Philippines-Economic-Update-December-2022-ppt.pdf

Philippine economy

1. PHILIPPINES ECONOMIC UPDATE
Bracing for Headwinds,
Advancing Food Security
PHILIPPINES ECONOMIC UPDATE
Bracing for Headwinds,
Advancing Food Security
Ralph van Doorn
Senior Economist
World Bank Philippines
Download report at: www.worldbank.org/peu

2. Key Messages
The Philippine economy has remained resilient despite a challenging global
environment.
The deteriorating global environment is spilling into the domestic economy
and tempering the country’s growth prospects in 2023.
Addressing the immediate challenge of elevated inflation, staying the course
on fiscal consolidation, sustaining investments in health and education, and
reversing the low agriculture productivity will be key to safeguard growth
and achieve long term development goals.
1
2
3

3. The Philippine economy has
remained resilient despite a
challenging global
environment.
Recent Economic
and Policy
Developments
1
1

4. The post-pandemic recovery is underway,
driven by strong domestic demand.
Supply Side: Contribution to GDP growth
7.6
-20
-16
-12
-8
-4
0
4
8
12
16
Q1Q3Q1Q3Q1Q3Q1Q3
2019 2020 20212022
Percentage point
Agriculture Manufacturing
Other industriesServices
GDP growth
Demand Side: Contribution to GDP growth
7.6
-30
-20
-10
0
10
20
Q1Q3Q1Q3Q1Q3Q1Q3
2019 2020 2021 2021Percentage point
Net exports
Investments
Government Consumption
Household Final Consumption Expenditure
GDP Growth

5. The Balance of Payments deficit widened,
and the peso hasdepreciated.
Balance of Payments Components (% of GDP)
-6.1
-20
-10
0
10
20
H1
2018
H1
2019
H1
2020
H1
2021
H1
2022
Current account
Secondary Income
Primary Income
Net services exports
Net goods exports
Net CA Balance
Including
remittances
3.6
-6
-4
-2
0
2
4
6
H1
2018
H1
2019
H1
2020
H1
2021
H1
2022
Financial account
Other investments
Financial derivatives
Portfolio investment
Direct investment
Net inflows
Positive = inflow
Regional Currency Movements
(January 2022=100)
87
84
88
92
96
100
104
Jan-22 Feb-22 Mar-22 Apr-22
May-22
Jun-22
Jul-22
Aug-22 Sep-22
IndonesiaMalaysia
PhilippinesThailand
Vietnam

6. Inflationary pressure has intensified, and monetary policy has tightened.
Inflation and Key Policy Rate (%) Contribution to Headline Inflation
(percentage points)
5.9
5.0
0
2
4
6
8
10
Mar-20 May-20
Jul-20
Sep-20 Nov-20
Jan-21
Mar-21 May-21
Jul-21
Sep-21 Nov-21
Jan-22
Mar-22 May-22
Jul-22
Sep-22 Nov-22
Core Inflation
Headline Inflation
Food & Non-alcoholic beverage
Non-Food
BSP Key policy rate
7.7
5.9
-2
0
2
4
6
8
JanMarMayJulSepNovJanMarMayJulSep
2021 2022
Transport: Fuels and lubricants for personal transport
Food and non-alcoholic beverages
Utilities: Electricity, gas, and other fuels
Alcoholic beverages and tobacco
Other non-food, non-energy items
Headline inflation
Core Inflation

7. Higher revenue generation and lower-than-target public
spending lowered the fiscal deficit in Q1-Q3 2022.
National Government Fiscal Balance
(percent of GDP)
-8.6
-8.3
-6.5
-10
-8
-6
-4
-2
0
0
5
10
15
20
25
30
201920202021 Q1-
Q3
2021
Q1-
Q3
2022
Revenues
Expenditure
Fiscal Balance (RHS)
National Government Debt
(percent of GDP)
63.7
0
1
2
3
4
5
6
7
0
10
20
30
40
50
60
70
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Q3…
External debt
Domestic debt
NG Guaranteed debt (RHS)

8. The banking sector shows signs of improvements as the share of NPLs
and restructured loans decline, while bank lending growth picked up.
Non-Performing Loans (NPLs) and Restructured
Loans (% of portfolio)
3.4
2.8
0
1
2
3
4
5
Dec-19 Mar-20
Jun-20 Sep-20 Dec-20 Mar-21
Jun-21 Sep-21 Dec-21 Mar-22
Jun-22 Sep-22
NPL
Restructured Loans to
Total Loan Portfolio

9. 2
Outlook and Risk
The deteriorating global
environment is spilling into
the domestic economy and
tempering the country’s
growth prospects in 2023.

10. The growth outlook is positive but faces risks.
Projected growth trajectory
(percentage points contribution of components)
-20
-15
-10
-5
0
5
10
15
2016 2017 2018 2019 2020 2021
2022e 2023f 2024f 2025f
Net exports
Capital Formation
Government Consumption
Household Final Consumption
Expenditure
Gross Domestic Product

11. Downside risks come from external and domestic
environment.
•The synchronous monetary tightening in many central banks could produce
larger impacts than intended, both in tightening financial conditions and
deepening the growth slowdown.
•An escalation of geopolitical tensions and supply chain bottlenecks could
further disrupt commodity markets and international trade.
•Prolonged and elevated domestic inflation may dampen
householdconsumption.
•As the pandemic has yet to be declared over, the risk of another COVID-19
wave hangs over the outlook.

12. The recovering labor market and improving incomes
will contribute to the decline in the poverty rate.
Unemployment and Underemployment
Rates (%)
5.0
15.4
0
5
10
15
20
25
Jan Oct July Feb
May Aug Nov Feb
May Aug
20192020 2021 2022
Unemployment Rate
Underemployment Rate
Poverty Rate (%, using US$3.65/day PPP)
20%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

13. Policy
Recommendations
Addressing the immediate
challenge of elevated inflation,
staying the course on fiscal
consolidation, sustaining
investments in health and
education, and reversing the low
agriculture productivity will be key
to safeguard growth and achieve
long term development goals.
3

14. Policy Recommendations
•Addressing the inflationary pressure means employing both monetary and
non-monetary measures, including near-term monetary tightening to prevent
the de-anchoring of inflation expectations.
•Staying the course on fiscal consolidation signals commitment to fiscal
sustainability.
•Sustaining investments in health (including nutrition, see Box 5 in the report)
and education to reduce vulnerabilities from the scarring impact of the
pandemic remains important.
•Over the medium term, improving the effectiveness of public spending on
agriculture will help address low agriculture productivity andalleviate the
challenge of food security in the country.

15. Key Messages
The Philippine economy has remained resilient despite a challenging global
environment.
The deteriorating global environment is spilling into the domestic economy
and tempering the country’s growth prospects in 2023.
Addressing the immediate challenge of elevated inflation, staying the course
on fiscal consolidation, sustaining investments in health and education, and
reversing the low agriculture productivity will be key to safeguard growth
and achieve long term development goals.
1
2
3

16. Maraming Salamat!
Download the interactive report at:
www.worldbank.org/peu

17. Ensuring Food Security for
All: Repurposing Public
Investments in the
Philippines
AnujaKar, Senior Agriculture Economist,
The World Bank Group
December 7, 2022

18. Transforming the Philippine Agriculture Sector:
Opportunities and Challenges

19. Agriculture
remains critically
important in the
Philippines for:
Food Security
Livelihoods and
Incomes
Jobs
Source: The Jobs Group Jobs Structure Tool
Sectoral share (%) of employment, 2002-2019.

20. High incidence of Poverty and Food Security Remains a
Challenge
Incidence of poverty among population groups,
2006 –18 (%)
Prevalence of moderate or severe food insecurity in
(%) (3-year average)
38.5 38 38.3
40.84
31.6
41.241.3 39.2
36.85
26.226.626.3
25.2
23.3
16.6
0
5
10
15
20
25
30
35
40
45
20062009201220152018
Incidence and magnitude of poverty among
population groups, 2006 - 18
FarmersFisherfolkPopulation
0
10
20
30
40
50
60
2017-20192018-20202019-2021
The total population
Male adult population
Female adult population
Source: Briones (2021), FAO

21. Russia –Ukraine warhas beenashocktointernational foodmarkets with continuing repercussions
AmajorbreadbasketfortheWorld:
Largeexportersofkeyfoodcommoditiesandfertilizers
ShareofUkraineandRussiainWorldExports (in
valueterms,average2018-2020)
Wheatand Barley
Maize/Corn
meslin
Sunflo
wer
seed/
oil
Other
edibl
e oils
Fertiliz
ers
25.222.6
14.5
20.5
14.1
Marketreactionmostpronouncedforwheat
Riceamongleastaffected
Cerealpriceindexes(Jan2020=100),uptoMarch22,2022
Source:WBstaffestimatesusingCOMTRADEdata.
Immediaterisks:
•Wheatandvegetableoilpricesspikedwiththeoutbreakofthewar;havemoderatedabitbutremainhighandvolatile
•Countrieswithhighoutstandingshareofimportsfromthesecountriesneedtosourcefromotherexporters/suppliers
Medium-longer term risks:
•Global fertilizer prices have risen steeply and would likely remain expensive
•Energy and food markets are tightly linked through input and output markets
UkraineRussia 55.8
4
Source:WorldBankCommodityPriceData
Maize Wheat Rice

22. Enhancing the efficiency of public spending
in agriculture

23. Declining spending vis-à-vis Continued Focus on Commodity Based Spending
Agriculture share to the total budget ratio (%)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
20152016201720182019
DA % to total budget ratio
Allocation to the Commodity Based Banner
Programs, 2015–2019, in PhpMillions.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
20152016201720182019
•Department of Agriculture (DA) budget as share of total government budget declined from 2.6 % in
2015 to 1.3 percent in 2019.
•Commodity-based banner programs account for major share of DA budget (38 %)
•National Rice Program dominates banner commodity programs, in 2022

24. Despite Public Spending: Philippine Agriculture Falling Behind Other Countries
Agriculture TFP Growth: Philippines vs
Neighboring Countries % (1990-2020)
Rice yields around the world, 2020–2020 (ton/ha)
0
1
2
3
4
5
6
7
8
9
20002002200420062008201020122014201620182020
Brazil Cambodia
China Malaysia
Myanmar Peru
Philippines Thailand
Vietnam World
•Total factor productivity (TFP) growth in agriculture increased 23% over two decades; but has been below
that of regional neighbors such as Indonesia, China, and Vietnam.
•Slower growth in rice yields, a major reason why domestic rice production cannot compete with imports
Source: USDA
Source: FAO stats

25. Effectiveness of Spending on Agriculture: Regional Dynamics
Agriculture Public Spending by Region, PhP
Billion, 2022
Regional Ranking by GVA and Poverty, 2018
0
2
4
6
8
10
12
14
GVA rankPoverty rank
•Heterogeneity in spending allocation across regions
•Allocation of public spending not fully reflective of regional poverty and gross value added (GVA)
•DA allocation can be better aligned to the size of the regional agricultural economy and poverty
incidence in most regions.
Source: DA

26. Implications for
Financial and
Functional
Devolution
Resulting from the
MandanasRuling

27. LGU Spending in Agriculture Remains Limited
Allocations for Agriculture by Center and LGUs, ₱ Billions
0.0
0.5
1.0
1.5
2.0
2.5
0
2
4
6
8
10
2009201020112012201320142015201620172018
Total Agriculture
City
Municipality
Province
Agriculture as a share in total LGU allocation (%)
•LGU’s spending allocation for agriculture
is small relative to the DA.
•Agriculture spending by LGUs needs to
be prioritized.
•Devolution Transition Plan (DTP): a
powerful instrument to improve
prioritization, efficiency, accountability,
and impact of LGU’s spending on
agriculture.

28. Way Forward for DA
Way Forward for DA

29. Critical Goals
Agricultural public expenditure policies must address three critical challenges:
•Improving sectoral competitiveness and resilience to ensure food security for
all.
•Improving the effectiveness of the current spending.
•Dealing effectively with public expenditure issues related to devolution.

30. Key Actions to Achieve Food Security for All
•Greater balance in sectoral priority-setting and budget allocation to
support agriculture diversification
•Scaling up Climate Smart Agriculture (CSA) policies and programs to foster
increased resilience of the agri-food system
•Promote affordability of nutritious foods by adjusting fiscal and other
policies that subsidize “calorie production” (e.g., rice, grains, sugar) rather
than the production of more nutritious foods.

31. Key Actions to Improve the Effectiveness of the Current
Spending
•Shifting from protecting a specific product (e.g., rice) to improving the
overall resilience, competitiveness, and sustainability of the sector.
•Focusing on programs that fund public goods that are currently
underfunded (e.g., agricultural research and extension, Farm-to-Market
Roads).
•Improve budget priority to programs that overcome barriers to farm
consolidation and achievement of economies of scale.

32. Key Actions for Achieving Efficient Devolution
•Ensuring procedural improvements on government budgeting institutions
•Improving evidence-and results-based monitoring and evaluation through
enhanced and targeted capacity development for LGUs.
•Investing on extension services ensuring greater thrust on capacity
development for LGUs

33. KeyActionstoPromoteClimateResilienceand
GreenAgriculture
•Promote climate-smart rice cultivation
•Adoptinga package of improved irrigation methods (e.g., “alternative wetting and
drying”),improved seeds and cultivation practices -to lower GHG emissions, reduce
irrigationwater useand fertilizer costs, to increase yields and incomes for rice farmers.
•Foster sustainable livestock production:increase productivity and reduce
agricultural emissions through improved breeding and nutrition and animal health
services, pasture management and husbandry practices
•Support development of green agriculture value chains,through sustainable
sourcing, traceability, and certification of agricultural products and establishment of
necessary infrastructure and regulatory standards
27

34. Download the interactive report at:
www.worldbank.org/peu
Maraming Salamat!