Presentation of Sec. Arsenio M. Balisacan during the DBCC Briefing for the House Committee on Appropriations on August 07, 2013

1. The 2014 Budget
MACROECONOMIC ASSUMPTIONS
AND GROWTH TARGETS
Arsenio M. Balisacan
Secretary of Socioeconomic Planning
DBCC Hearing with Congress
7 August 2013

2. I. Recent Economic Performance
II. The Development Challenge
III. Macro Assumptions
IV. Strategies to Sustain Growth
V. Risks and Opportunities
Outline

3. Plan Targets
Halve the proportion of people
who suffer from hunger
Achieve universal primary
education
Reduce by 2/3 under-5 mortality
rate
Reduce by 3 quarters the
maternal mortality ratio
Eliminate gender disparity
Halt spread of HIV & AIDS
Halve the proportion of people
without sustainable access to
safe drinking water & basic
sanitation
6.8-7.2%
Unemployment Rate
7.0% (2012)
7.3% (ave. of LFS’
2013 Jan & Apr round)
Unemployment rate
27.9% (S1 2012)
28.6% (S1 2009)
Poverty Rate
Where are we now?
3
6.8% (2012)
7.8% (Q1 2013)
GDP Growth
20.3% (2012)
23.0% (Q1 2013)
Fixed Capital as
ratio to GDP
We are on track with respect to our economic targets;
the present challenge is to improve the social indicators.

4. 2012 2013 Q1
By Industrial Origin Share to GDP
Growth
Rate
Share to
GDP
Growth
Rate
Agri, Fishery, Forestry and Hunting 11.1 2.8 11.1 3.3
Industry 32.0 6.8 33.2 10.9
Of which: Manufacturing 22.1 5.4 23.4 9.7
Services 56.9 7.6 55.7 7.0
By Expenditure
Household Final Consumption 70.4 6.6 68.0 5.1
Gov’t Final Consumption 10.3 12.2 11.5 13.2
Capital Formation 18.5 -3.2 20.0 47.7
Of which: Fixed Capital 20.3 10.4 23.0 16.8
of which: Public Construction 1.8 29.8 1.9 45.6
Private Construction 6.4 11.5 6.8 30.7
Durable Equipment 10.0 8.0 12.0 9.4
Changes in Inventory (1.8) (333.8) (2.9) 51.9
Exports 48.4 8.9 44.7 (7.0)
Imports 47.6 5.3 44.5 1.6
Source: NSCB
Recently, the Philippine economy grew robustly.

5. Source: Bangko Sentral ng Pilipinas
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2005 2006 2007 2008 2009 2010 2011 2012 2013*
Headline Inflation
Low Target
High Target
* Jan - June 2013 only
inpercent
Inflation
Sound macroeconomic fundamentals supported
this remarkable performance.
Inflation has been within target since 2010

6. * As of Q1
-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
0
10
20
30
40
50
60
70
80
2005 2006 2007 2008 2009 2010 2011 2012 2013*
NG Debt to GDP, LHS Fiscal Balance to GDP, RHS
Fiscal position is sustainable.

7. 0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2005 2006 2007 2008 2009 2010 2011 2012
NPL Ratio, LHS
Real interest rates, RHS
CAR, RHS
Financial System remains stable.

8. -
1.0
2.0
3.0
4.0
5.0
6.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2005 2006 2007 2008 2009 2010 2011 2012 2013*
External Debt to GDP ratio, rhs Current Account to GDP ratio**, lhs
0
2
4
6
8
10
12
14
-
20.0
40.0
60.0
80.0
100.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013***
GIR (lhs, US$bn) months worth of imports (rhs) Short term external debt cover** (rhs)
inbillion
US$
US$81.3 bn
11.8
5.9
Source: Bangko Sentral ng Pilipinas
* As of March 2013; ** Figures for 2012 and 2013 are based on BPM6 compilation; ***As of June 2013
External position remains favorable.

9. Indicator Ave 2010
Ave
2012
Ave 2012
(Jan &
Apr)
Ave 2013
(Jan & Apr)
Labor Force Level (‘000) 38,893 40,432 40,435 40,870
Employment Level (‘000) 36,035 37,607 37,587 37,880
Wage and salary workers (%
share to total employment)
54.5 56.8 55.5 58.8
Unemployment Level (‘000) 2,859 2,825 2,848 2,990
Unemployment Rate (%) 7.3 7.0 7.0 7.3
Underemployment Level (‘000) 6,762 7,509 7,165 7,593
Underemployment Rate (%) 18.8 20.0 19.1 20.0
Source: Labor Force Survey, National Statistics Office
9
But employment creation remains a big challenge.

10. • Good governance has proven to be an effective platform upon
which strategies should be implemented.
• Macroeconomic (fiscal, financial, external) and political
stability fuels positive expectations that lead to growth.
• Economic growth is necessary but not sufficient for poverty
reduction.
• Growth strategies need to have spatial and sectoral
dimensions to ensure inclusivity.
• Disasters can negate the gains and even push back
development.
10
Lessons Learned: Midterm Assessment
of PDP 2011-2016

11. POSITIVE ACTION with Spatial and Sectoral Dimensions (e.g.,
economic and social programs)
Boost
competitiveness
Improve access
to financing
Macroeconomic Stability
(fiscal, monetary, external, financial)
Science,
technology ,
innovation
Education and
skill set of the
workforce
Infrastructure
Investments
Rapid and sustained growth
jobs
Market
demand
INCLUSIVE GROWTH (MASSIVE EMPLOYMENT
CREATION, REDUCED POVERTY)Good
Governance
(Property
Rights,
Regulatory
Efficiency,
Alignment of
policies)
National
Security,
and
Ecological
Integrity
11
Hence we need to do more to attain
inclusive growth...

12. Guiding Principles
in updating the PDP
• Efficiency (catalytic; government intervention
facilitates and not substitutes for private action)
• Equity (broadening opportunities through
connectivity, human capital investments)
• Feasibility (doable within the Plan period)

13. • Government budget that
– Facilitates massive employment generation
– Helps to significantly reduce poverty
• Positive action with
– Sectoral dimension
– Spatial dimension
The proposed 2014 budget will help us move
towards inclusive growth...

14. 2012
Actual
2013
YTD
2013 2014
Inflation (2006-based):
Target
3.2 2.9 (Jan-Jun)
3.0-5.0 3.0-5.0
Dubai crude oil (US$/bbl) 109.1 104.20 (2 Jan-17
Jul)
90-110 90-110
Exchange Rate (Php/US) 42.2 41.55
(2 Jan – 24 Jul)
41-43 41-43
364-Tbill rate (%) 2.0 0.7
(Jan- Jun)
1.0-3.0 2.0-4.0
LIBOR, 6 mos. (%) 0.7 0.45
(2 Jan-25 Jun)
0.5-1.5 0.5-1.5
Merch Exports : Nom (US$ bn)
Growth (%)
46.3
20.9
11.2
7.9
(Jan-Mar)
51.4
11.1
58.6
14.0
Services Exports: Nom (US$ bn)
Growth (%)
18.6
4.2
5.1
6.3
(Jan-Mar)
21.6
16.3
25.1
15.9
Merch Imports : Nom (US$ bn)
Growth (%)
61.5
11.3
13.9
-8.2
(Jan-Mar)
69.5
13.0
79.2
14.0
Services Imports: Nom (US$ bn)
Growth (%)
14.7
16.9
3.3
0.5
(Jan-Mar)
17.2
17.1
20.2
17.2
Monetary and External Assumptions for 2013-2014

15. 2012 2013 Q1 2013 2014
Actual Actual Assumption Assumption
GDP 6.8 7.8 6.0-7.0 6.5-7.5
Agriculture 2.8 3.3 3.5-4.5 3.2-4.2
Industry 6.8 10.9 6.4-7.5 7.4-8.5
Services 7.6 7.0 6.3-7.3 6.7-7.6
Source: NEDA as approved in the DBCC
We assume that growth will continue
in 2013 and beyond.

16.  Strong performance of agri-based manufacturing,
and recovery of semiconductor and electronics
 Robust public and private construction projects
 Buoyant domestic and local tourism
 Continued strong growth of wholesale and retail
trade
 Real estate particularly housing
 Greater productivity in agriculture and rebound of
the fisheries subsector
Growth Drivers - Production

17.  Higher public construction and investments in
power generation
 Robust private investment in construction and
durable equipment
 Strong household consumption due to better
employment opportunities, strong remittance
inflows, and low and stable inflation
 Increased tourist arrivals and more demand for
business process management
 Improvement of external trade conditions
Growth Drivers - Expenditures

18. • Infrastructure development focusing on connectivity between
regions/provinces, esp. transport and power
• New growth drivers outside NCR(agri/agribusiness, tourism,
IT/BPM in next wave cities, public housing, manufacturing,
infra/logistics)
• Completion of asset reform, particularly individual titling of
lands under CARP/CARPer
• Investment in human capital to improve the competitiveness/
productivity of current and future stock of the labor force
• Provision of social protection against income and employment
shocks for the most vulnerable
• Improved resilience to natural disasters
The budget will support positive actions
with sectoral and spatial dimensions.

19.  Possible spike in commodity prices (e.g. petroleum,
agricultural products)
 Weather disturbances (e.g., El Nino and typhoons)
 Delays in the implementation of infrastructure
development projects, particularly power
 Excessive capital inflows /outflows
 Uncertainty in the Euro area
 Fiscal risks in US and Japan
 Further economic slowdown in BRIC, particularly China
We also remain vigilant against the following
near-term global and domestic risks to growth...

20. Improvement in the global economic
environment
Sustained growth in emerging markets
Improvement in demographic
conditions
 Increasing income, continued growth in
population, rising middle income class
*Luncintel, Global Industrial Application Paper Industry 2012-2017: Trend, Profit, and Forecast Analysis
More financial resources available
Fiscal space
Investment grade credit rating
Increased integration of the ASEAN
Economic Community
 Well integrated ASEAN financial system
…while taking advantage of opportunities

21. MACROECONOMIC ASSUMPTIONS
AND GROWTH TARGETS
Arsenio M. Balisacan
Socioeconomic Planning Secretary
DBCC Hearing with Congress
7 August 2013