals and other
healthcare facilities
14

15. Contents
III. Robust Improvements in Economic and Financial Metrics
- Healthy, Sustained and Inclusive Growth
15

16. Sharp Increase in Economic Growth
Broad-based growth highlights overall health of the economy
Decade of rapid and sustained economic growth is set to continue
Real GDP Growth (% yoy)
6.7
7
5
4
3
Average:5.0
4.8%
3.6
2.9
The IMF expects the Philippines to grow 6.75% and 6% in 2013 and
2014, respectively and maintain growth at 5.5% in the medium term

Philippines growth is increasingly broad based with particular strength
coming from the services and the resurgence of the industry sector led by
construction and manufacturing. The government’s focus on promoting
investment and infrastructure coupled with the nation’s favorable
demographics will help propel economic growth in the long term
7.6
6.8
6.6
4.8
2Q2013 growth of 7.5% yoy outperformed market consensus of 7.2%
yoy. This brought 1H2013 GDP growth to 7.6%. The growth trend
demonstrates the nation’s ability to grow in spite of external pressures.

7.6
8
6

5.2
4.2
2
3.6
1.1
1
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1H
2013
Strong performance across all components of GDP underscore overall strength and resilience of the economy
Real GDP Growth by Expenditure Component (% contribution to growth)
15.0%
6.5
8.4
10.0%
5.0%
1.0
1.6
8.9
7.3
6.1
4.6
3.0
7.7
6.3
3.8
7.3
Q3
Q4
7.5
7.1
3.2
0.5
1.4
0.0%
-5.0%
-10.0%
2009
Q1
Q2
Q3
Q4
2010
Q1
Private Consumption
Q2
Q3
Q4
Govt. Consumption
2011
Q1
Q2
Q3
Fixed Capital
Q4
2012
Q1
Net Exports
Q2
2013
Q1
Q2
GDP Growth
16
Philippine National Statistical Coordination Board (NSCB)

17. Sheltered from External Trade Shocks
ROP is well-positioned to withstand a slowdown in global demand

The Republic remains less trade and export dependent than most countries in Asia and therefore less exposed to the lower consumption and slower
growth experienced in much of Europe, a slowing China and the rest of the world

In addition to being less trade dependent, exports to both China and Europe account for only a small portion of total exports for the ROP, further
insulating the economy from growth uncertainties emanating from those two regions
 Despite European exports declining marginally in 2012, the total volumes of exports have actually increased highlighting its resiliency
Europe and China exports account for only a small portion of the total
Exports by Destination (USD bn)
80.00
60
70.00
50.5
48.3
47.4
60.00
51.5
49.1
41.3
38.3
50.00
40.00
26.8
26.7
30.00
20.00
-
4.10
7.10
4.6
5.70
5.5
8.80
8.7
2.9
8.10
5.7
8.9
2005
10.00
2006
2007
2008
2009
Others
China
7.6
6.1
6.40
6.2
5.9
2010
2011
2012
4.3
4.2
4.1
4.1
Jan-Aug
2012
Jan-Aug
2013
Europe
17
Source: NSO

18. Rising Employment and Wealth Create Inclusive Growth
Economic growth is generating opportunities for all
The Philippines is expected to reach the World Bank’s Upper Middle Income threshold in 2016
GDP per Capita Projections (USD)
4200
4000
3800
4,032.2
World Bank’s Upper Middle Income Threshold: US$4,035
3600
3,621.4
3400
3200
3,254.0
3000
2,909.7
2800
2013P
2014P
2015P
2016P
Compared to Regional Baa3 Peers, Philippines Wealth Levels are Comparable
GDP per Capita (USD; 2013)
18
Source: National Economic and Development Authority (NEDA), IMF WEO

19. Contents
III.
Robust Improvements in Economic and Financial Metrics
- Rapidly Strengthening Public Finances and Debt Dynamics
19

20. Rapidly Strengthening Public Finances and Debt Dynamics
Strong framework in place to guarantee ability to meet debt obligations

1
 Sound debt management strategy has reduced rollover
risks and increased debt carrying capacity
2
Sound Debt
Management
Strategy
The Republic’s ability to meet its debt obligations has been
strengthened even further due to improving
macroeconomic fundamentals
Strengthening
Fiscal
Framework
 Improving fiscal metrics make this ability ever stronger
 Government financing is shifting towards being
domestically funded and denominated in Peso
Ability
to Meet Debt
Obligations
Bond Sinking
Fund
4
Automatic
Appropriation
for Public Debt
Service
3

The national government’s willingness to service its debt
obligations is enshrined in the legal system
 Bond Sinking Fund which necessitates consistent cash
allocations to ensure debt servicing of maturing principal
– Presidential Decree 1177 or the Budget Reform Decree of
1977 which provides for the automatic appropriation of
principal and interest payments on public debt
20

21. Bond Sinking Fund Enhancing Debt Management
Improving public finances and debt management
Bond Sinking Fund is reflective of the Republic’s prudent management of public debt

The Bond Sinking Fund was established in 1954 for
the sole purpose of holding funds for the retirement
of local currency bonds issued by the Government of
the Philippines

Bond Issued
Payments to the Bond Sinking Fund are structured by
making annual payments to gradually retire the debt,
rather than make a single payment at maturity

Any investment returns are reinvested into the Bond
Sinking Fund balance

AMS calculates annual payment required
to cover principal payment
The Asset Management Service (AMS), an office in
the Bureau of the Treasury, ensures matching of fund
maturities to that of debt issues that are being
provisioned for

Annual contribution made over the life
of the bond until retirement
The AMS manages the maturity profile and ensures
that there is always complete alignment with debt
issues
21

22. Improved Fiscal Metrics Across the ROP
Creating a sustainable fiscal revenue and spending path
Better governance bearing fruit as fiscal finances continue to strengthen
(in Billion Pesos)
Total Revenues
% of GDP
Tax Revenues
% of GDP
BIR
BOC
Other Offices
Non-Tax Revenues
% of GDP
o.w. BTr Income
Others incl. Fees & Charges
Privatization
Expenditure
% of GDP
Surplus/(Deficit)
% of GDP
Jan-Aug 2013
Actual
1,139.2
1,021.2
811.9
198.9
10.4
117.9
60.9
56.8
.3
1,221.8
(82.6)
-
Jan-Aug 2012
Actual
1,013.6
901.4
701.4
190.4
9.5
112.2
60.9
51.3
0
1,084.7
(71.1)
% Growth
2012 v. 2013
12.4
13.3
15.7
4.5
9.5
5.1
0
10.7
0
12.6
16.2
FY 2013
Adjusted Program
1,745.9
14.7
1,607.9
13.5
1,253.7
340.0
14.2
136.0
1.1
57.7
78.3
2.0
1,983.9
16.7
(238.0)
(2.0)
2012
Actual
1,534.9
14.5
1,361.1
12.9
1,057.9
289.9
13.3
165.5
1.6
84.1
81.3
8.3
1,777.8
16.8
(242.8)
(2.3)

Firm administrative measures (i.e. RATE, RATS and RIPS) have resulted in higher tax revenue s and manageable deficits

Tax elasticity of BIR collection increased to 1.7 in 2012 from 0.8 in 2004, indicating effective tax administrative measures

1H 2013 revenue and tax effort of 15.3% and 13.6%, respectively exceeded the program for the year on stronger tax compliance

Jan-Aug 2013 fiscal deficit of Php82.6bn is 42.8% lower than Q1-Q3 program of Php144.5bn reflecting the Republic’s ability to raise
revenues along with a more focused, faster and higher spending

Jan-Aug 2013 spending of Php1,221.8bn is nearly 61.6% of total disbursement program for the year.

Aug 2013 revenue of Php155.1bn is 20% higher than Aug 2012 with BIR, BOC and BTr revenue growth of 22% (Php118.1bn), 15%
(Php26.1bn) and 15% (Php3.4bn), respectively
Sources: Bureau of the Treasury (BTr), Department of Budget and Management (DBM)
*Note: Some values may not sum up to exact figure due to rounding off
22

23. Improved Efficiency in Revenues and Expenditures
Fiscal consolidation on track despite accelerated spending
Firm tax administration pushes revenues higher
Expenditures disbursed more efficiently helping to
drive the development agenda
Revenues (Php mn)
Expenditures (Php mn)
220,000
260,000
200,000
240,000
242,102
220,000
180,000
155,100
160,000
211,670
200,000
180,000
140,000
126,357
120,000
110,170
100,000
103,172
80,000
160,000
147,810
133,200
140,000
120,000
100,000
80,000
60,000
60,000
40,000
40,000
20,000
20,000
0
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2010
2011
2012
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2010
2013

2011
2012
2013
Government’s continued effort to implement measures to

Relentless tax campaign has resulted in greater taxpayer compliance

Revenue collection continues to gain strength growing by 12.6% and
facilitate budget execution and program/project implementation
12.9% in 2011 and 2012, respectively from 7.6% and -6.6% in 2010
has resulted to ramped up spending
and 2009, respectively

Collection continues to gain traction as a result of improved collection

Total disbursements for January to August reached P1,221.8
billion, 13% higher than comparable disbursements in 2012.
efforts from both BIR and BOC
23
Source: BTr

24. Increased Flexibility to Service Obligations
Ensuring long-term debt sustainability
Improving revenue buoyancy due to rapid revenue
growth
Growing revenue base will improve debt servicing
ability
Revenue and GDP Growth (% yoy)
Revenue / GDP Projections (%)
20
18.0
18.4
16.9
17.8
18
16.1
17.0
15.6
16
12.6
14
12.9
12.6
12
11.8
11.3
11.3
7.8
8
15.0
14.5
14.7
14.0
14.0
8.8
10
15.1
16.0
13.7
13.0
6
12.0
2011
2012
2013A
Revenue Growth
2014Pr
2015P
2016P
2011
2012
2013A
2014Pr
2015P
2016P
Nominal GDP Growth

The Administration’s focus on fiscal reforms has permanently increased the revenue base and over the medium term will
bolster the government’s ability to service external and domestic debt obligations

Revenue growth is expected to continuously outpace nominal GDP growth, thereby increasing revenue buoyancy

Through a combination of liability management exercises and fiscal reforms, the cost of existing debt stock has been lowered
while simultaneously increasing government’s revenue take
 The result will be a significant decline in debt servicing cost over the coming years
Note: A- Adjusted; Pr- Proposed; P- Projections
Projections, subject to revision based on changes in macroeconomic assumptions and other factors
Source: 2014 BESF, DBM
24

25. ROP Funding Becoming Increasingly Domestic
Increasing reliance on domestic financing sources
Actual
Program
Revised
2012
2012
2013
Total Net Financing
(PHP mn)
242,827
279,106
238,028
250,071
Gross External
Borrowings
156,621
181,435
104,340
27,000
Gross Domestic
Borowings
Budgetary Change
in Cash
Financing Mix (%)
Foreign
Domestic
Share of external debt to national government debt
has been gradually declining over the years
Actual
Jan-Aug
2013
798,527
535,074
630,691
419,281
295,345
54,234
61,817
167,460
25
75
14
86
16
84
National Government Debt Breakdown (% of total)
100
90
80
70
60
50
40
30
20
10
0
6
94
49
48
44
51
52
56
44
54
32
2008
25
2009
Long-term: >10yrs
Source: DBCC as of Feb 2013, BTr
70
78
26
20
19
2010
10
2011
Medium-term: 1yr to 10yr
79
14
12
9
8
2012
44
42
42
56
59
57
56
58
58
36
36
64
64
External Debt Breakdown (% of total)
35
31
43
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 JanJul
External
Domestic
2013
Domestic Debt Breakdown (% of total)
34
41
External debt is all long-dated with maturity profiles
exceeding 10 years
Domestic debt mix has become longer dated
100
90
80
70
60
50
40
30
20
10
0
44
Jan-Jul
2013
Short-term: <1yr
100
90
80
70
60
50
40
30
20
10
0
90
10
2003
100
96
100
100
2010
2011
2012
100
4
2005
Long-term: >10yrs
Medium-term: 1yr to 10yr
Short-term: <1yr
Jan-Jul
2013
25

26. Fiscal Reforms and Programs for 2013 and Beyond
Focus to ensure that positive momentum in government finances continue
Update on Key Fiscal Policy Reforms
Fiscal Incentives Rationalization
 Intended to remove redundant incentives to reduce fiscal costs and ensure incentives will only be given to those who need them
Review of the Fiscal Regime of the Mining Sector
 New mineral agreements are suspended until legislation rationalizing existing revenue sharing schemes mechanisms has been implemented
Tax Incentives Management and Transparency Act
 Aims to foster transparency and accountability in granting fiscal incentives
Focus on leveraging technology in 2013 to improve effectiveness of major public finance departments
 Re-engineering of business processes
Bureau of Internal
Revenue
 Expansion of ISO Certification to other districts
 Electronic Letter of Authority Monitoring System (eLAMS)  Procurement, Payment and Distribution Monitoring System
 Re-registration of Taxpayers through Taxpayer
 Electronic Certificate Authorizing Registration (eCAR)
Registration Information Update (TRIU) Project
 On-line System for Transfer Tax Transactions (OSSTTT)
 Electronic Tax Information Systems (eTIS) Project
 Centralization of Data Processing to regional offices
 Collection Reconciliation System
 Mobile Revenue Collection Officers System (MRCOS)


Bureau of
Customs
Source: DOF, BIR and BOC





Cleansing of the List of Accredited Importers and Consignees by the Interim Customs Accreditation and Registration
unit (ICARE)
Integrate National Single Window (NSW) with Electronic to Mobile System (E2M) and Other Government Agencies
automated permit/licensing systems
The Codification of Customs Memorandum Orders (CMOs) and Customs Administrative Orders (CAOs)
Implementation of cargo electronic tracking via Global Positioning Satellite systems
The Customs Modernization and Tariff Bill
Intensive utilization of the Post Entry Audit Group (PEAG)
Strengthening the Valuation Reference Information System
26

27. Contents
III.
Robust Improvements in Economic and Financial Metrics
- Supportive and Stable Monetary Conditions and Healthy Banking Sector
27

28. Sound and Stable Inflation Environment
Refinements in inflation targeting mechanism have allowed BSP to tame inflation and meet
the target for four consecutive years
Firm control over inflation has proven the effectiveness and credibility of monetary policy
Headline Inflation (%)
15.0%
Headline
<
Lower bound of target
Upper bound of target
Global inflationary
cycle
10.0%
September 2013 - 2.7%
201 3
201 2
201 1
201 0
200 9
200 8
200 7
200 6
200 5
200 4
200 3
0.0%
200 2
5.0%
Monetary policy remains supportive of healthy economic growth
Money Supply and Interest Rates (Php bn, %)
<
7,000
August 2013: P6,028,250
14%
6,000
12%
5,000
10%
4,000
Jan-August 2013: 5.81%
8%
3,000
6%
2,000
4%
1,000
M3 (LHS)
Source: BSP
Bank lending rates (RHS)
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
August 2013: 3.50%
2%
0%
Reverse repurchase rate (RHS)
28

29. Peso Performance Supports Macroeconomic Stability
Effective monetary policy contributes to low PHP volatility
Movement broadly in line with regional currencies
Peso remains one of the most stable currencies compared
to peers
USD/PHP Exchange Rate
1 Month Volatility
10%
46
21 Oct 2013
43.22
45
9%
8%
44
7%
43
6%
5%
42
4%
41
3%
40
2%
39
1%
Philippine Peso
Indonesian Rupiah
Turkish Lira
Sources: BSP, Bloomberg as of 21 October 2013
Oct-13
Oct-12
Oct-11
Oct-10
Oct-09
Oct-08
Oct-07
Oct-06
Oct-05
Oct-04
Oct-03
Oct-02
Oct-01
Oct-00
Oct-99
0%
Oct-98
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
Jun-12
Apr-12
Feb-12
Dec-11
Oct-11
Aug-11
Jun-11
38
Brazilian Real
South African Rand
Thai Baht
29

30. Strong Fundamentals Provide Buffer Against Market Volatility
Yields have risen less than peers while CDS levels continue to trade tightly
ROP’s CDS spreads trade tighter than Thailand and Malaysia
Sovereign 5Y CDS Spreads (bps)
320
CDS spread (bps)
21-Oct
1-Jan
280
change (bps)
100
106
Indonesia
197
136
61
115
95
20
Malaysia
112
78
34
Korea
65
68
7
-6
Thailand
200
Government Bond Yields (%)
8
Philippines
240
Yields have outperformed peers due to strong onshore bid
-3
6
5
197
Philippines
Sri Lanka
Vietnam
Indonesia
Malaysia
Generic UST 10Y
114.50
111.5
100
80
4.821
4.61
3.674
3.062
2.6032
1
2
40
Jan-13 Feb-13Mar-13 Apr-13 May- Jun-13 Jul-13 Aug-13 Sep-13 Oct-13
13
PHILIP
THAI
MALAYS
KOREA
INDON
0
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13
Philippines 2021
Indonesia 2023
Normal correction in equities after record rise in 1H 2013
c
Hi
Low
Last
Peak-Trough
Phil
127
99
114
28
Indon
121
92
106
29
Malay
107
100
107
7
Thai
118
92
104
26
Japan
150
120
141
31
UK
116
102
113
14
Sri Lanka 2022
US Generic 10Y
Vietnam 2020
Malaysia 2021 Sukuk
Relatively high P/E ratio shows confidence in Philippines
2013 Rebased Stock Exchange Performance (Jan 2013 = 100)
140
6.354
3
65
120
150
change (bps)
80
151
54
133
105
84
4
160
160
Yield (%)
21-Oct 1-Jan
3.06
2.27
6.35
4.84
4.82
4.29
4.61
3.28
3.67
2.62
2.60
1.76
Price to Earnings Ratio (x)
S&P
120
110
122
10
Current (21-Oct-13)
FY 2012
25
20
130
19.4
18.1
18.9
16.9
15.8 16.2
16.9
Thailand
Malaysia
15.0
15
120
114
10
110
100
5
90
80
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13
Philippines
Japan
Indonesia
UK
Malaysia
US (S&P)
0
Philippines
Indonesia
Thailand
Sources: Bloomberg as of 21 October 2013; current P/E ratio is price divided by trailing 12 months earnings
30

31. Macroprudential Measures Introduced as Safeguards
Prudent and forward-thinking policymaking to preserve stability
BSP remains ahead of the curve in protecting the economy from potential threats

Policymakers in the Philippines have been proactive in managing risks and have
introduced several prudent macro-prudential measures over the past year as
additional safeguards to protect against potentially destabilizing “hot money” flows
and to strengthen the financial sector

Raising Capital Charges on NDFs
–

Imposed higher capital charges on bank holdings of non-deliverable forwards
(NDFs) from 10% to 15%
Imposed strict restrictions on foreign funds flowing into the central bank’s
Special Deposit Accounts
–
Reduces unstable fund flows and promotes the stability of the Peso
Increased Monitoring of Bank Real Estate Exposure
–
Provided a more comprehensive measure of a bank’s real estate exposure to
include loans as well as related investments in debt and equity securities
–

Consistent with sound risk management practices as bank real estate
exposure will be referenced against its adjusted capital
Enhancing Corporate Governance
–

SDA
Investment
Restrictions
Restrictions on Investments in Special Deposit Accounts
–

Increased FX
Capital
Charges
Revised existing regulations on corporate governance in line with
international best practices such as the “Principles for Enhancing Corporate
Governance” issued by the Basel Committee on Banking Supervision,
strengthened
Increased
Monitoring of
Bank Real
Estate
Exposure
Stability
Further
Liberalization
of FX
Policies
Enhanced
Governance
Standards for
Banks
Further Liberalization of FX Policies
–
To keep FX policies responsive to current economic conditions, new rules on
FX transactions were adopted which includes among others increased limits
for OTC FX purchase
31

32. Healthy Banking System - Key IG Credential
ROP exhibits an exceptionally healthy and resilient banking system



Banks are continuing to fortify their balance sheets with
increased capitalization, well above international norms
Unlike much of the world today, the Philippines’ banking system
remains healthy and exudes health across all relevant financial
metrics.
Capital Adequacy Ratio of U/KBs (%) 18.9%
19%
The banking system continues to improve its asset quality, with the
universal and commercial banks’ NPL ratio settling at 2.7% as of 1H
2013, while fortifying bank balance sheet through increased
capitalization and high loan-loss reserves
Banks remain funded predominately through domestic deposits and
not through wholesale channels, reducing liquidity and funding risk and
minimizing potential contagion from the lingering uncertainty in the
Euro-zone
17%
17.8%
15%
13%
BSP Regulatory Requirement: 10%
11%
9%
International Standard: 8%
7%
5%
2004
2005
2006
2007
2008
CAR, solo
2009
2010
2011
2012
1Q2013
CAR, consolidated
Asset quality of the universal and commercial banks remains
extremely strong with an NPL of ratio of only 2.7%
Prudent NPL coverage ratios will ensure that the banking
system is well–prepared for any unforeseen shocks
Gross Loans (PHP bn) and NPL Ratios (%)
NPL Coverage Ratio of U/KBs (%)
4,000
20
150
16
130
3,344
3,000
12
2,000
130.1
110
90
8
2.7
1,000
70
4
50
0
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jun
2013
Loans outstanding of U/KBs (net of RRPs)…
NPL ratio (RHS) (%)
Source: Bangko Sentral ng Pilipinas
2005
2006
2007
2008
2009
2010
2011
2012
June
2013
NPL Coverage Ratio of U/KBs (%)
32

33. Banking System Poses Minimal Risk
Relatively smaller banking system limits potential contingent liabilities
Strong deposit base supports banking sector funding
Potential contingent liabilities of the banking sector is
smaller than peers given relatively smaller size
Gross Loans-to-Deposits Ratio (%)
Domestic Credit to Private Sector (% of GDP)1
76
74
72.7
72
Indonesia
34.9
Philippines
73.5
33.4
71.8
70
68.2
69.2
68.4
68
68
66.6
Korea
148.0
66
64
Malaysia
62.6
118.2
62
China
60
58
133.7
Thailand
56
2004
2005
2006
2007
2008
2009
2010
2011
2012
147.9
0
50
100
150
200
Loans-to-Deposit Ratio

Banking sector remains well-funded through domestic deposits – prudent and conservative underwriting standards and credit have kept system
loans-to-deposit ratio low at 73.5%
 Reduces the probability of banks seeking emergency funding from the sovereign in times of stress
 Minimal risk of credit-fueled asset bubbles that threaten many other Asian nations with high growth rates

Banking system assets remain small relative to the total size of the economy compared to major peers - even in the extremely unlikely scenario
that a banking system crisis were to occur, potential government contingent liabilities for the ROP would still be lower than for peers
Source: BSP, World Bank
1Based on 2012 World Bank data
33

34. Real Estate Exposure Risks are Muted
Moderate banking sector exposure to real estate mitigates price risks
Higher Real Estate Loan Levels Are Manageable




Real estate loans (REL) of universal, commercial banks and thrift banks
was 17.9% of the total loan portfolio as of end March 2013. This
exposure is within the BSP’s regulatory limitations which caps RELs at
20% of total loans.
In line with its proactive approach to ensure financial stability, the BSP
expanded its reporting system on real estate exposure (REE) of banks
which now also includes banks’ investments in debt & equity securities
as well as social housing. REE as of end March 2013 remains
manageable at 21.4% of total loan portfolio, slightly higher than the
20.8% ratio as of end 2012.
The latest data on real estate exposure of banks reflect the health of the
banking sector vis-à-vis the real estate sector. The REE report noted:
 The non-performing real estate loans (NPREL) ratio remains
stable at only 3.5% as of March 2013 data
 Internal simulations on credit impairment using March 2013 data
indicated that the industry’s CAR will remain well above the 10%
regulatory minimum even with a simulated 50% write down in
REEs.
In a comment to media, Moody’s Financial Institutions Analyst JeanFrancois Tremblay commented in May 2013 on banks’ exposure to the
housing sector.
 He noted that exposure figures were affected by the inclusion of
the low-cost and socialized housing segments that “tend[s] to be
less susceptible to speculation”
 He further commented that “trends in [prudential measures]
have remained within reasonable limits,” making reference to
“factors such as demand and supply, underwriting standards,
loan-to-value ratios and the leverage of households and firms”
Demand Continues to Outstrip Supply

Housing data shows that demand for new housing remains high, a
trend that will continue through the long term
Units per
Year
No. of
Years
Total Units
Current Housing Backlog
3,919,566
New Housing Need
2012-2030
345,941
18
6,226,940
Housing Production
Capacity
200,000
18
(3,600,000)
Backlog by 2030
6,546,506
Source: Subdivision and Housing Developers Association and Housing & Urban Development Coordinating Council
Demand Continues to Meet Supply in the High-Cost Sector
Metro Manila Condo Market
30,000
26,692
25,000
20,000
25,514
26,757
24,998
26,432
26,103
22,182
21,267
19,757
19,285
15,000
10,000
5,000
0
2H10
1H11
New Launches
2H11
1H12
2H12
Take -up
34
Source: Colliers International 1Q 2013 Market Overview

35. Real Estate Exposure Risks are Muted
The real estate sector remains in balance
Market Indicators Do Not Suggest Overheating
Price Increases are Justifiable in Real Terms
Secondary Market Condo Prices

Increased supply in the real estate market reflects increased
housing demand in line with growth and investment opportunities,
especially in Manila

Real estate price increases are moderate and do not resemble
the overheating witnessed prior to the Asian Financial Crisis. In
real terms, price increases are quite modest

Increasing supply is being absorbed by the market, as evidenced
by high levels of real estate pre-sales and consistent, low
vacancy rates in both the commercial and residential sectors
Vacancy Rates Remain Low, Demonstrating Demand is Sufficient to Meet Growing Supply
Office Vacancy Rates (Makati CBD)
16
Residential Vacancy Rates (Makati CBD)
20
18
16
14
12
10
8
6
4
2
0
12
8
4
0
Premium
Grade B & Below
Source: Colliers International 2Q 2013 Market Overview
Grade A
All Grades
Luxury
Others
All Grades
35

36. Contents
III.
Robust Improvements in Economic and Financial Metrics
- Strong External Position
36

37. Robust External Profile – A Key Sovereign Strength
Structurally strong balance of payments bolsters external finances
The Philippines enjoys a structurally positive BOP
Balance of Payments (Components, USD mn)
BOP Statistics for 2001 to 2010 are based on IMF’s BPM5
BOP Statistics beginning in 2011 are based on IMF’s BPM6
Capital and Financial Accounts
Financial Account
20,000
Current Account
Capital Account
14,308
11,400
Net Unclassified Items
15,000
Balance of Payments
Current Account
9,236
8,557
Overall BOP Position
6,421
10,000
3,769
1,316
2,410
5,000
-202
810
115
2002
2003
Net Unclassified Items
2,577
89
-280
0
-5,000
2011
2001
2004
2005
2006
2007
2008
2009
2012
1H 2012
1H 2013 p/
2010

ROP’s current account continues to be in surplus supported by robust remittances from overseas Filipino workers (“OFWs”), substantial BPO
revenues and increasing tourism receipts

BOP surplus sustained at US$3.8 bn as of end-Sep 2013

While exports remain relatively subdued due to the global economic environment, the Philippines nonetheless posted a 7.6% yoy growth of total
exports in 2012, highlighting relative resiliency of exports despite the global uncertainty

In 2012, FDIs grew 54% to US$2.8 bn from US$1.8 bn in 2011, the sharpest rise among ASEAN countries
Source: BSP, National Statistical Coordination Board (NSCB)
37

38. Robust External Profile – A Key Sovereign Strength
International reserves provide strong buffers to any BOP problems
ROP is effectively protected against any balance of payment shocks through
adequate international reserves
FX Reserves (USD bn) and Months of Import Cover

90.0
83.8
80.0
83.5
The Republic currently enjoys a healthy
level of international reserves of USD 83.5
billion as of end-September 2013, enough to
cover 11.9 months of total imports

Since 2010, ROP’s FX reserves have
exceeded its gross external debt

Strong reserve buildup is a prudent measure
to guard against external shocks and
underscores the ability of ROP to pay back
any foreign currency denominated debt
20x
18x
75.3
16x
70.0
62.4
14x
60.0
12x
50.0
12.1x
44.2
11.9x
11.9x
33.8
9.5x
8x
8.7x
30.0
6x
23.0
20.0
10.0
0. 0
10x
37.6
40.0
17.1
4.0x
2003
16.2
18.5
3.6x
3.8x
2004
2005
5.8x
6.0x
4x
4.2x
2x
2006
2007
FX r eserves (lhs)
2008
2009
2010
2011
2012
Sep-13
–
Impor t co ver (r hs)
Source: BSP
Import Cover = Number of months of average imports of goods and payment of services and income that can be financed by reserves.
38

39. Current Account in Surplus Despite External Challenges
Strong structural support provided by remittances, tourism, and BPO
Strong and stable rise in remittances over the years
Tourism is a key area of national growth
Overseas Filipinos’ Remittances (USD bn)
International Visitor Receipts (USD bn)
12
10.8
10
8.3
8
6.4
6
25.0
20.0
16.4
14.5
15.0
12.8
17.3
18.8
20.1
4
21.4
3.0
2.5
3.8
13.7
14.5
8.6
0
2010
2011
2012 Q1 2012 Q1 2013 2013P
2015P
2016P
BPO Employment and Revenues (in USD bn)
13.4
800
11.0
700
500
6.1
400
200
100
8
6
3.2
1.5
14
10
7.1
4.8
300
16
12
8.9
600
0.0
2014P
BPO – a strong driver of employment and revenues
900
5.0
1.3
1.2
2
10.7
10.0
4.9
4
2.4
2
-
0
2004
2005
2006
2007
2008
Revenues (in USD bn) RHS
2009
2010
2011
2012
Employment ('000) LHS
39
Source: BSP, Department of Tourism , Information Technology and Business Processing Association of the Philippines

40. Contents
IV.
Improving Investment Climate

41. Improving Investment Climate
National focus on making the ROP an enhanced investment destination
Investment level is slowly but surely trending higher
Continued increase in foreign investment inflows into the PH
Investment Levels and Investment / GDP (%)
1,200
1,000
800
21.5
918
21.1
945
17.0
802
18.8
985
15.9
BOI-PEZA Approved Investments
20.8 20.4 18.5
1,184 1,207 1,168
1,400
17.0
899
25.0
Year
18.5 20.0
798
15.0
Amount of
Approved
Foreign
Investments
% Share of
Foreign
Investments
% Growth
in Foreign
Investments
612
600
10.0
2011
657.27
218.91
33.31%
5.0
2012
672.30
282.45
42.01%
H1 2012
209.13
38.49
18.40%
H1 2013
285.59
91.91
32.18%
400
200
-
0.0
2004 2005 2006 2007 2008 2009 2010 2011 2012
Gross Capital Formation (constant)

Value
(Php
Bn)
1H
2013
Capital Formation as % of GDP (constant)
Infrastructure development remains a key national priority. Capital
outlays to GDP ratio is targeted to reach 5.2% by 2016.

DPWH 2013 budget for capital outlays is Php144.3 bn*. Capital
outlays as ratio to GDP is expected to reach 3.1% in 2013 under the
GAA.

Public spending will remain at the forefront of infrastructure
development – the 2013 budget’s allocation for public infrastructure
is 17.7% larger than 2012

Importantly, the Department of Public Works and Highways
(DPWH) has been designated as the principal infrastructure
agency and will be held responsible for timely implementation of
infrastructure projects – this appointment will accelerate the
completion of projects in addition to creating an expert agency to
warehouse knowledge and best practices for procurement
processes, project standards, and cost structures
* Based on General Appropriations Act (GAA)
Source: NEDA, BESF DBM, Department of Trade and Industry (DTI)

29.03%
138.79%
Notable foreign investments in 2012 and 2013 include Del Monte
Corporation’s (USA) US$60mn in Maguindanao for its 3,000-hectare
banana plantation, Holcim’s additional investment of US$400-US$450mn
for a new cement plant
An upward trend in the number of registered Regional Operating
Headquarters (ROHQ)/Regional Headquarters (RHQ)
No. of Registered ROHQs/RHQs and its Growth (%)
Year
Number of Registered
ROHQs/RHQs
% Growth
2010
20
2011
25
25%
2012
37
48%
41

42. Infrastructure Development a Key Priority to Improve
Competitiveness
Sustaining the growth momentum through systematic and coordinated pipeline development
2007-2014 DPWH Investment Program
DPWH Strategic Convergence Program
Partner with other concerned agencies to harmonize
national infrastructure development strategies
(Php bn)
Php184.9 bn
200.0
180.0
Tourism Convergence Program:
•
Infrastructure support to designated strategic Tourism
Destinations
•
A total amount of Php25.34 bn was released from FY 2011-FY
2013 for the initial 202 identified tourism infrastructure projects
•
Of the Php25.34 bn, Php16.44bn were funded under the DOTDPWH Convergence Program, while the remaining Php8.90 bn
were releases from other DPWH programs. An additional
amount of Php14.25 bn is included in the proposed DPWH FY
2014 Budget
Convergence for Agriculture Infrastructure:
•
Construct Farm to Market Roads to access food production and
processing sites
•
Water impounding projects to optimize water resources for
irrigation and flood management
Flood Management Program:
•
Implement priority projects under the Flood Management Master
Plan for Metro Manila and Surrounding areas
•
Clear waterways of Metro Manila and address drainage capacity
constraints
160.0
140.0
120.0
100.0
80.0
PDAF (Pork Barrel)
60.0
40.0
20.0
2005
2008
2009
2010
2011
2012
2013
2014
2011-2013 Tourism Infrastructure Program
(Php bn)
20.0
15.0
10.0
Integrated Transport System:
•
Support for access to major airports, seaports and RORO ports
•
Infrastructure support in preparation for APEC 2015 by improving
access to designated airports, convention sites, tourism
destinations
2007
5.0
13.28
Php25.34 bn
(FY 2011-FY 2013)
8.81
3.25
0.0
2011
2012
2013
42

43. Infrastructure Development a Key Priority to Improve
Competitiveness
Keen investor support will complement government’s infrastructure development program
High Standard Highway Network in Metro Manila & its
200 km sphere
Proposed Mass Transit Systems & Airports
Ongoing: 119.39 km
Project Name
Est. Cost
(USDmn)
Tarlac-Pangasinan-La Union Expressway
269.53
Daang Hari-SLEx Link
46.74
Southern Tagalog Arterial Road (STAR), Lipa City
– Batangas City, Phase II
NAIA Expressway
Project
Integrated Luzon Railway
Est. Cost
(USDmn)
TBD
Line 2 East Extension
223.26
53.95
MRT 3 Capacity Expansion
104.65
360.93
Line 1 Cavite Extension
1,376.70
MRT 7 Phase I
1,546.51
NEDA Approved: 91.20 km
Mactan-Cebu Int’l Airport
Project Name
Est. Cost
(USDmn)
NLEx-SLEx Connector Road
594.42
Cavite and Laguna Side Expressway
827.44
Central Luzon Link Expressway, Phase I
347.44
395.35
Puerto Princesa Airport Expansion Project
103.72
New Bohol Airport Development Project
166.05
Bicol International Airport Project
111.63
Makati – Manila – Pasay – Parañaque Mass
Transit System
TBD
Pipeline / Proposed: 117.82 km
Project Name
C-6 Expressway and Global Link (South Section)
Est. Cost
(USDmn)
1,036.98
C-6 Extension (Flood Control Dike Expressway
985.58
Calamba-Los Baňos Expressway
241.40
43

44. Revitalizing mining to promote economic development
and social growth
Resource rich sector to attract investments
The Philippines has substantial mineral capacity
Mining will bring in significant revenue for the government

A June 2012 IMF study noted that the mining sector
will provide ~$1bn revenue per year under the current
largely employed MPSA tax regime

The Philippines has 5.56 million
hectares of land with mineral
potential that is available for
applications
 Metallic: 3.96mm ha
 Non-metallic: 1.60mm ha
Action to Date: EO 79 passed in July 2012
demonstrates the government’s commitment to action
within the mining sector and paves the way for further
action
Planned Legislation: Rationalization of the Mining
Fiscal Regime is one of the nine key initiatives the
government will prioritize once the 16th Congress
begins in late July. At a cabinet meeting on July 15
Secretary Purisima stated the government’s intention
to prioritize this legislation
Heat Map of Philippines
Mineral Potential

Metallic
Non-metallic
MPSA: Mining Production Sharing Agreement
44

45. Contents
V.
Mindanao - Peace Leading towards Progress
45

46. Mindanao: Background and Key Facts
Major agricultural contributor with strong potential for accelerated growth
Mindanao: The 2nd largest island in the Philippines
ARMM
Mindanao
Metro
Manila
Philippines
1.2
8.2
7.3
6.8
93.3
1,565.4
3,830.8
10,564.9
27,819
68,659
312,137
110,314
Population (m)
3.35
22.80
12.27
95.8
Labor force
April 2013 (m)
1.3
8.4
5.0
40.9
Unemployment
Apr 2013 (%)
3.3
5.7
10.4
7.5
2012
 Mindanao: 104,530 sq km
 Northern Luzon: 104,668 sq km GRDP growth
 2012 Gross Regional Domestic (constant)







Product in current prices:
Php1,565.4 bn, approximately
15% of Philippines GDP
2012 GRDP at 2000 constant
prices Php 911.3 bn, 14% share
to Philippines GDP
Mindanao supplies over 35% of
the country’s food output
Population: 22.8m, 23.8% of
Philippines
Consists of 6 regions, 26
provinces, 33 cities
Largest city is Davao
(population 1.45m)
Mindanao is a major source of
globally competitive agri-based
products such as canned
sardines, pineapple, oil palm,
seaweed, tuna and banana
Mineral deposits valued at
USD312bn (c. 40% of the
country’s total USD840bn)
GRDP, Php bn
(current)
GDP per
capita, Php
Room for ARMM to grow with Mindanao
Per Capita Gross Regional Domestic Product
current Php prices (2012)
ARMM
27,819
CARAGA
48,954
SOCKSARGEN
69,663
Davao Region
91,312
Northern Mindanao
91,654
Zamboanga Peninsula
61,324
-
50,000
100,000
46
Source: Mindanao Development Authority; NEDA
Source: Mindanao Development Authority; NEDA

47. Mindanao: From Conflict to Peace and Prosperity
Ushering in peace after over four decades of conflict
Background to the conflict in the southern Philippines
 Islam spread to Mindanao in the 13th century and the Spanish called the population “Moros” after the Moors in Spain
 Historically, Moro and native Lumad populations were politically and economically excluded, leading to poverty and unrest
 Insurgent groups formed in the late 1960s, and violence ensued.
Timeline to peace
Formation of
MNLF with goal of
fighting for an
independent Moro
nation.
Violence ensued…
1968
The Jeddah Accord
was signed by the
Philippine
government and the
MNLF to continue
implementation of a
regional autonomy
1976
The Organization of
Islamic Conference was
invited to facilitate the
negotiations leading to the
signing of Tripoli
Agreement, however it
does not stop the fighting
1987
President Fidel Ramos signed
a peace agreement with the
MNLF. The Final Peace
Agreement led to the
establishment of the SPCPD*
and the election of MNLF Chair
Nur Misuari as Governor of the
ARMM.
1989
In hopes of achieving peace,
President Corazon Aquino
RA 6734 providing for the
creation of the Autonomous
Region in Muslim
Mindanao (ARMM)
1996
President Gloria
Arroyo ratified the
plebiscite of RA 9054
expanding the
ARMM, this proved
unsatisfactory to both
MNLF and MILF.
2000
Violence continues, and
President Joseph
Estrada’s “All Out War”
strategy leads to the
displacement of more
than 930,000 people
2001
President Benigno
Aquino and MILF
begin peace
negotiations
2008
The MOA-AD was
drafted and later
deemed
unconstitutional by
the Supreme Court.
Negotiations broke
down with the MILF
FAB Annexes on
Transitional
Arrangements and
Modalities and Wealth
Sharing were signed
in April and July,
respectively
2011 2012
2013
October 15 2012 to present The
Framework Agreement on the
Bangsamoro (FAB) is signed by
Atty. Marvic Leonen and
Mohaguier Iqbal, Chairs of the
government and MILF panels
respectively
Annex on Transitional
Arrangements and Modalities
(TAM) have been signed
Two main Moro insurgent groups
Moro Islamic Liberation Front (MILF)
Moro National Liberation Front (MNLF)
 Formed in 1984 after Salamat Hashim split from MNLF to form the country’s
 Founded by Nurallaj Misuari (b. 1942) in 1971 to fight for
largest Muslim rebel group
independence from the Philippine state. The MNLF was a united
front and a strong insurgent group
 The MILF initially aimed for independence from the Republic, but pursued
peace negotiations and in 2010 abandoned quest for independence, current
 A peace agreement was signed in 1996, but Misuari led an
negotiations are for genuine autonomy
uprising in 2001 and since then, the MNLF has become weak
and divided; recently staged attacks in Zamboanga; but conflict
has been resolved; rehabilitation of affected areas ongoing * SPCPD – Southern Philippines Council for Peace and Development
Source: Mindanao Development Authority; NEDA;
47

48. Mindanao is Integral to the Philippines economy
Established peace and investment will pave the way for further growth
Mindanao’s stable growth paves the way for a bright future
Agriculture dominates, but industry and services have
witnessed rapid growth in recent years
Gross Regional Domestic Product Growth Rate 2002-2012
GRDP Composition by Sector (constant, Php mn)
(constant prices, in percent)

Industry and services sectors have grown steadily accounting for 31%
and 44% of GRDP, respectively in 2012
1,000,000
9
8
800,000
6.8
400,000
5.4
5.0
6.0
5.3
4.8
5.2
4.7
4.2
4.3
3.6
235,301
248,726
281,888
226,468
229,968
2011
2012
200,000
4.2
-
4
4.3
367,396
225,650
600,000
6.6
5
3
399,475
348,811
2010
7.6
6.7
7
6
8.2
7.2
4.0 3.7
Services
Industry
AFF
Mindanao’s share to total government budget
3.6
Regional Share of Budget (%)
2

1.1
1
The government has prioritized infrastructure spending for the whole of
Mindanao over spending on other regions
Sector
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GRDP, Mindanao
GDP, Philippines
2008
2009
2010
NCR
4.1
3.7
3.4
3.6
6.6
6.5
Luzon
0
2011 2012 2013
16.3
16.9
15.7
16.3
19.4
20.1
Visayas
7.9
8.1
7.6
7.7
9.2
9.6
Mindanao
10.1
10.7
9.6
10.0
12.5
12.7
Mindanao GDP Share
n.a.1
14.5
14.2
14.1
n.a.2
n.a.2
48
Source: Mindanao Development Authority; NEDA

49. Mindanao to Receive Largest Per Capita Budget Allocation
Focus on developing Mindanao reflected in the 2013 budgetary allocations
Regional Per Capita Budget Allocation (FY 2012)
Regional Per Capita Budget Allocation (FY 2013)
(in Php)
(in Php)
NCR
Luzon
10,040
8,299
Visayas
8,437
9,478
Visayas
9,000
9,500
10,000
9,689
Mindanao
9,769
8,500
10,761
Luzon
Mindanao
8,000
NCR
10,500
11,000
8,000
10,990
8,500
9,000
9,500
10,000
10,500
2013 Regionalized
Budget
(Php bn)
Population (mm)
996.23
99.24
10,038
NCR
Luzon
131.22
410.47
12.19
43.31
10,761
9,478
2
4
Visayas
194.88
20.11
9,689
3
Mindanao
259.66
23.63
10,990
11,000
1
Total
Source: DBM
Allocation Per Capita
Amount (Php)
Rank
49

50. Contents
VI.
Outlook
50

51. 2013-2016 Macroeconomic Parameters
ROP expects another year of robust growth in 2013
Healthy macroeconomic fundamentals expected to continue this year
2012
2013
Actual
Adjusted
2014
2015
2016
GNI Growth (%)
6.5
5.9-6.9
6.2-7.2
6.6-7.5
7.0-8.0
Real GDP Growth (%)
6.8
6.0-7.0
6.5-7.5
7.0-8.0
7.5-8.0
Inflation (%)
3.2
3.0 – 5.0
3.0-5.0
2.0-4.0
2.0-4.0
364-Day T-bill Rate (%)
2.0
1.0-3.0
2.0-4.0
2.0-4.0
2.0-4.0
42.25
41-43
41-43
41-43
41-43
Imports Growth (%)
11.3
13.0
14.0
14.0
14.0
Exports Growth (%)
20.9
11.0
14.0
16.0
16.0
109.08
90-110
90-110
90-110
90-110
Exchange Rate (Php/USD)
Dubai Oil Price (USD/barrel)
Projections
Source: 2014 BESF (Proposed), Department of Budget and Management
51

52. 2013-2014 Fiscal Program
Increasing revenues by 15.6% in 2014 to realize fiscal consolidation goals
Levels
Particulars
Percent of GDP
Revenues
Tax
BIR
BOC
Non-Tax
BTR Income
Privatization
2013
Program
1,745.90
1,607.90
1,253.70
340
136
57.7
2.0
2014
Proposed
2,018.10
1,879.90
1,456.30
408.1
136.1
56.2
2.0
Disbursements
Current Operating Exp.
Interest Payments
Capital Outlays (CO)
Infrastructure
Net Lending
1,983.90
1,558.50
332.2
410.9
299.4
14.5
(238.0)
Surplus/(Deficit)
Memo Item: GDP
Source: 2014 BESF (Proposed), Department of Budget and Management
Growth
2013
2014
2013-2014
14.7
13.5
10.5
2.9
1.1
0.5
0
15.1
14.1
10.9
3.1
1.0
0.4
0
15.6
16.9
16.2
20.0
0.1
(2.6)
-
2,284.30
1,736.50
352.7
522.9
418.2
25.0
16.7
13.1
2.8
3.4
2.5
0.1
17.1
13
2.6
3.9
3.1
0.2
15.1
11.4
6.2
27.3
39.7
72.1
(266.2)
(2.0)
(2.0)
11.9
11,914.50
13,336.70
52

53. Empowerment Budget Priorities
Social spending and public investments to promote inclusive growth
Percent Share
of Total
Budget
GAA
(Php bn)
2013
Social Services
Proposed
(Php bn)
Change
2013-2014
2014
2013
2014
Amount
Percent
699.4
842.8
34.9
37.2
143.4
20.5
Social Services continue to be the largest component of the
budget to ensure equitable and inclusive growth
Social Services Outlay in the 2013 and 2014 Budgets (Php bn)
509.2
590.2
25.4
26.0
81.0
15.9
General Public
Services
347.3
364.5
17.3
16.1
17.2
5.0
Debt Service
333.9
352.7
16.6
15.5
18.8
5.6
Defense
89.5
92.9
4.5
4.1
3.3
3.7
Net Lending
26.5
25.0
1.3
1.1
(1.6)
(5.8)
2,005.9
2,268.0
100.0
100.0
262.1
13.1
Total
20.5%
1000
Economic
Services
800
842.8
699.4
600
400
200
0
2013
2014Pr
Social Services

Conditional cash transfer program is a helping hand to Filipino families through cash grants for the health and education of
children and the health of expecting mothers. The more than USD 1bn budget for 2013 is expected to benefit 3.8 mn
households

The National Health Insurance Program makes universal health insurance coverage a reality. Philhealth provides around
40 mn of the poorest Filipino households full coverage of expenses for medical procedures, including maternity and newborn
care packages and treatment of selected catastrophic diseases. For 2014, 14.7 million poor, near poor families will receive
health insurance coverage

The K TO 12 Program is raising the standard of Filipino education. Adding two more years to the basic education curriculum
puts it at par with the education cycles around the world. Through programs like the Training for Work Scholarships, skills
learned by students will meet the demands of the labor market, encouraging innovation and industry, and ultimately opening
more doors of possibility for our nation
Source: Budget Expenditures and Sources of Financing, Department of Budget Management (DBM), Presidential Communications Development and Strategic
Planning Office (PCDSPO)
53

54. 2014 Proposed Budget for Inclusive Development
Tighter prioritization of the P2.268 trillion proposed budget for greater impact
Increasing share in the budget for Social Services sector to ensure inclusive growth
Budget by Sector, Share to Total Budget (in percent)
Debt Service
16.6%
Gen. Public
Service
17.3%
Economic
Service
25.4%
Social Service
34.9%
2013
Defense
4.5%
Debt Service
15.5%
Gen. Public
Service
16.1%
Economic
Service
26%
Defense
4.1%
Social Service
37.2%
2014
 The 2014 proposed budget reflects the “voice and voice” for citizens – through the involvement of communities and local
governments in crafting the Budget
 Increased outlay in 2014 will go to investments in Infrastructure, in Good Governance and Anti-Corruption, in Building Human
Capabilities especially of the poor, through quality education, public healthcare and housing, and in Climate Change
Adaptation Measures – all fundamental requirements for the country’s competitiveness and development
54

55. The Republic of the Philippines
Good Governance is Good Economics
October 2013