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address poverty, create massive employment opportunities, and achieve inclusive growth, a growth that is
shared by all.
Greater and Deeper Commitment to the Social Contract
This Administration stands by the Social Contract we forged with the Filipino People back in 2010. The
proposed Budget for 2013 proves our solid commitment to fulfill the Social Contract.
This Social Contract has been fleshed out in the Philippine Development Plan for 2011 to 2016 and has
been operationalized by Executive Order No. 43, which defines the five Key Result Areas (KRAs) of the
Social Contract:
1. Transparent, Accountable, and Participatory Governance;
2. Poverty Reduction and Empowerment of the Poor and Vulnerable;
3. Rapid, Inclusive, and Sustained Economic Growth;
4. Just and Lasting Peace and the Rule of Law; and
5. Integrity of the Environment and Climate Change Adaptation and Mitigation.
In crafting the proposed Budget for 2013, we prioritized the allocation of public funds through the Program
Budgeting Approach, which we used for the first time to maximize the benefit of all government endeavors
to the Filipino people.
Program Budgeting helped us plan our budget according to the strategic objectives of government, and in a
manner that is based on results. Through this approach, we have identified a number of strategic programs
within our Key Result Areas that will have a positive, tangible impact on the lives of our people, and should
receive priority funding.
For Poverty Reduction, we focused on the following programs: the Pantawid Pamilyang Pilipino
Program (4Ps), which will give our least fortunate families income lifelines; the Housing Program, which will
give those living in danger zones new, permanent homes where they can stay and earn a decent, dignified
living; and finally, programs that will ensure that our people will be given the opportunity to pursue their
goals in life, namely the Basic Education Program and the Universal Health Care Program.
For Rapid, Inclusive, and Sustained Economic Growth, we are pushing forward tourism development; food
self-sufficiency; electrification, road and transportation upgrades; and the promotion of small and medium
scale industries. We are also laying down the groundwork to accelerate our Public-Private Partnership
program with regard to strategic infrastructures.
Through Program Budgeting, we are likewise intensifying the level at which our departments and agencies
coordinate, cooperate, and collaborate. Without doubt, this will allow us to fulfill our Social Contract with the
Filipino People sooner rather than later.
Dapat nang wakasan ang manipis at hiwa-hiwalay na pagtugon sa kahirapan at iba pang suliranin ng ating
lipunan. Panahon na para pagbuklurin ang ating lakas.
To complement the Program Budgeting Approach, we have continued using theZero-Based
Budgeting approach to make certain that we are funding programs that are both efficient and will be felt by
Filipinos in their daily lives.
Limitado ang kaban ng ating bayan. Dapat siguruhin na ang bawat piso ay nagagamit nang tama, at hindi
nasasayang, para sa mga programang may tuwiran, agaran at makabuluhang pakinabang sa mamamayan,
lalo na sa mga mahihirap.
Source: https://www.youtube.com/watch?v=4o6i2J6w_Vo
The Philippine Economic Landscape in 2010: Faster Growth is Essential
Decades Lost to Slow Growth
As it begins the second decade of the 21st Century, the Philippines faces a major challenge to move its
economy to a higher level of growth and job creation than it has experienced during the past often
turbulent decades.
Figure 1 presents Philippine economic growth rates from 1981 to 2009 and clearly shows the boom-andbust cycles triggered by the brutal assassination of former Senator Aquino in 1983, the military coup
attempt of December 1989, the power blackouts of 1991-1992, and the Asian financial crisis in 1997. Each
crisis forced GDP growth into negative territory and significantly reduced the PCI for a fast-growing
population.
However, the two shocks to the economy of the more recent decade, EDSA 2 in early 2001 a setback
caused by internal political instability and the 2008 global crisis caused by external financial instability
were cushioned by rising inflows of remittances from the fast growing diaspora of Filipinos seeking income
opportunities abroad. Remittances were 8.5% of GDP in 2001 and reached 10.8% of GDP in 2009. While
GDP growth did not become negative, PCI growth slowed after EDSA 2 in 2001 and also in 2008-2009
following the global financial crisis.
Figure 1: Philippine historical GNP and GDP real growth rates, 1980-2012
Figure 1: Philippine historical GNP and GDP real growth rates, 1980-2012
Sources: NSCB (new linked series); Bernardo and Tang (2008)
View original figure here
President Gloria Macapagal Arroyo often pointed out that GDP grew every one of the 38 quarters since she
became president in January 2001. In the 2nd quarter of 2007 the rate reached 8.3%,5 its highest since
12.4% in the 4th quarter of 1988, a year before the December 1989 coup attempt scared off foreign
investors and traders. For the 38 quarters through mid-2010, GDP growth averaged 4.6%.
She also often refers to her vision for the Philippines to attain first world economic status in a generation.
No one can disagree with this vision. The country certainly has the potential to grow at much higher rates
and is in a region with an increasing number of first world economies. But the vision requires concrete detail
within the framework of a master reform plan.
Much work remains to be done, but I am determined to turn over to the new government a new Philippines
ready for challenge of giving the nation First World status in 20 years.
President Gloria Macapagal Arroyo (February 5, 2010. Lipa City, Batangas)
Figure 3.1: Real GDP Growth Rates among the ASEAN-6, 1990-2012
Figure 3.2: Real GDP Growth rates among the ASEAN-6, 1990-2018-f
Sources: World Bank; 2012 data Country statistics offices (Philippines, Singapore, and Vietnam);
Media releases (Indonesia and Thailand); and authors estimates (Malaysia); and IMF WEO October
2012 (2013f 2018f)
View original figure here
Footnotes
5. There is a break in the National Income Accounts series. Data from Q1-2004 going forward are not
comparable to data from Q4-2003 back due to methodological revisions. Some Philippine
economists also deem that growth rates are overestimated by 1-2 percentage points after the
Asian Financial Crisis (particularly after 2000). [Top]
6. Highly dependent on exports, the Singapore economy rebounded in Q1 2010 with an all-time record
increase of 32%. [Top]
Philippine Growth Has Not Been Inclusive
While growth has improved from the dismal levels of the 80s and 90s, the average GDP growth of the last
decade will not be enough to address some major challenges the Philippines faces. Although the highest of
the last three decades, growth has not been enough to achieve any significant reduction in the percent of
the population living in poverty. Growth in the Philippines has not been inclusive. By contrast, Malaysia and
Thailand, with comparable GDP growth rates in the decade but lower population growth rates, have nearly
eliminated their lowest cohort of poverty. Indonesia and Vietnam have reduced their poverty incidence by
roughly 50% from 1990 to 2006 (see Figures 4 and 5)
Figure 4: Poverty incidence among the ASEAN-5 (benchmarked at < $1.25), 1990-2010
Figure 8: Average real GDP per capita growth among the ASEAN-6, 1980-2012
Source: IMF WEO April 2012 Database
View original figure here
Figure 9: Average annual population growth among the ASEAN-6, 1960-2012
The Philippines is located in the worlds fastest growing region. Figure 10 shows that the ASEAN-6 plus 4
(China, India, Japan, and Korea) in 2009 had about the same share 23.4% of world GDP as the United
States (24.5%) and the EU (21.4%).
Figure 10: Share in world GDP in current US$ from 1990 to 2011
Figure 10: Share in world GDP in current US$ from 1990 to 2011
Source: World Bank
View original figure here
In its April 2010 report Emerging Stronger from the Crisis, the World Bank emphasized the significance of
China in keeping the region stable amid rough global economic conditions.7The report noted that largely
thanks to China, the regions output, exports and employment have mostly returned to the levels before the
crisis. Accordingly, latest projections of the Bank show that, real GDP growth in developing East Asia is
poised to rise to 8.9 percent in 2010 after slowing from 8.4 percent in 2008 to 7.3 percent in 2009 (see
Table 1).
Similarly, in October the IMF projected real GDP growth for Developing Asia to be 9.4% and 8.4% in 2010
and 2011, respectively.8Better than expected trade recovery and wavering real sector risks have likewise
prompted the multilaterals to revise short-term growth projections in the region upwards.
Table 1: Growth forecasts, East Asia, 2010-2012
Figure 11: Real GDP growth rate forecast in annual percentage among the ASEAN-6 from 2010 to
2011
View Outdated Figures
Source: IMF and World Bank as of October 2010
The World Bank uses US$ 12,000 per capita as the current threshold a country must cross to reach high
income status in its country income classification. Per the World Bank, the Philippines has been classified
as a lower middle income economy at least since 1975.9 The average high income country in 2009, with a
PCI of US$ 36,000, more than twenty times the level of the Philippines in 2009, is indeed an Impossible
Dream. With an annual population growth rate of around 2%, growth of 5% means the PCI of the
Philippines increases only 3% a year.
Figure 12: Real quarterly GDP year-on-year growth rates among the ASEAN-6 from 2009 to 2013
Figure 12: Real quarterly GDP year-on-year growth rates among the ASEAN-6 from 2009 to 2013
Sources: Respective national statistics offices
Note: 4Q 2012 data Country soures (Philippines, Singapore, Vietnam); Media releases (Indonesia,
Thailand); authors estimate (Malaysia)
View original figure here
Figure 12 shows GDP growth of the three ASEAN economies (Malaysia, Singapore, and Thailand) with the
highest exports as percentage of GDP declined the most with the impact of the global financial crisis and
then recovered rapidly beginning in the second half of 2009. GDP growth of the three economies
(Indonesia, Philippines, and Vietnam) not as integrated into global trade declined less but also are
recovering more slowly.
A much higher rate of growth than 5% will be needed to reach the World Banks current high income
threshold of US$ 12,000 by 2030. Table 2 shows a growth rate of 11.6% is needed for the Philippines to
reach a PCI of US$ 12,000 in two decades assuming a 2% population growth rate (declining to 1.5%). A
declining population growth rate will reduce the number of years to reach the US$ 12,000 level.
Table 2
World Bank Philippines Country Director Bert Hofman spoke about these different growth formulas in a
speech10 in early 2010:
At current growth rates, the Philippines would be as rich as todays China in 25 years. In roughly half a
century from today, it would reach income levels of Malaysia today to become an upper middle income
country, and seventy years from now it will reach the US$ 12,000 per capita high income threshold that the
World Bank uses. The blessings of compounded growth imply, however, that higher growth more than
proportionally eats into the time it takes to reach high income level. With 5 percent per capita growth, it
takes a little over 4 decades to reach high income status and with 7 percent per capita income growth the
same can be achieved in little over 3 decades. Moreover, international experience shows that as growth
accelerates, fertility and population growth declines, so per capita growth can accelerate more rapidly than
GDP growth.
In 2008 the World Bank released The Growth Report: Strategies for Sustained Growth and Inclusive
Development prepared by the Commission on Growth and Development, chaired by Nobel Laureate Dr.
Michael Spence. The commission studied 13 economies that have grown in the post WWII period for 25
years or longer at an average annual rate of 7% in order to learn what they did to achieve such high rates of
growth. This high growth club of countries included Botswana, Brazil, China, Hong Kong, Indonesia, Japan,
Korea, Malaysia, Malta, Oman, Singapore, Taiwan and Thailand, and members of the Commission were
senior economic policy makers from these countries (see Table 3). In addition to this small group of 13
economies, the Commission judged that India and Vietnam were on their way to increasing the group.
Table 3
Thus the Philippines does not have to look any further than Asia to find examples of sustained high growth.
The Asian region is famous and admired for its economic tigers. Four of its ASEAN partners Indonesia,
Malaysia, Singapore, and Thailand are in the group, while Vietnam is on a fast track to join them. Other
Asian economies China, Japan, Korea, and Taiwan are also among the 13 economic success stories.
What policies did these countries have in common to achieve such economic success? The Growth Report
listed several that these rapid growers did right. They:
During the recent decades of political and economic turmoil, it is clear that these five key elements have not
been consistently present in the Philippines. On the positive side, the Philippines since 1986 has
maintained macroeconomic stability under a succession of excellent finance secretaries and Bangko
Sentral ng Pilipinas (BSP) governors. In the last decade remittances have improved currency stability,
external debt has fallen as a percent of GDP, and international reserves have substantially increased to
almost US$ 50 billion, enough for nine months of imports, up from four months previously. However, the
country has only partially exploited the international economy (e.g. with its Overseas Filipino Workers) as
exemplified by its low volume of exports which are not well-diversified and low levels of investment,
especially foreign. While there are many committed and capable individuals in government, the Philippines
has yet to create sustained good governance, and growth has not been inclusive.
Another perspective on Philippine potential for economic growth comes from the American investment bank
firm Goldman Sachs, which famously invented in a 2003 paper the term BRIC for the large emerging
markets of Brazil, Russia, India, and China. In late 2005 Goldman Sachs identified the Next Eleven (N-11)
countries with high potential of becoming the worlds largest economies in the 21st century along with the
BRICs. The N-11 are Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South
Korea, Turkey, and Vietnam.
Our great economic challenge is to grow by at least eight percent per annum; to raise per capita incomeof
US$ 1,900 to US$ 3,200 when (my) term ends in 2016 and double by 2018. Thats a tall order, but it must
be our goal to sustain growth in the face of competition.
Presidential candidate Gilbert Teodoro, Makati Business Club speech, February 18, 2010
Footnotes
7. Chinas massive stimulus package was a major factor in the countrys and regions economic
resilience. The program was centered in government infrastructure spending, combined with
increases in transfers, consumer subsidies and tax cuts. The surge in government-led investment
boosted overall GDP by 5.9 points in 2009, though most of the spending was financed through
quasi-fiscal measures such as lending by state-owned banks, (World Bank. Global Economic
Prospects. June 2010).[Top]
8. IMF. Regional Economic Outlook. Oct. 2010; IMF. World Economic Outlook. Oct. 2010.[Top]
9. The USG Millenium Challenge Corporation (MCC), while using the same data as the WB, uses a
different set of parameters to classify low income and lower middle income countries. According
to MCCs authorizing legislation, parameters for low income candidate countries are whether PCI
is equal to or less than the historical ceiling of the IDA for the FY involved (for example, US$ 1855
for FY10). Lower middle income candidate countries must be both classified as a lower middle
income country by the World Bank and have an income greater than the historical ceiling for IDA
eligibility for the FY involved. By contrast, the WB defines low income countries (in FY10) as those
countries with a GNI per capita of US$ 975 or below and lower middle income countries as those
countries with a GNI per capita between US$ 976 and US$ 3855. There is a subset of countries that
MCC defines as low income, based on the definitions in US legislation, that the WB considers
lower middle income. Source, email correspondence with World Bank and MCC offices.[Top]
10. Speech to the 13th Annual Foreign Correspondents of the Philippines Conference entitled Making
Growth Work for the Poor on February 15, 2010, with most of the presidential candidates present.
[Top]
Source: http://www.investphilippines.info/arangkada/growth/living-in-the-high-growth-neighborhood/
Inadequate Skills + Insufficient Jobs = High Unemployment/Underemployment
Creating new jobs and training workers and students with skills needed in existing and emerging labor
markets are the two most serious challenges for the Philippine economy in the next two decades.
Figure 13 shows the Philippine labor force of 38 million has increased by more than 50% since 1990.The
combined unemployment and underemployment rate exceeds 25%.11 Figure 14 shows percentage changes
in the distribution of the work force between agriculture, industry and services over the last two decades. As
part of an economys growth, industry usually absorbs excess labor from agriculture, but this is not
happening in the Philippines. Instead the share of services is rising as a result of the growing retail sector
supported by increasing remittances.
Figure 13: Labor market key indicators from 1991 to 2012
claimed informal workers comprise 25 million or 77% of the workforce, are not covered by social security,
and are inconsistently covered by health insurance. The group seeks decent jobs for all Filipinos, urging
improved productivity in agriculture, which employs about a third of the countrys workers. It recommended
a Magna Carta for Workers in the Informal Economy who account for almost half of GDP. Also proposed
were unemployment insurance, universal health insurance, emergency employment, grassroots
microinsurance and microfinancing, strengthening of social security, and affordable housing for all.
In the Philippines unemployment is a time bomb. Between 2005 and 2030, the labor force will increase
from about 32 million to 52 million will the economy be able to provide jobs? Skills mismatch and the lack
of human capital are also the most commonly cited reasons of unemployment . In reality, the systematic
failure of the economy to create enough jobs is the main cause of massive unemployment.
Employment is a basic right and full employment should be the primary objective of economic policy
Nobody willing and ready to work for just a wageshould be without a job. Society must be able to provide
jobs for allAnd they should be able to provide jobs for the workers they have and not for the workers they
wish they had, Dr. Felipe added, A full employment economy offers a great number of advantages
reduced need for a societal safety net, lower social costs, and a higher political stability immediate policy
priorities to achieve full employment should be population management and job guarantee programs.
Industrialization policies are also crucial.Eductaion does matter for long-term growth, but it is not a key
constraint now Individuals cannot be left out and stigmatized for being uneducated.
Philippine Institute for Development Studies(PIDS) press release quoting Asian Development Bank(ADB)
principal economist Dr. Jesus Felipe, author of Inclusive Growth, Full Employment, and Structural Change:
Implications and Policies for Developing Asia, April 20, 2010.
Footnotes
11. The definition of employed includes persons 15 years old and above who work at least one hour per
week for pay or profit or in a family enterprise. [Top]
12. The University of the Philippines School of Labor and Industrial Relations Center for Labor Justice,
College of Social Work and Community Development Social Protection Cluster, Fair Trade Alliance,
Association of Construction and Informal Workers, Magna Carta for the Informal Sector Alliance,
Homenet Southeast Asia and Homenet Philippines. [Top]