Q4 2018 ISSUE Table of Contents

INVESTOR RELATIONS OFFICE

Think Growth. Think Philippines.

PHILIPPINE ECONOMY IN NUMBERS 1 Philippines keeps robust growth in 2018 3 Quick Stats 5 Monthly Report on Inflation for December 2018 6 Maiden ‘Banking Sector Outlook Survey’

REFORMS 8 BSP reactivates Currency Rate Risk Protection Program 9 President orders ease of importation of agricultural products 11 Government set to implement rice tari ication 14 Government shis to cash-based budgeting 16 Peso-Renminbi trading facility launched 18 President Duterte signs Executive Order No. 65 20 TRABAHO bill seen to attract more job-creating investments, level tax playing field

CREDIT RATINGS 23 Korean debt watcher keeps Philippines’ ‘BBB’ rating 25 Fitch a irms Philippines’ ‘BBB’ rating

INVESTOR RELATIONS 27 Philippines highlights bright economic prospects before Hong Kong, US investors 29 Top Philippine economic o icials discuss economic growth with international investors at IMF-WB meetings 31 Economic Briefing in London 33 Government caps Sulong Pilipinas 2018 37 Philippine economic, infra managers hail golden age of infra

BUILD, BUILD, BUILD 39 Government preps for Philippines’ longest railway system 41 Philippines’ first smart city rising in Clark 43 World-class Mactan-Cebu Int’l Airport to boost Philippines’ air connectivity, tourism

WHAT THEY SAY ABOUT THE PHILIPPINE ECONOMY 46 First Metro: Philippine Economy to grow faster in 2019 47 ‘Philippines faces brighter prospects in 2019’

48 About the Investor Relations O ice

Q4 2018 ISSUE Think Growth. Think Philippines. | Philippines keeps robust growth in 2018 Growth follows surge in public, private investments

THE PHILIPPINE economy maintained robust “This is a firm finish that cements the Philippines’ growth in 2018, as the surge in government standing as one of the fastest-growing economies spending on infrastructure and social services was in Asia,” Socioeconomic Planning Secretary matched by a sustained rise in investments from Ernesto Pernia, Finance Secretary Carlos the private sector. Dominguez III, and Budget Secretary Benjamin Diokno said in a joint statement issued by the The economy expanded by 6.2 percent during the National Economic and Development Authority year, thus recording 20 consecutive years of growth (NEDA), Department of Finance (DOF), and that proved true its resiliency to external Department of Budget and Management (DBM) on headwinds. January 24, 2019.

2015-2018 GDP Growth Rate of Select Countries (%) 2015 2016 2017 2018 Ernesto M. Pernia Philippines 6.1 6.9 6.7 6.2 Socioeconomic Planning Secretary India 7.6 7.9 6.4 7.7 (Q1-Q3) (Q China 6.9 6.7 6.9 6.6 Vietnam 6.7 6.2 6.8 7.1 Malaysia 5.1 4.2 5.9 4.7 (Q1-Q3) Carlos Dominguez III Indonesia 4.9 5.0 5.1 5.2 (Q1-Q3) Finance Secretary Thailand 3.0 3.3 3.9 4.3 (Q1-Q3) Korea 2.8 2.9 3.1 2.7 Singapore 2.2 2.4 3.6 3.7 (Q1-Q3) Taiwan 0.7 1.5 2.9 2.9 (Q1-Q3) Japan 1.4 0.9 1.7 0.9 (Q1-Q3) Benjamin Diokno Budget Secretary

Q4 2018 ISSUE Think Growth. Think Philippines. | 1 “As we are now in a higher growth trajectory, with Also driving 2018 economic growth were our economy growing at an average of 6.5 percent private-sector investments. PSA data showed in the first 10 quarters of the [Duterte] these grew by 12.9 percent, faster than the administration, we want to focus more on previous year’s 3.7 percent. sustaining this momentum,” the economic managers added. Looking ahead to 2019, Secretary Pernia said the government is keen on hitting the goal of 7.0- to While 2018 growth was short of the government’s 8.0-percent economic growth, which the Duterte revised full-year target (set at a range of 6.5 to 7.5 administration has programmed for the remainder percent) and marked a deceleration from the of its term up to 2022. previous year’s 6.7 percent, it nonetheless kept the Philippines among the fastest growing economies In the press conference held January 29, 2019, in Asia. Secretary Pernia said going full speed ahead with the government’s ‘Build, Build, Build’ program and Among the three major sectors of the Philippine initiatives to boost performance of the export and economy, the industry sector registered the fastest tourism sectors were among the top suggestions growth rate in 2018 at 6.8 percent, followed by the on how the Philippines can attain the growth services sector at 6.6 percent. The agriculture target. sector finished with a growth of 0.8 percent, owing in part to weather disturbances that adversely He also said developments in the Bangsamoro a ected harvest. region following the enactment of the Bangsamoro Organic Law (BOL) may help drive investments and On the demand side, growth in 2018 was driven growth in Mindanao and the entire economy. partly by a surge in government spending, as the Duterte administration embarks on the country’s Also, the mid-term elections in May and the most ambitious infrastructure development country’s hosting of the Southeast Asian Games in program to date, called ‘Build, Build, Build.’ November will add stimulus to growth for 2019.

Data from the Philippine Statistics Authority (PSA) In the meantime, the economic managers expect showed that public investments during the year private-sector investments to sustain steady grew by 21.2 percent, accelerating from 12.7 growth this year amid the favorable outlook of the percent the previous year. economy. The Philippines is widely expected to maintain a robust growth rate in the years ahead Under the ‘Build, Build, Build’ program, the and to remain among the fastest growing government has lined up over 4,000 infrastructure economies in Asia, owing in part to its bu ers projects all over the country, 75 of which are against external headwinds, such as strong considered flagship projects by the Duterte domestic demand and healthy external accounts. administration given their expected high impact on the economy. Flagship projects include airports, inter-island connector roads, and mass transit systems.

GDP Growth Projections for the Philippines (%) 2019 2020

Asian Development Bank (ADB) 6.7 -- International Monetary Fund (IMF) 6.7 6.9 World Bank 6.5 6.6

The government targets the country’s gross domestic product (GDP) to grow between 7 and 8 percent from 2019 to 2022

Q4 2018 ISSUE Think Growth. Think Philippines. | 2 Quick Stats

INDICATOR 2017 2018

Credit Ratings Fitch Ratings BBB/Stable BBB/Stable Moody’s Investors Service Baa2/Stable Baa2/Stable Standard & Poor’s BBB/Stable BBB/Positive Japan Credit Rating Agency BBB+/Stable BBB+/Stable R&I Information Inc. BBB/Stable BBB/Stable NICE Investors Service BBB/Stable BBB/Stable RAM Ratings gBBB3(pi)/Positive gBBB2(pi)/Stable

Real Gross Domestic Product Growth 6.7 6.2 (year-on-year, %)

Per-capita GDP, (current prices, USD) 2,989 3,104

PPP concept (at current prices, USD) 8,360 8,889

Unemployment Rate (%) 5.7 5.3

Population (mn) 104.9 106.6

Balance of Payments (USD, mn) (863) (5,136) p/ (Jan - Sept)

(as % of GDP) (0.3) (2.2) p/ (Jan - Sept)

Current Account (USD, mn) (2,163) (6,471) p/ (Jan - Sept)

(as % of GDP) (0.7) (2.7) p/ (Jan - Sept)

Exports (USD mn) 68,712 62,767 (Jan - Nov)

(year-on-year growth, %) 19.7 (0.89) p/ (Jan - Nov)

Imports (USD mn) 96,093 100,455 p/ (Jan - Nov)

(year-on-year growth, %) 14.3 15.8 p/ (Jan - Nov)

Cash Remittances (USD, mn) 28,060 26,094 p/(Jan - Nov)

Gross International Reserves (USD, mn) 81,570 78,461

(months’ worth of imports) 7.7 6.9

External Debt (as % of GDP) 23.3 23.5 p/ (end-Sept)

Inflation Rate (%) (2012=100) 2.9 5.2

Q4 2018 ISSUE Think Growth. Think Philippines. | 3 Quick Stats (Continued)

INDICATOR 2017 2018

National Government Balance/GDP (%) (2.2) (3.0) (Jan - Sept)

National Government Revenue/GDP (%) 15.6 16.9 (Jan - Sept)

Interest Payments/Revenue (%) 12.6 12.8 (Jan - Sept)

Average Bank Lending Rate (%) 5.630 5.906 (Jan - Sept)

General Government Debt/GDP (%) 36.6 37.3 (end-Sept)

National Government Debt/GDP (%) 42.1 42.3 (Jan - Sept)

PHP Close per USD (on last trading day) 49.923 52.50

BSP Rates Overnight Lending Rate (%) Overnight Repurchase Rate (%) 3.500 3.851 (Jan - Sept) Overnight Deposit Rate (%) 3.000 3.327 (Jan - Sept) 7-Day Deposit Rate (%) 2.500 2.824 (Jan - Sept) 28-Day Deposit Rate (%) 3.234 3.540 (Jan - Sept) weighted averages in percent per annum 3.446 3.717 (Jan - Sept)

91-Day T-bill Rate (%) 2.15 3.54 weighted averages in percent per annum

PSEi Close (on last trading day) 8,558.42 7,466.0

ROP 10-year Bond Spread over US Treasuries 86.7 125.53 (bps)

ROP 5-year Bond Spread over US Treasuries 36.2 120.04 (bps)

ROP 10-year CDS Spread (bps) (last price for 106.4 140.25 the period)

ROP 5-year CDS Spread (bps) (last price for 67.3 88.23 the period)

p/ preliminary Sources: PSA, BSP, BTr, Bloomberg, Various Credit Rating Agencies

Q4 2018 ISSUE Think Growth. Think Philippines. | 4 (Sources: National Economic Development Authority and Philippine Statistics Authority)

Q4 2018 ISSUE Think Growth. Think Philippines. | 5 Maiden ‘Banking Sector The survey revealed that given intense competition, banks are seeking to develop new capabilities, expand market research, and leverage Outlook Survey’ shows client relationships to improve their operational upbeat industry performance. The results of the maiden BSOS complemented a recent favorable move of credit rating firm S&P Global. Under its Global Banking Industry Country ACCORDING TO the results of the maiden “Banking A favorable outlook for the banking industry is one Risk Assessment (BICRA), S&P upgraded the Sector Outlook Survey” (BSOS) released by the of the key signs of a healthy economic performance Philippine banking system’s credit rating to “6”, Bangko Sentral ng Pilipinas (BSP) last October, the in the future, given the vital role that banks play in from “7” previously, particularly due to “the Philippine banking system is expected to stay the economy. establishment of credit bureaus and the banks’ robust over the next two years given the country’s improving underwriting practices in the consumer strong macroeconomic fundamentals, the In the Philippines, banks serve as major sources of loans segment” (scores range from 1 to 10, with the industry’s adequate liquidity, rising capital bu ers, funding for consumption and investment latter reflecting the highest risk). and profitability. activities. Banks’ investments in government securities likewise help fund the government’s The BSP conducts the BSOS as part of its proactive The results of the survey revealed that 66.7 percent massive infrastructure projects and other approach to surveillance and financial supervision. of respondents foresaw a stable outlook for the development programs. Through the survey results, the BSP is able to banking system for the next two years, with the better understand the evolution of banks’ business remaining 33.3 percent believing that the industry In a statement released on October 3, 2018, the models to help in formulating prudent regulations will be even stronger during this period. BSP said “Bullish outlook on the banking industry for a stronger and more stable banking system. implies that banks will continue to support the Amongst the respondents were chief executive sustained development of the national economy. o icers and other top bank executives of universal This resonates with our overarching policy and commercial banks, thri banks, and the 20 objective to promote a stable and sound banking biggest rural/cooperative banks in terms of loan system that is globally competitive, dynamic, and portfolio. responsive to the demands of a developing economy.” The results were anchored on the respondents’ economic growth projection of 5 to 7 percent. In the survey, the respondents also identified their Industry leaders largely expected the Philippines top three strategic priorities. These were: 1) bank to remain among the fastest growing economies in growth through expansion of client base, the region. deepening customer relationships, and development of new products; 2) optimization of The banking sector’s improved credit available technology for digital operations and fundamentals were also seen to have contributed customer service; and 3) bank protection through to the respondents’ positive sentiments. the management of reputational and operational risks, enhancing data and cyber security, and Moreover, respondents were confident in a 10-20 increased consumer protection. percent growth in their assets, loan portfolios, deposits, and net incomes within two years. Most of the respondents also mentioned a continued focus on corporate and retail banking in terms of products and services o ered.

Q4 2018 ISSUE Think Growth. Think Philippines. | 6 The survey revealed that given intense competition, banks are seeking to develop new capabilities, expand market research, and leverage client relationships to improve their operational performance.

The results of the maiden BSOS complemented a recent favorable move of credit rating firm S&P Global. Under its Global Banking Industry Country ACCORDING TO the results of the maiden “Banking A favorable outlook for the banking industry is one Risk Assessment (BICRA), S&P upgraded the Sector Outlook Survey” (BSOS) released by the of the key signs of a healthy economic performance Philippine banking system’s credit rating to “6”, Bangko Sentral ng Pilipinas (BSP) last October, the in the future, given the vital role that banks play in from “7” previously, particularly due to “the Philippine banking system is expected to stay the economy. establishment of credit bureaus and the banks’ robust over the next two years given the country’s improving underwriting practices in the consumer strong macroeconomic fundamentals, the In the Philippines, banks serve as major sources of loans segment” (scores range from 1 to 10, with the industry’s adequate liquidity, rising capital bu ers, funding for consumption and investment latter reflecting the highest risk). and profitability. activities. Banks’ investments in government securities likewise help fund the government’s The BSP conducts the BSOS as part of its proactive The results of the survey revealed that 66.7 percent massive infrastructure projects and other approach to surveillance and financial supervision. of respondents foresaw a stable outlook for the development programs. Through the survey results, the BSP is able to banking system for the next two years, with the better understand the evolution of banks’ business remaining 33.3 percent believing that the industry In a statement released on October 3, 2018, the models to help in formulating prudent regulations will be even stronger during this period. BSP said “Bullish outlook on the banking industry for a stronger and more stable banking system. implies that banks will continue to support the Amongst the respondents were chief executive sustained development of the national economy. o icers and other top bank executives of universal This resonates with our overarching policy and commercial banks, thri banks, and the 20 objective to promote a stable and sound banking biggest rural/cooperative banks in terms of loan system that is globally competitive, dynamic, and portfolio. responsive to the demands of a developing economy.” The results were anchored on the respondents’ economic growth projection of 5 to 7 percent. In the survey, the respondents also identified their Industry leaders largely expected the Philippines top three strategic priorities. These were: 1) bank to remain among the fastest growing economies in growth through expansion of client base, the region. deepening customer relationships, and development of new products; 2) optimization of The banking sector’s improved credit available technology for digital operations and fundamentals were also seen to have contributed customer service; and 3) bank protection through to the respondents’ positive sentiments. the management of reputational and operational risks, enhancing data and cyber security, and Moreover, respondents were confident in a 10-20 increased consumer protection. percent growth in their assets, loan portfolios, deposits, and net incomes within two years. Most of the respondents also mentioned a continued focus on corporate and retail banking in terms of products and services o ered.

Q4 2018 ISSUE Think Growth. Think Philippines. | 7 BSP reactivates Currency Rate Risk Protection Program, addressing exchange rate volatility

Previously, firms might rush to buy or borrow dollars from the market to reduce risk. With the BSP’s hedging tool, corporate entities can o load currency risk without rushing to buy or borrow Nestor Espenilla, Jr. BSP Governor dollars from the market, resulting in the e ective management of peso volatility while adhering to "The Monetary Board (MB) approved the enhanced the market-determined exchange rate policy. guidelines on the Currency Rate Risk Protection Program (CRRP) aimed at easing the demand pressures in the foreign exchange spot market."-- BSP, Press Release, 17 September Following the initial announcement by BSP 2018 Governor Nestor Espenilla, Jr. on the reactivation of the CRRP in August 2018, guidelines were THE BANGKO SENTRAL ng Pilipinas (BSP) subsequently released by the BSP in September reactivated the Currency Rate Risk Protection 2018. Program (CRRP) in August 2018 in a move to proactively manage and mitigate peso volatility. Under the CRRP, eligible corporate entities may hedge their foreign currency obligations in The move further safeguards the stability of the amounts not less than $50,000. Given the nature of Philippine economy, establishing an e ective risk an NDF hedging facility, only the net di erence management facility while adhering to the existing between the forward rate agreed upon by both market-determined exchange rate policy. parties (the eligible corporate entity and the commercial bank) as specified in the contract, and The CRRP is a non-deliverable forward (NDF) the spot rate at the time the agreement was made, hedging facility o ered by the BSP through shall be settled in pesos upon maturity. commercial banks to eligible corporate entities that normally have huge foreign The CRRP was first introduced to the domestic currency-denominated borrowings, such as market in 1997, during the East Asian financial exporters, oil companies, and other importers. crisis. These companies are constantly in need of dollars to ensure smooth business operations. The reintroduction of the CRRP is in line with the BSP’s commitment to its mandate to maintain Due to the nature of their business, these entities price and financial stability for sustainable and are more exposed to foreign exchange risks. inclusive economic growth.

Q4 2018 ISSUE Think Growth. Think Philippines. | 8 President orders ease of importation of agricultural products

Move seen to ensure steady supply of basic food items, ease inflation

LAST SEPTEMBER, President Rodrigo Duterte reports to ensure sound management and signed Administrative Order (AO) No. 13 (Removing implementation of the AO. Non-tari Barriers and Streamlining Administrative Procedures on the Importation of Examples of initiatives under the AO include Agricultural Products) to cut regulatory hurdles on importation of agricultural products beyond their the importation of agricultural products. The AO, minimum access volumes (MAVs), liberalization of which ensures the su icient supply of basic food issuance of import permits, and the reduction of items, is an important part of the administration’s import fees. wide-ranging e ort to stabilize prices and bring inflation back to its target range. The issuance of the AO was one of the decisive and timely actions which contributed to reducing the inflation rate in 2018. It was designed to work in concert with an array of other measures including the Rice Tari ication Act (expected to be signed by the President soon), additional importation of rice, and strengthened price monitoring, among others.

All of these measures were complemented by a series of policy rate hikes by the Bangko Sentral ng Pilipinas to address brewing demand-side pressures and better anchor inflation expectations.

President Rodrigo R. Duterte (Photo credit: Philippine Communications Operations O ice)

Under the AO, concerned government agencies including the Department of Agriculture, Department of Trade and Industry, National Food Authority, Sugar Regulatory Administration, and the Bureau of Customs were mandated to remove non-tari barriers, ease administrative processes, and reduce the time spent importing agricultural products.

Relevant agencies submit monthly progress

Q4 2018 ISSUE Think Growth. Think Philippines. | 9 Infographics on Administrative Order No 13 of 2018 (Source: Investor Relations O ice)

Q4 2018 ISSUE Think Growth. Think Philippines. | 10 Government set to implement rice tari ication Removal of quantitative restrictions on rice imports hailed as poverty-relieving, inflation-easing reform measure

tari s set at the following rates: 35 percent for rice from ASEAN member-states and 50 percent from non-ASEAN countries.

Prior to the law’s implementation, the supply of imported rice in the domestic market is determined by the National Food Authority.

Once the bill is signed by the President, rice tari ication will allow unlimited importation of rice provided that traders secure phytosanitary and sanitary permits from the Bureau of Plant Industry and pay the tari s. Creating a Rice Fund

Senator Cynthia Villar, Chair of the Senate A provision in the anticipated law states that a Rice • A portion of the fund will be used for a credit Committee on Agriculture and Food and principal Competitiveness Enhancement Fund (RCEF) would facility that provides loans with minimal interest sponsor of the bill, earlier endorsed the legislative be created to protect the rice industry from rates to rice farmers and cooperatives. reform as it would remove all “unnecessary potential price fluctuations. The fund is set at a (Photo courtesy of Philippine Rice Research Institute) intervention” in the rice market. minimum of P10 billion annually for six years. • Lastly, a part of the fund will be used for training initiatives for rice crop production, THE PHILIPPINES is set to implement a landmark The President’s move to certify the rice tari ication According to Senator Cynthia Villar, the RCEF will modern farming techniques, seed production, measure to remove the quantitative restriction on bill as urgent amid the temporary spike in inflation be used to lower rice farmers’ high labor costs to and farm mechanization – all of which are to be imported rice in favor of tari ication. is a reflection of the Duterte administration’s enhance their competitiveness. In particular, the facilitated by PhilMech, the Agricultural Training determination to uphold the best interest and fund will provide di erent forms of assistance to Institute (ATI), and Technical Education and The Rice Tari ication Bill, certified as urgent by well-being of all Filipino people through the rice farmers, such as the development of Skills Development Authority (TESDA). President Rodrigo Duterte, received the nod of implementing bold and necessary reforms. inbred rice seeds, modernization of rice farm approval from the Bicameral Conference equipment, and skills enhancement. Considering the wide range of assistance covered Committee of Congress in late 2018 and is expected Based on government estimates, rice tari ication by the fund, this forward-looking legislative reform to be signed into law by the President soon. will reduce the price of rice by P4 to P7 per • A portion of the fund will be earmarked for the is poised to further aid in tempering inflation, kilogram. In e ect, the bill is expected to further Philippine Center for Postharvest Development alleviating poverty, and making the Philippine Congressional approval of the law was a result of aid in tempering inflation and help alleviate and Modernization (PhilMech). The aim is to agriculture sector more competitive globally in the the economic managers’ push to remove poverty by making staple food and other essentials provide farmers with rice farm machineries and long run. quantitative restrictions, which were seen as more a ordable for Filipinos. equipment that will help increase their yield per limiting the supply of the staple in the domestic hectare. market, causing inflationary pressures. The Bangko Sentral ng Pilipinas estimates that rice tari ication will contribute to a further • An allocation will be given to the Philippine The anticipated law, namely the Revised 0.4-percentage-point reduction in the inflation Rice Research Institute for the development, Agricultural Tari ication Act, will replace rate. propagation, and promotion of inbred rice quantitative restrictions on rice imports with seeds.

Q4 2018 ISSUE Think Growth. Think Philippines. | 11 tari s set at the following rates: 35 percent for rice from ASEAN member-states and 50 percent from non-ASEAN countries.

Prior to the law’s implementation, the supply of imported rice in the domestic market is determined by the National Food Authority.

Once the bill is signed by the President, rice tari ication will allow unlimited importation of rice (Photo credit: Philippine Information Agency) provided that traders secure phytosanitary and sanitary permits from the Bureau of Plant Industry and pay the tari s. Creating a Rice Fund

Senator Cynthia Villar, Chair of the Senate A provision in the anticipated law states that a Rice • A portion of the fund will be used for a credit Committee on Agriculture and Food and principal Competitiveness Enhancement Fund (RCEF) would facility that provides loans with minimal interest sponsor of the bill, earlier endorsed the legislative be created to protect the rice industry from rates to rice farmers and cooperatives. reform as it would remove all “unnecessary potential price fluctuations. The fund is set at a intervention” in the rice market. minimum of P10 billion annually for six years. • Lastly, a part of the fund will be used for training initiatives for rice crop production, THE PHILIPPINES is set to implement a landmark The President’s move to certify the rice tari ication According to Senator Cynthia Villar, the RCEF will modern farming techniques, seed production, measure to remove the quantitative restriction on bill as urgent amid the temporary spike in inflation be used to lower rice farmers’ high labor costs to and farm mechanization – all of which are to be imported rice in favor of tari ication. is a reflection of the Duterte administration’s enhance their competitiveness. In particular, the facilitated by PhilMech, the Agricultural Training determination to uphold the best interest and fund will provide di erent forms of assistance to Institute (ATI), and Technical Education and The Rice Tari ication Bill, certified as urgent by well-being of all Filipino people through the rice farmers, such as the development of Skills Development Authority (TESDA). President Rodrigo Duterte, received the nod of implementing bold and necessary reforms. inbred rice seeds, modernization of rice farm approval from the Bicameral Conference equipment, and skills enhancement. Considering the wide range of assistance covered Committee of Congress in late 2018 and is expected Based on government estimates, rice tari ication by the fund, this forward-looking legislative reform to be signed into law by the President soon. will reduce the price of rice by P4 to P7 per • A portion of the fund will be earmarked for the is poised to further aid in tempering inflation, kilogram. In e ect, the bill is expected to further Philippine Center for Postharvest Development alleviating poverty, and making the Philippine Congressional approval of the law was a result of aid in tempering inflation and help alleviate and Modernization (PhilMech). The aim is to agriculture sector more competitive globally in the the economic managers’ push to remove poverty by making staple food and other essentials provide farmers with rice farm machineries and long run. quantitative restrictions, which were seen as more a ordable for Filipinos. equipment that will help increase their yield per limiting the supply of the staple in the domestic hectare. market, causing inflationary pressures. The Bangko Sentral ng Pilipinas estimates that rice tari ication will contribute to a further • An allocation will be given to the Philippine The anticipated law, namely the Revised 0.4-percentage-point reduction in the inflation Rice Research Institute for the development, Agricultural Tari ication Act, will replace rate. propagation, and promotion of inbred rice quantitative restrictions on rice imports with seeds.

Q4 2018 ISSUE Think Growth. Think Philippines. | 12 The Rice Tarrification Bill (Senate Bill no. 1998)

Salient points: Why implement it?

Rice importation to be covered by a To increase food security, upli tari system from previous quota communities out of poverty and improve Filipino lives. Sets a 35% tari rate on all rice imports from ASEAN countries, and a 50% tari To increase competition and cut price on those from non-ASEAN countries. of rice by as much as P7 per kilo.

Removes National Food Authority's (NFA) power to import and distribute To temper inflation. cheaper rice.

NFA role becomes to buy grains from For the RCEF to support farmers farmers to maintain bu er stocks for and enhance competitiveness. calamities and emergencies.

Establishes a Rice Competitiveness Enhancement Fund (RCEF).

History

1972 1995

The Philippines has Historically, rice imports Miscalculations have When the Philippines always had some of the were controlled by the led to over- or joined the World highest rice prices in National Food Authority under-importation. Trade Organization Southeast Asia. As of (NFA), and its predecessor (WTO) in 1995, it August 2016, Filipinos the National Grains committed to putting were paying more than Authority (created by an end to import twice the price for a kilo ex-president Ferdinand quotas and to “tari y” of rice compared to Marcos in 1972). rice importation. citizens of Thailand and Vietnam.

1995 2016 2018

Initiatives to tari y were In 2016, the shi to Bill was passed by Both postponed several times tari ication was Houses (11/28/2018) with extensions granted on proposed. and is waiting to be condition that the private signed into law. sector import rice within a certain quota with a tari rate. (1995 - 59,730 metric tons, with a 50% tari ; and 2018 - 805,000 metric tons, with a 35% tari ).

Q4 2018 ISSUE Think Growth. Think Philippines. | 13 Government shi to cash-based budgeting seen to improve spending e iciency As a result of these reforms, government agencies may only propose programs, activities, and projects that can be fully implemented within the fiscal year.

For multi-year contracts with an implementation period of over 12 months, agencies will need to secure a multi-year obligational authority before signing such contracts.

Cash-based budgeting reforms the less e icient, obligation-based system observed in previous years. Under an obligation-based budgeting system, contracts awarded before the end of the fiscal year can be delivered even aer the fiscal year.

The old system allowed for delayed payment of FITCH RATINGS has kept the Philippines’ go alongside the increase in government Benjamin Diokno goods and services, resulting in government investment grade of “BBB”, projecting sustained expenditure.” Budget Secretary underspending and in many cases, delays to robust economic growth in the years ahead, driven important projects and policy measures. in part by massive public infrastructure Consistent with this, Fitch expects the "The lower underspending rate is a result of what we investments. government’s outstanding debt as a percentage of started last year which is to shorten the validity of The Department of Budget and Management (DBM) gross domestic product to remain broadly stable at appropriations to one year. Because of this, agencies are said the shi to cash-based budgeting will help to The debt watcher foresees the Philippine economy 37 percent by 2020. compelled to expedite the implementation of their projects ensure that underspending is avoided. Timely to grow by 6.6 percent in the next two years. and programs. They were also required to include only implementation of government projects and the projects that are shovel-ready." -- Budget Secretary Diokno The debt watcher has assigned a “stable” outlook on-time payment of obligations supports At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of government e orts to maintain robust economic keeping its liabilities manageable even as public factors seen to materially change the country’s THE GOVERNMENT will shi to a cash-based growth. investments grow. It noted that rising public credit profile over the short term. budgeting system this year. The new system expenditures, driven by infrastructure, are underscores the administration’s determination to The shi to cash-based budgeting aligns with the matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back instill fiscal discipline and ensure timely Duterte administration’s fiscal policy and reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) disbursement of payments to suppliers, so that facilitates its target of increasing infrastructure remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being important projects are delivered on time and on spending to more than 7.0 percent of GDP by 2022 government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness budget. to support sustainable and inclusive economic of the successive rate hikes implemented by the growth. “Growth prospects remain favourable, supported BSP and the measures done by the national Under a cash-based budgeting system, contractual by strong domestic demand and increasing government to ease constraints to rice supply. obligations and disbursements of payments to The DBM is seeking to embed the cash-based infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key goods delivered and services rendered will be done budgeting system through the Budget Reform bill, the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a within the same fiscal year, resulting in the timely which is currently being deliberated in Congress. remain within manageable levels of around -3% of proactive move meant to ensure inflation goes disbursement of payments and rectification of the Successful legislation of the system will ensure that GDP in 2019 and 2020, as revenues are expected to back to within target range. perennial issue of underspending. the progress made in the reform e orts will be carried forward in succeeding administrations.

Q4 2018 ISSUE Think Growth. Think Philippines. | 14

Q4 2018 ISSUE Think Growth. Think Philippines. | 15

UNDER THE LEADERSHIP of the Bangko Sentral ng Pilipinas (BSP), members of the banking industry collaborated to establish a facility that will allow the direct exchange of Philippine pesos to renminbi (RMB), and vice versa.

Last October, Bank of China-Manila (BOC Manila) formalized a deal with 13 other banks for the creation of the “Philippine Renminbi Trading Community,” which will operate the peso-renminbi spot market.

The facility enables the direct conversion of pesos to renminbi and vice versa, removing a previously required interim step of first converting either of the currencies into US dollars. FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” In the context of existing strong ties between the robust economic growth in the years ahead, driven two countries, the move is expected to further In a message delivered on behalf of BSP Governor During the launch, Finance Secretary Carlos in part by massive public infrastructure Consistent with this, Fitch expects the invigorate trade, investments, and tourism Nestor Espenilla Jr. during the launch of the Dominguez III noted that the establishment of the investments. government’s outstanding debt as a percentage of between the Philippines and China. Philippine Renminbi Trading Community, BSP Philippine Renminbi Trading Community in the gross domestic product to remain broadly stable at Deputy Governor Chuchi Fonacier said, “By Philippines is a win-win development for both the The debt watcher foresees the Philippine economy 37 percent by 2020. Under the BSP’s supervision, BOC Manila will serve establishing the PHP-RMB trading market, the Philippines and China. “We take this as major step to grow by 6.6 percent in the next two years. as the clearing bank for peso-renminbi Philippine peso can be directly priced against the forward in the economic partnership between the The debt watcher has assigned a “stable” outlook transactions. RMB…Moreover, banks can now manage their RMB Philippines and China,” he added. “On both sides, At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of liquidity requirements and improve services with there is confidence that this partnership will bring keeping its liabilities manageable even as public factors seen to materially change the country’s RMB deposits dedicated to payment and fund great benefits to both our peoples. This is a investments grow. It noted that rising public credit profile over the short term. transfer needs.” partnership nurtured by the warm friendship expenditures, driven by infrastructure, are between our two countries.” matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back The Deputy Governor added: “RMB users are reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) allowed better liquidity management, faster Secretary Dominguez, Deputy Governor Fonacier, remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being conversion, and available hedging facilities for and former BSP Governor Amando M. Tetangco Jr. government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness trade-related and payment requirements. The were among those who witnessed the launch at of the successive rate hikes implemented by the PHP-RMB trading market also enhances price the Makati Shangri-La, Manila in Makati City. “Growth prospects remain favourable, supported BSP and the measures done by the national discovery with supply and demand determining FX by strong domestic demand and increasing government to ease constraints to rice supply. rates.” infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

Q4 2018 ISSUE Think Growth. Think Philippines. | 16

The facility enables the direct conversion of pesos to renminbi and vice versa, removing a previously required interim step of first converting either of Chuchi Fonacier the currencies into US dollars. Bangko Sentral ng Pilipinas Deputy Governor FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” In the context of existing strong ties between the robust economic growth in the years ahead, driven two countries, the move is expected to further In a message delivered on behalf of BSP Governor During the launch, Finance Secretary Carlos in part by massive public infrastructure Consistent with this, Fitch expects the invigorate trade, investments, and tourism Nestor Espenilla Jr. during the launch of the Dominguez III noted that the establishment of the investments. government’s outstanding debt as a percentage of between the Philippines and China. Philippine Renminbi Trading Community, BSP Philippine Renminbi Trading Community in the gross domestic product to remain broadly stable at Deputy Governor Chuchi Fonacier said, “By Philippines is a win-win development for both the The debt watcher foresees the Philippine economy 37 percent by 2020. Under the BSP’s supervision, BOC Manila will serve establishing the PHP-RMB trading market, the Philippines and China. “We take this as major step to grow by 6.6 percent in the next two years. as the clearing bank for peso-renminbi Philippine peso can be directly priced against the forward in the economic partnership between the The debt watcher has assigned a “stable” outlook transactions. RMB…Moreover, banks can now manage their RMB Philippines and China,” he added. “On both sides, At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of liquidity requirements and improve services with there is confidence that this partnership will bring keeping its liabilities manageable even as public factors seen to materially change the country’s RMB deposits dedicated to payment and fund great benefits to both our peoples. This is a investments grow. It noted that rising public credit profile over the short term. transfer needs.” partnership nurtured by the warm friendship expenditures, driven by infrastructure, are between our two countries.” matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back The Deputy Governor added: “RMB users are reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) allowed better liquidity management, faster Secretary Dominguez, Deputy Governor Fonacier, remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being conversion, and available hedging facilities for and former BSP Governor Amando M. Tetangco Jr. government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness trade-related and payment requirements. The were among those who witnessed the launch at of the successive rate hikes implemented by the PHP-RMB trading market also enhances price the Makati Shangri-La, Manila in Makati City. “Growth prospects remain favourable, supported BSP and the measures done by the national discovery with supply and demand determining FX by strong domestic demand and increasing government to ease constraints to rice supply. rates.” infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

Q4 2018 ISSUE Think Growth. Think Philippines. | 17

Further opening up Philippines to foreign investment

President Rodrigo R. Duterte FITCH RATINGS has kept the Philippines’ go alongside the increase in government (Photo credit: Philippine Communications Operations O ice) investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven "... there is a need to formulate the Eleventh Regular No. 65 relaxes restrictions and now allows in part by massive public infrastructure Consistent with this, Fitch expects the Foreign Investment Negative List... consistent with the • Internet businesses, which are now excluded investments. government’s outstanding debt as a percentage of policy to ease restriction on foreign participation in A shorter list means foreign investors have more from “mass media” (under the Philippine foreigners to own up to 40 percent of contracts for gross domestic product to remain broadly stable at certain investment areas or activities..." -- President access to investment opportunities than before. Constitution, mass media remains completely the construction and repair of locally funded Rodrigo Duterte in Executive Order No. 65 , signed The debt watcher foresees the Philippine economy 37 percent by 2020. closed to foreign ownership and participation); public works, subject to applicable regulatory Oct. 25, 2018 to grow by 6.6 percent in the next two years. Welcoming the renewed FINL, Socioeconomic frameworks. This will allow local developers and The debt watcher has assigned a “stable” outlook Planning Secretary Ernesto M. Pernia said that by • Teaching at higher education levels, provided contractors to bring in foreign contractors and IN LINE WITH the Duterte administration’s At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of welcoming more foreign investments and that the subject being taught is not a experts to participate in infrastructure projects. commitment to job creation, President Duterte keeping its liabilities manageable even as public factors seen to materially change the country’s participation in a wider range of industries and professional subject (one covered or included in Previously, foreign participation in public works signed Executive Order No. 65 in October 2018, investments grow. It noted that rising public credit profile over the short term. business domains - particularly those that will a government board or bar examination); contracts was limited to 25 percent. further opening the Philippines to foreign expenditures, driven by infrastructure, are introduce new technologies and stimulate investors. The Executive Order contained the matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back innovation - the EO is expected to contribute to the • Training centers engaged in short-term, In addition, the latest FINL allows foreigners to own Philippines’ latest, more liberalized Foreign reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) strengthening of the country’s competitiveness high-level skills development that do not form up to 40 percent of private radio communication Investments Negative List (FINL). remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being and attractiveness as a foreign investment part of the formal education system; networks, an increase from the previous 20 percent. government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness The game-changing and forward-looking 11th destination. It allows us to keep pace with other • Adjustment companies, lending companies, of the successive rate hikes implemented by the Regular FINL serves as a guide for foreign investors, ASEAN member-states.” financing companies, and investment houses; The Executive Order is part of the Duterte “Growth prospects remain favourable, supported BSP and the measures done by the national specifying areas of business open to them. by strong domestic demand and increasing government to ease constraints to rice supply. The National Economic and Development and administration’s overall agenda of opening the Philippine economy to more foreign investors. In infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key It also sheds light on investment areas in which Authority is the agency mandated to formulate and • Wellness centers. addition to this, the Executive Branch is pushing for the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a foreign-equity participation is limited for reasons recommend the FINL to the President. The updated bills in Congress that will allow greater foreign remain within manageable levels of around -3% of proactive move meant to ensure inflation goes of security, defense, health and moral risks, and RFINL allows up to 100 percent foreign ownership Meanwhile, in support of the Duterte participation in an even wider range of sectors. GDP in 2019 and 2020, as revenues are expected to back to within target range. protection of small- and medium-scale of five investment areas and activities, including: administration’s massive infrastructure push, EO enterprises.

Q4 2018 ISSUE Think Growth. Think Philippines. | 18

8.3 8.0 5.7 5.6 6.5 3.2 3.7 2.0 1.1

2010 2011 2012 2013 2014 2015 2016 2017 Jan-Sept Jan-Sept 2017 2018

Total Approved Investments** (PHP bn) +32.5% YOY growth in 2017 8.2% YOY growth in total approved foreign investments in 9M 2018

346.6 488.9 408.7 480.0 569.0 441.7 466.9 803.0 542.1 468.6

196.1 258.2 289.5 274.0 186.9 245.2 219.0 105.6 84.1 91.0

2010 2011 2012 2013 2014 2015 2016 2017 Q1-Q3 Q1-Q3 2017 2018

Filipino Foreign (Source: Philippine Primer, Investor Relations O ice) FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven • Internet businesses, which are now excluded No. 65 relaxes restrictions and now allows in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of A shorter list means foreign investors have more from “mass media” (under the Philippine foreigners to own up to 40 percent of contracts for gross domestic product to remain broadly stable at access to investment opportunities than before. Constitution, mass media remains completely the construction and repair of locally funded The debt watcher foresees the Philippine economy 37 percent by 2020. closed to foreign ownership and participation); public works, subject to applicable regulatory to grow by 6.6 percent in the next two years. Welcoming the renewed FINL, Socioeconomic frameworks. This will allow local developers and The debt watcher has assigned a “stable” outlook Planning Secretary Ernesto M. Pernia said that by • Teaching at higher education levels, provided contractors to bring in foreign contractors and IN LINE WITH the Duterte administration’s At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of welcoming more foreign investments and that the subject being taught is not a experts to participate in infrastructure projects. commitment to job creation, President Duterte keeping its liabilities manageable even as public factors seen to materially change the country’s participation in a wider range of industries and professional subject (one covered or included in Previously, foreign participation in public works signed Executive Order No. 65 in October 2018, investments grow. It noted that rising public credit profile over the short term. business domains - particularly those that will a government board or bar examination); contracts was limited to 25 percent. further opening the Philippines to foreign expenditures, driven by infrastructure, are introduce new technologies and stimulate investors. The Executive Order contained the matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back innovation - the EO is expected to contribute to the • Training centers engaged in short-term, In addition, the latest FINL allows foreigners to own Philippines’ latest, more liberalized Foreign reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) strengthening of the country’s competitiveness high-level skills development that do not form up to 40 percent of private radio communication Investments Negative List (FINL). remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being and attractiveness as a foreign investment part of the formal education system; networks, an increase from the previous 20 percent. government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness The game-changing and forward-looking 11th destination. It allows us to keep pace with other • Adjustment companies, lending companies, of the successive rate hikes implemented by the Regular FINL serves as a guide for foreign investors, ASEAN member-states.” financing companies, and investment houses; The Executive Order is part of the Duterte “Growth prospects remain favourable, supported BSP and the measures done by the national specifying areas of business open to them. by strong domestic demand and increasing government to ease constraints to rice supply. The National Economic and Development and administration’s overall agenda of opening the Philippine economy to more foreign investors. In infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key It also sheds light on investment areas in which Authority is the agency mandated to formulate and • Wellness centers. addition to this, the Executive Branch is pushing for the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a foreign-equity participation is limited for reasons recommend the FINL to the President. The updated bills in Congress that will allow greater foreign remain within manageable levels of around -3% of proactive move meant to ensure inflation goes of security, defense, health and moral risks, and RFINL allows up to 100 percent foreign ownership Meanwhile, in support of the Duterte participation in an even wider range of sectors. GDP in 2019 and 2020, as revenues are expected to back to within target range. protection of small- and medium-scale of five investment areas and activities, including: administration’s massive infrastructure push, EO enterprises.

Q4 2018 ISSUE Think Growth. Think Philippines. | 19

names of firms receiving incentives will be made Under the bill, the corporate income tax will be the budget that could have been spent on public, including the amount of their incentives gradually reduced from 30 to 20 percent over a infrastructure, health, education, and social and their contributions to society. span of 10 years. protection—crucial investments that benefit everyone, not just a few,” Undersecretary Chua Meanwhile, TRABAHO will also harmonize all At the 30-percent-level, the Philippines’ existing explained. investment-related activities into the tax code. The corporate income tax rate is the highest among tax code will specify the menu of incentives that ASEAN countries. Once signed into law, the reform With the planned rationalization of fiscal will be available for the qualified activities. is expected to improve the Philippines’ business incentives, perks will be given in a manner that is Additionally, the granting of incentives will be climate and further boost competitiveness. time-bound, transparent, performance-based, implemented by a single entity –as opposed to the Karl Chua and targeted. current complex mechanism under which di erent Finance Undersecretary TRABAHO is also expected to bring relief to micro, incentives are granted by various Investment small, and medium enterprises that are unable to As such, the reform is poised to bring equity into Promotion Agencies (IPAs). The TRABAHO Bill is ”pro-investments, pro-jobs, and enjoy incentives and are therefore currently the tax system. Under the present setting, some pro-incentives.” -- Finance Undersecretary Chua subject to the 30-percent corporate income tax. large corporate entities no longer needing assistance still enjoy tax perks. Current status of TRABAHO

IN ITS ONGOING e ort to make the Philippine tax Finance Assistant Secretary Antonio Lambino II By putting a system in place that will grant tax Following the President’s directive to fast-track the system simpler and more equitable, the said: “A lower corporate income tax will make the incentives in a targeted, time-bound, passage of all remaining tax reform packages, the Department of Finance (DOF) is advocating for Philippines more attractive to investors, and could FITCH RATINGS has kept the Philippines’ go alongside the increase in government performance-based, and transparent manner, House of Representatives approved its version of Package 2 of the Duterte administration’s free up more capital for firms to invest and hire investment grade of “BBB”, projecting sustained expenditure.” Package 2 will help plug unnecessary revenue Package 2 in September 2018. comprehensive tax reform agenda. more workers, which, in return, could create a robust economic growth in the years ahead, driven million jobs for Filipinos over the medium term.” losses and boost government co ers to support in part by massive public infrastructure Consistent with this, Fitch expects the inclusive development initiatives. The bill is being deliberated in the Senate, and the Under the proposed “Tax Reform for Attracting investments. government’s outstanding debt as a percentage of DOF is targeting for its enactment into law in 2019. Better and High-Quality Opportunities” gross domestic product to remain broadly stable at Prerequisites for incentives (TRABAHO) bill, the corporate income tax will be The debt watcher foresees the Philippine economy 37 percent by 2020. reduced in order to make the Philippines’ tax rate to grow by 6.6 percent in the next two years. • Performance-based. Recipients are required for corporate entities competitive vis-à-vis The debt watcher has assigned a “stable” outlook to meet performance targets that would benefit countries in the region. At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of society. Perks shall be given to investors who will keeping its liabilities manageable even as public factors seen to materially change the country’s create more and better jobs, promote research At the same time, the bill also seeks to broaden the investments grow. It noted that rising public credit profile over the short term. and development, encourage innovation, tax base by rationalizing the granting of tax expenditures, driven by infrastructure, are stimulate domestic industries, and diversify incentives and improving tax compliance. matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back product base for higher value exports. reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) The bill is the second package of the Duterte remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being Tony Lambino • Targeted. Only sectors that satisfy the criteria administration’s tax reform agenda. government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness Finance Assistant Secretary specified in the Strategic Investment Priority of the successive rate hikes implemented by the Plan (SIPP) will be granted incentives. The Board As described by Finance Undersecretary Karl “A lower corporate income tax will make the Philippines more “Growth prospects remain favourable, supported BSP and the measures done by the national of Investments (BOI) will formulate the SIPP, Kendrick Chua, the TRABAHO bill is attractive to investors, and could free up more capital for by strong domestic demand and increasing government to ease constraints to rice supply. firms to invest and hire more workers, which, in return, could which will determine the strategic investment infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key “pro-investments, pro-jobs, and pro-incentives.” create a million jobs for Filipinos over the medium term.” -- areas in the country. The list is expected to the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a Package 1, which took e ect in January 2018, Asec. Lambino reduced personal income tax rates while adjusting remain within manageable levels of around -3% of proactive move meant to ensure inflation goes the excise tax on oil and imposing an excise tax on GDP in 2019 and 2020, as revenues are expected to back to within target range. sugary drinks. (Photos from Sulong Pilipinas 2018 website)

Q4 2018 ISSUE Think Growth. Think Philippines. | 20

names of firms receiving incentives will be made Under the bill, the corporate income tax will be the budget that could have been spent on public, including the amount of their incentives gradually reduced from 30 to 20 percent over a infrastructure, health, education, and social and their contributions to society. span of 10 years. protection—crucial investments that benefit everyone, not just a few,” Undersecretary Chua Meanwhile, TRABAHO will also harmonize all At the 30-percent-level, the Philippines’ existing explained. investment-related activities into the tax code. The corporate income tax rate is the highest among tax code will specify the menu of incentives that ASEAN countries. Once signed into law, the reform With the planned rationalization of fiscal will be available for the qualified activities. is expected to improve the Philippines’ business incentives, perks will be given in a manner that is Additionally, the granting of incentives will be climate and further boost competitiveness. time-bound, transparent, performance-based, and targeted. implemented by a single entity –as opposed to the current complex mechanism under which di erent TRABAHO is also expected to bring relief to micro, incentives are granted by various Investment small, and medium enterprises that are unable to As such, the reform is poised to bring equity into Promotion Agencies (IPAs). enjoy incentives and are therefore currently the tax system. Under the present setting, some subject to the 30-percent corporate income tax. large corporate entities no longer needing assistance still enjoy tax perks. Current status of TRABAHO

IN ITS ONGOING e ort to make the Philippine tax Finance Assistant Secretary Antonio Lambino II By putting a system in place that will grant tax Following the President’s directive to fast-track the system simpler and more equitable, the said: “A lower corporate income tax will make the incentives in a targeted, time-bound, passage of all remaining tax reform packages, the Department of Finance (DOF) is advocating for Philippines more attractive to investors, and could FITCH RATINGS has kept the Philippines’ go alongside the increase in government performance-based, and transparent manner, House of Representatives approved its version of Package 2 of the Duterte administration’s free up more capital for firms to invest and hire investment grade of “BBB”, projecting sustained expenditure.” Package 2 will help plug unnecessary revenue Package 2 in September 2018. comprehensive tax reform agenda. more workers, which, in return, could create a robust economic growth in the years ahead, driven million jobs for Filipinos over the medium term.” losses and boost government co ers to support in part by massive public infrastructure Consistent with this, Fitch expects the inclusive development initiatives. The bill is being deliberated in the Senate, and the Under the proposed “Tax Reform for Attracting investments. government’s outstanding debt as a percentage of DOF is targeting for its enactment into law in 2019. Better and High-Quality Opportunities” gross domestic product to remain broadly stable at Prerequisites for incentives (TRABAHO) bill, the corporate income tax will be The debt watcher foresees the Philippine economy 37 percent by 2020. reduced in order to make the Philippines’ tax rate to grow by 6.6 percent in the next two years. • Performance-based. Recipients are required for corporate entities competitive vis-à-vis The debt watcher has assigned a “stable” outlook to meet performance targets that would benefit countries in the region. At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of society. Perks shall be given to investors who will keeping its liabilities manageable even as public factors seen to materially change the country’s create more and better jobs, promote research At the same time, the bill also seeks to broaden the investments grow. It noted that rising public credit profile over the short term. and development, encourage innovation, tax base by rationalizing the granting of tax expenditures, driven by infrastructure, are stimulate domestic industries, and diversify incentives and improving tax compliance. matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back product base for higher value exports. reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) The bill is the second package of the Duterte remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being • Targeted. Only sectors that satisfy the criteria administration’s tax reform agenda. government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness specified in the Strategic Investment Priority of the successive rate hikes implemented by the Plan (SIPP) will be granted incentives. The Board As described by Finance Undersecretary Karl “Growth prospects remain favourable, supported BSP and the measures done by the national of Investments (BOI) will formulate the SIPP, Kendrick Chua, the TRABAHO bill is by strong domestic demand and increasing government to ease constraints to rice supply. which will determine the strategic investment “pro-investments, pro-jobs, and pro-incentives.” infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key areas in the country. The list is expected to Package 1, which took e ect in January 2018, the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a reduced personal income tax rates while adjusting remain within manageable levels of around -3% of proactive move meant to ensure inflation goes the excise tax on oil and imposing an excise tax on GDP in 2019 and 2020, as revenues are expected to back to within target range. sugary drinks.

Q4 2018 ISSUE Think Growth. Think Philippines. | 21

Q4 2018 ISSUE Think Growth. Think Philippines. | 22

showing tangible e ects in 2018,” NICE said in its Succeeding tax reform packages are pending in report on the Philippines released October 31. Congress. Tax reform helps government address the infrastructure gap without compromising fiscal Noting the volatility in the foreign exchange market health. globally as a result of the US-China trade war and interest rate hikes in advanced economies, NICE The BSP likewise reactivated the Currency Rate said the impact will be appropriately managed, Risk Protection Program (CRPP) through which “given the country’s response capability in terms of universal/commercial banks o er a hedging FX liquidity.” facility for parties with foreign currency-denominated borrowings. Such facility Responding to the latest credit rating will temper pressures on the peso, amid global development, Finance Secretary Carlos G. events adversely impacting emerging markets. Dominguez III said: “A decisive leadership that implements game-changing reforms in International institutions project the Philippines to policymaking, tax administration, and remain among the fastest growing economies in infrastructure modernization in pursuit of high and Asia in 2019. Carlos G. Dominguez inclusive growth, characterizes the Duterte Finance Secretary Administration. The Government’s Comprehensive Tax Reform Program (CTRP) and the ‘Build, Build, FITCH RATINGS has kept the Philippines’ go alongside the increase in government "A decisive leadership that implements game-changing Build’ infrastructure initiative are expected to investment grade of “BBB”, projecting sustained expenditure.” reforms in policymaking, tax administration, and robust economic growth in the years ahead, driven infrastructure modernization in pursuit of high and sustain the country’s growth momentum, achieve in part by massive public infrastructure Consistent with this, Fitch expects the inclusive growth, characterizes the Duterte financial inclusion, and propel the Philippines into On a similar note, BSP Governor Nestor A. Administration." -- Finance Secretary Dominguez investments. government’s outstanding debt as a percentage of an upper-middle income economy by 2022. We Espenilla, Jr. said: “As observed by independent gross domestic product to remain broadly stable at thank NICE Investors Service for recognizing the third-parties from the international community, scope and purpose of the Duterte Administration’s The debt watcher foresees the Philippine economy 37 percent by 2020. KOREA-BASED NICE Investors Service maintained such as NICE Investors Service, the Philippine policy directives.” to grow by 6.6 percent in the next two years. the Philippines’ investment grade rating of “BBB,” economy has su icient bu ers against external The debt watcher has assigned a “stable” outlook recognizing the country’s ability to weather shocks. With gross international reserves At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of external headwinds and the government’s prudent equivalent to about seven months of imports, a keeping its liabilities manageable even as public factors seen to materially change the country’s tax and spending policies. steady source of FX inflows led by remittances, investments grow. It noted that rising public credit profile over the short term. BPO revenues, and tourism receipts, a flexible expenditures, driven by infrastructure, are The existing rating, a notch above the minimum exchange rate policy, and overall prudent matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back investment grade, is assigned a “stable” outlook, management of the country’s external accounts, reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) given perceived absence of factors that can the economy shall remain resilient amid global remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being materially a ect the country’s creditworthiness volatilities. Moreover, the BSP constantly monitors government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness over the short term. external and domestic developments, and stands of the successive rate hikes implemented by the ready to implement appropriate policy actions “Growth prospects remain favourable, supported BSP and the measures done by the national “The policy direction of the Duterte administration consistent with its price and financial stability by strong domestic demand and increasing government to ease constraints to rice supply. [that is] set to increase government expenditure mandates.” infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key through expanding [the] tax base is deemed the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a appropriate, given the need for infrastructure remain within manageable levels of around -3% of proactive move meant to ensure inflation goes investment. The government’s tax reform and GDP in 2019 and 2020, as revenues are expected to back to within target range. infrastructure investment acceleration are already President Duterte and members of his cabinet

Q4 2018 ISSUE Think Growth. Think Philippines. | 23

Espenilla noted the latest inflation forecast pointing to within-target inflation in 2019 and 2020 following the successive monetary policy increases by the BSP’s Monetary Board in 2018. “The elevated inflation in 2018 was mainly driven by supply-side factors that are beyond the control of monetary policy, but we acted pre-emptively to Also, Fitch recognized the stability of the country’s address any brewing demand-side pressures and banking sector, which helps fund rising investment potential second-round e ects ahead. This activities in the economy. “Rating profiles [of proactive move will help ensure that inflation banks] should remain steady backed by settles within target, at least over the next two satisfactory risk controls, adequate years,” Espenilla said. loss-absorption bu ers, and generally stable funding and liquidity profiles,” it said. Meantime, in response to Fitch’s statement of some perceived overheating risks of the economy, Welcoming Fitch’s decision are two of the country’s BSP Deputy Governor Diwa Guinigundo stressed top economic o icials. that the economy is not facing any material threat of overheating. Finance Secretary Carlos Dominguez III said: “Fitch’s forecast of strong growth in the years “While credit is growing, the pace of increase is ahead a irms the soundness of the Duterte within levels considered manageable based not administration’s economic development strategy, only on the BSP’s own metrics but even on which is to sustain high growth, accelerate poverty international benchmarks. Additionally, credit reduction, and achieve financial inclusion by way growth in the country is driven not only by of unmatched investments in infrastructure consumption, but more importantly by investment modernization and human capital development activities which boost the economy’s productive without losing its grip on fiscal discipline.” capacity. As such, we see growth in demand continually and su iciently being matched by Dominguez added: The first package of the CTRP rising supply, thereby continuing to dampen (Comprehensive Tax Reform Program), which has demand-side inflationary pressures moving already delivered in terms of raising more revenues forward,” Guinigundo said. to fund the government’s priority programs, along with the rest of the tax reforms that we hope the The Philippines’ “BBB” rating with Fitch matches Congress can pass in 2019, will put in place a the “BBB” rating assigned by S&P Global and the simplified tax system that will primarily benefit “Baa2” rating by Moody’s Investors Service. In the ordinary taxpayers and small businesses while meantime, S&P assigns a “positive” outlook on its being supportive of our medium- and long-term rating on the Philippines, signaling opportunity for goals for the Philippines to become an an upgrade. upper-middle income economy by 2022 and a high-income one by 2040.” The first package of the Duterte administration’s tax reform — the Tax Reform for Acceleration and Inclusion (TRAIN) — took e ect in January 2018, generating net revenues for the government, helping fund the “Build, Build, Build” initiative. Among other provisions, the law slashed individual income tax rates, and adjusted excise taxes on oil, automobile sales, and sugary drinks. showing tangible e ects in 2018,” NICE said in its Succeeding tax reform packages are pending in report on the Philippines released October 31. Congress. Tax reform helps government address the infrastructure gap without compromising fiscal Noting the volatility in the foreign exchange market health. globally as a result of the US-China trade war and interest rate hikes in advanced economies, NICE The BSP likewise reactivated the Currency Rate said the impact will be appropriately managed, Risk Protection Program (CRPP) through which “given the country’s response capability in terms of universal/commercial banks o er a hedging FX liquidity.” facility for parties with foreign currency-denominated borrowings. Such facility Responding to the latest credit rating will temper pressures on the peso, amid global development, Finance Secretary Carlos G. events adversely impacting emerging markets. Dominguez III said: “A decisive leadership that Nestor Espenilla, Jr. implements game-changing reforms in Bangko Sentral ng Pilipinas Governor International institutions project the Philippines to policymaking, tax administration, and remain among the fastest growing economies in infrastructure modernization in pursuit of high and Asia in 2019. "The BSP constantly monitors external and inclusive growth, characterizes the Duterte domestic developments, and stands ready to Administration. The Government’s Comprehensive implement appropriate policy actions consistent Tax Reform Program (CTRP) and the ‘Build, Build, with its price and financial stability mandates.” -- BSP FITCH RATINGS has kept the Philippines’ go alongside the increase in government Governor Espenilla Build’ infrastructure initiative are expected to investment grade of “BBB”, projecting sustained expenditure.” sustain the country’s growth momentum, achieve robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the financial inclusion, and propel the Philippines into On a similar note, BSP Governor Nestor A. investments. government’s outstanding debt as a percentage of an upper-middle income economy by 2022. We Espenilla, Jr. said: “As observed by independent gross domestic product to remain broadly stable at thank NICE Investors Service for recognizing the third-parties from the international community, scope and purpose of the Duterte Administration’s The debt watcher foresees the Philippine economy 37 percent by 2020. KOREA-BASED NICE Investors Service maintained such as NICE Investors Service, the Philippine policy directives.” to grow by 6.6 percent in the next two years. the Philippines’ investment grade rating of “BBB,” economy has su icient bu ers against external The debt watcher has assigned a “stable” outlook recognizing the country’s ability to weather shocks. With gross international reserves At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of external headwinds and the government’s prudent equivalent to about seven months of imports, a keeping its liabilities manageable even as public factors seen to materially change the country’s tax and spending policies. steady source of FX inflows led by remittances, investments grow. It noted that rising public credit profile over the short term. BPO revenues, and tourism receipts, a flexible expenditures, driven by infrastructure, are The existing rating, a notch above the minimum exchange rate policy, and overall prudent matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back investment grade, is assigned a “stable” outlook, management of the country’s external accounts, reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) given perceived absence of factors that can the economy shall remain resilient amid global remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being materially a ect the country’s creditworthiness volatilities. Moreover, the BSP constantly monitors government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness over the short term. external and domestic developments, and stands of the successive rate hikes implemented by the ready to implement appropriate policy actions “Growth prospects remain favourable, supported BSP and the measures done by the national “The policy direction of the Duterte administration consistent with its price and financial stability by strong domestic demand and increasing government to ease constraints to rice supply. [that is] set to increase government expenditure mandates.” infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key through expanding [the] tax base is deemed the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a appropriate, given the need for infrastructure remain within manageable levels of around -3% of proactive move meant to ensure inflation goes investment. The government’s tax reform and GDP in 2019 and 2020, as revenues are expected to back to within target range. infrastructure investment acceleration are already

Q4 2018 ISSUE Think Growth. Think Philippines. | 24

FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at The debt watcher foresees the Philippine economy 37 percent by 2020. to grow by 6.6 percent in the next two years. The debt watcher has assigned a “stable” outlook At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of keeping its liabilities manageable even as public factors seen to materially change the country’s investments grow. It noted that rising public credit profile over the short term. expenditures, driven by infrastructure, are matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness of the successive rate hikes implemented by the “Growth prospects remain favourable, supported BSP and the measures done by the national by strong domestic demand and increasing government to ease constraints to rice supply. infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

Q4 2018 ISSUE Think Growth. Think Philippines. | 25

Q4 2018 ISSUE Think Growth. Think Philippines. | 26 FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at The debt watcher foresees the Philippine economy 37 percent by 2020. to grow by 6.6 percent in the next two years. The debt watcher has assigned a “stable” outlook At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of keeping its liabilities manageable even as public factors seen to materially change the country’s investments grow. It noted that rising public credit profile over the short term. expenditures, driven by infrastructure, are matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness of the successive rate hikes implemented by the “Growth prospects remain favourable, supported BSP and the measures done by the national by strong domestic demand and increasing government to ease constraints to rice supply. infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

BSP Governor Nestor Espenilla, Jr. said: “Fitch’s favorable growth projection for the economy is the government is mindful of keeping the fiscal Follow-up communications with the institutional consistent with that of the BSP. We expect growth Philippines highlights bright deficit within manageable levels — at 3.2 percent of investors, including responding to queries on the to remain solid in the years ahead, owing in part to GDP for 2019 and 3.0 percent of GDP for 2020 to Philippine economy, the provision of data and the BSP’s commitment to price and financial 2022. informative materials, and any assistance in the stability, which provides an enabling environment economic prospects before setting of future meetings with private and public for businesses to thrive and for consumers to keep On the Philippine government’s bond o erings, the sector representatives is the task of the Investor their purchasing power intact. We will continue to National Treasurer said that in recent years, such Relations O ice (IRO) of the Bangko Sentral ng complement the government’s development Hong Kong, US investors in have “been very well-received by the international Pilipinas, whose Director, Atty. Elizabeth e orts through conduct of sound and proactive market as evidenced by the bonds’ favorable Medina-Navarro, also joined the meetings. monetary policy and financial supervision.” non-deal roadshow pricing.” Non-deal roadshows are “opportunities to communicate to international stakeholders, Espenilla noted the latest inflation forecast respond to questions, and to clarify policy pointing to within-target inflation in 2019 and 2020 objectives to maintain healthy international following the successive monetary policy increases A PHILIPPINE DELEGATION led by National anchor inflation expectations and address second investor perception of the Philippines,” added De by the BSP’s Monetary Board in 2018. “The Treasurer Rosalia de Leon and Bangko Sentral ng round e ects. Leon. elevated inflation in 2018 was mainly driven by Pilipinas (BSP) Deputy Governor Diwa Guinigundo supply-side factors that are beyond the control of visited institutional investors in Hong Kong and Los In the meantime, National Treasurer De Leon Investors regard the Philippines as one of monetary policy, but we acted pre-emptively to Angeles, Boston, New York, New Jersey, and discussed the government’s bold fiscal program, high-growth performing emerging markets, address any brewing demand-side pressures and Also, Fitch recognized the stability of the country’s Philadelphia in the US to showcase the Philippines’ under which tax reform generates additional recognizing its solid economic growth and potential second-round e ects ahead. This banking sector, which helps fund rising investment robust growth outlook. revenues to fund vital and long over-due implementation of structural reforms to further proactive move will help ensure that inflation activities in the economy. “Rating profiles [of infrastructure projects launched under the enhance resiliency. banks] should remain steady backed by settles within target, at least over the next two During a series of one-on-one investor meetings, Government’s Build, Build, Build program. The years,” Espenilla said. satisfactory risk controls, adequate Deputy Governor Guinigundo discussed economic infrastructure thrust is aimed to further create The Philippines is poised for accelerated and more loss-absorption bu ers, and generally stable updates and the country’s positive growth jobs, improve connectivity, attract investments, inclusive economic growth moving forward. It grew Meantime, in response to Fitch’s statement of funding and liquidity profiles,” it said. prospects supported by sound macroeconomic and increase the country’s productive capacity. by 6.7 percent in 2017 and 6.2 percent in 2018. The some perceived overheating risks of the economy, fundamentals and important policy reforms. government is keen on seeing accelerated and BSP Deputy Governor Diwa Guinigundo stressed Welcoming Fitch’s decision are two of the country’s Guinigundo communicated that the Philippines is Under the ‘Build, Build, Build’ initiative, big-ticket more inclusive growth in the next few years. top economic o icials. that the economy is not facing any material threat expected to continue to outperform most infrastructure projects are being rolled out all over of overheating. emerging markets in terms of economic growth the country to squarely address the infrastructure The Hong Kong and US roadshows were part of the Finance Secretary Carlos Dominguez III said: and resilience to external shocks in the years gap. In doing so, the National Treasurer said that government’s overall investor relations e ort to “While credit is growing, the pace of increase is “Fitch’s forecast of strong growth in the years ahead. build and maintain positive perception of the within levels considered manageable based not ahead a irms the soundness of the Duterte Philippines, such as among potential and existing only on the BSP’s own metrics but even on administration’s economic development strategy, During the meetings, Guinigundo cited rising holders of peso-denominated bonds. A international benchmarks. Additionally, credit which is to sustain high growth, accelerate poverty government and private-sector investments, as well-informed investor community is believed to growth in the country is driven not only by reduction, and achieve financial inclusion by way well as improving labor productivity as some be crucial in helping Philippine government bonds consumption, but more importantly by investment of unmatched investments in infrastructure growth drivers. He likewise stressed the country’s fetch competitive yields and in raising funds for activities which boost the economy’s productive modernization and human capital development strong external payments position, supported by necessary development initiatives. without losing its grip on fiscal discipline.” capacity. As such, we see growth in demand steady FX inflows and prudent external account continually and su iciently being matched by management to maintain Philippine resilience to Both Guinigundo and De Leon agree that su icient rising supply, thereby continuing to dampen Dominguez added: The first package of the CTRP external shocks. investor knowledge of prospects for the Philippine demand-side inflationary pressures moving (Comprehensive Tax Reform Program), which has economy plays an essential role in maintaining forward,” Guinigundo said. already delivered in terms of raising more revenues Guinigundo likewise discussed the inflation economic growth and stability. As such, constant to fund the government’s priority programs, along outlook, which in 2018 accelerated due to supply and active engagement of investors both here and The Philippines’ “BBB” rating with Fitch matches with the rest of the tax reforms that we hope the side factors and rising global oil prices, and is abroad by our economic o icials is a worthwhile the “BBB” rating assigned by S&P Global and the Congress can pass in 2019, will put in place a expected to return to within the target range of 2.0 and indispensable task. simplified tax system that will primarily benefit “Baa2” rating by Moody’s Investors Service. In the to 4.0 percent in 2019. BSP Deputy Governor Guinigundo and National ordinary taxpayers and small businesses while meantime, S&P assigns a “positive” outlook on its Treasurer De Leon during the Hong Kong being supportive of our medium- and long-term rating on the Philippines, signaling opportunity for Committed to its price stability mandate, the BSP non-deal roadshow goals for the Philippines to become an an upgrade. took a series of policy rate hikes totaling 175 basis upper-middle income economy by 2022 and a points from May to November in 2018 to help high-income one by 2040.”

Q4 2018 ISSUE Think Growth. Think Philippines. | 27 FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at The debt watcher foresees the Philippine economy 37 percent by 2020. to grow by 6.6 percent in the next two years. The debt watcher has assigned a “stable” outlook At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of keeping its liabilities manageable even as public factors seen to materially change the country’s investments grow. It noted that rising public credit profile over the short term. expenditures, driven by infrastructure, are matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness of the successive rate hikes implemented by the “Growth prospects remain favourable, supported BSP and the measures done by the national by strong domestic demand and increasing government to ease constraints to rice supply. infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

BSP Governor Nestor Espenilla, Jr. said: “Fitch’s favorable growth projection for the economy is the government is mindful of keeping the fiscal Follow-up communications with the institutional consistent with that of the BSP. We expect growth deficit within manageable levels — at 3.2 percent of investors, including responding to queries on the to remain solid in the years ahead, owing in part to GDP for 2019 and 3.0 percent of GDP for 2020 to Philippine economy, the provision of data and the BSP’s commitment to price and financial 2022. informative materials, and any assistance in the stability, which provides an enabling environment setting of future meetings with private and public for businesses to thrive and for consumers to keep On the Philippine government’s bond o erings, the sector representatives is the task of the Investor their purchasing power intact. We will continue to National Treasurer said that in recent years, such Relations O ice (IRO) of the Bangko Sentral ng complement the government’s development have “been very well-received by the international Pilipinas, whose Director, Atty. Elizabeth e orts through conduct of sound and proactive market as evidenced by the bonds’ favorable Medina-Navarro, also joined the meetings. monetary policy and financial supervision.” pricing.” Non-deal roadshows are “opportunities to communicate to international stakeholders, Espenilla noted the latest inflation forecast respond to questions, and to clarify policy pointing to within-target inflation in 2019 and 2020 objectives to maintain healthy international following the successive monetary policy increases A PHILIPPINE DELEGATION led by National anchor inflation expectations and address second investor perception of the Philippines,” added De by the BSP’s Monetary Board in 2018. “The Treasurer Rosalia de Leon and Bangko Sentral ng round e ects. Leon. elevated inflation in 2018 was mainly driven by Pilipinas (BSP) Deputy Governor Diwa Guinigundo supply-side factors that are beyond the control of visited institutional investors in Hong Kong and Los In the meantime, National Treasurer De Leon Investors regard the Philippines as one of monetary policy, but we acted pre-emptively to Angeles, Boston, New York, New Jersey, and discussed the government’s bold fiscal program, high-growth performing emerging markets, address any brewing demand-side pressures and Also, Fitch recognized the stability of the country’s Philadelphia in the US to showcase the Philippines’ under which tax reform generates additional recognizing its solid economic growth and potential second-round e ects ahead. This banking sector, which helps fund rising investment robust growth outlook. revenues to fund vital and long over-due implementation of structural reforms to further proactive move will help ensure that inflation activities in the economy. “Rating profiles [of infrastructure projects launched under the enhance resiliency. banks] should remain steady backed by settles within target, at least over the next two During a series of one-on-one investor meetings, Government’s Build, Build, Build program. The years,” Espenilla said. satisfactory risk controls, adequate Deputy Governor Guinigundo discussed economic infrastructure thrust is aimed to further create The Philippines is poised for accelerated and more loss-absorption bu ers, and generally stable updates and the country’s positive growth jobs, improve connectivity, attract investments, inclusive economic growth moving forward. It grew Meantime, in response to Fitch’s statement of funding and liquidity profiles,” it said. prospects supported by sound macroeconomic and increase the country’s productive capacity. by 6.7 percent in 2017 and 6.2 percent in 2018. The some perceived overheating risks of the economy, fundamentals and important policy reforms. government is keen on seeing accelerated and BSP Deputy Governor Diwa Guinigundo stressed Welcoming Fitch’s decision are two of the country’s Guinigundo communicated that the Philippines is Under the ‘Build, Build, Build’ initiative, big-ticket more inclusive growth in the next few years. top economic o icials. that the economy is not facing any material threat expected to continue to outperform most infrastructure projects are being rolled out all over of overheating. emerging markets in terms of economic growth the country to squarely address the infrastructure The Hong Kong and US roadshows were part of the Finance Secretary Carlos Dominguez III said: and resilience to external shocks in the years gap. In doing so, the National Treasurer said that government’s overall investor relations e ort to “While credit is growing, the pace of increase is “Fitch’s forecast of strong growth in the years ahead. build and maintain positive perception of the within levels considered manageable based not ahead a irms the soundness of the Duterte Philippines, such as among potential and existing only on the BSP’s own metrics but even on administration’s economic development strategy, During the meetings, Guinigundo cited rising holders of peso-denominated bonds. A international benchmarks. Additionally, credit which is to sustain high growth, accelerate poverty government and private-sector investments, as well-informed investor community is believed to growth in the country is driven not only by reduction, and achieve financial inclusion by way well as improving labor productivity as some be crucial in helping Philippine government bonds BSP Deputy Governor Guinigundo and National consumption, but more importantly by investment of unmatched investments in infrastructure growth drivers. He likewise stressed the country’s fetch competitive yields and in raising funds for Treasurer De Leon with the ROP delegation activities which boost the economy’s productive modernization and human capital development strong external payments position, supported by necessary development initiatives. during the investor meetings without losing its grip on fiscal discipline.” capacity. As such, we see growth in demand steady FX inflows and prudent external account continually and su iciently being matched by management to maintain Philippine resilience to Both Guinigundo and De Leon agree that su icient rising supply, thereby continuing to dampen Dominguez added: The first package of the CTRP external shocks. investor knowledge of prospects for the Philippine demand-side inflationary pressures moving (Comprehensive Tax Reform Program), which has economy plays an essential role in maintaining forward,” Guinigundo said. already delivered in terms of raising more revenues Guinigundo likewise discussed the inflation economic growth and stability. As such, constant to fund the government’s priority programs, along outlook, which in 2018 accelerated due to supply and active engagement of investors both here and The Philippines’ “BBB” rating with Fitch matches with the rest of the tax reforms that we hope the side factors and rising global oil prices, and is abroad by our economic o icials is a worthwhile the “BBB” rating assigned by S&P Global and the Congress can pass in 2019, will put in place a expected to return to within the target range of 2.0 and indispensable task. simplified tax system that will primarily benefit “Baa2” rating by Moody’s Investors Service. In the to 4.0 percent in 2019. ordinary taxpayers and small businesses while meantime, S&P assigns a “positive” outlook on its being supportive of our medium- and long-term rating on the Philippines, signaling opportunity for Committed to its price stability mandate, the BSP goals for the Philippines to become an an upgrade. took a series of policy rate hikes totaling 175 basis upper-middle income economy by 2022 and a points from May to November in 2018 to help high-income one by 2040.”

Q4 2018 ISSUE Think Growth. Think Philippines. | 28 FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at The debt watcher foresees the Philippine economy 37 percent by 2020. to grow by 6.6 percent in the next two years. The debt watcher has assigned a “stable” outlook At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of keeping its liabilities manageable even as public factors seen to materially change the country’s investments grow. It noted that rising public credit profile over the short term. expenditures, driven by infrastructure, are matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness of the successive rate hikes implemented by the “Growth prospects remain favourable, supported BSP and the measures done by the national by strong domestic demand and increasing government to ease constraints to rice supply. infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

Discussing the range of global economic BSP Governor Nestor Espenilla, Jr. said: “Fitch’s challenges impacting the region, including rising favorable growth projection for the economy is oil prices, inflation, and pressure on emerging consistent with that of the BSP. We expect growth Top Philippine economic currency markets, Deputy Governor Guinigundo to remain solid in the years ahead, owing in part to said he and the delegates from the national the BSP’s commitment to price and financial o icials discuss economic government remain confident in the resiliency of stability, which provides an enabling environment the Philippine economy. for businesses to thrive and for consumers to keep their purchasing power intact. We will continue to growth with international “We are very confident in the underlying strength complement the government’s development of our economy. The Philippines remains one of the e orts through conduct of sound and proactive best performing economies in the fastest growing monetary policy and financial supervision.” investors at IMF-WB region in the world. GDP growth remains strong, FDI inflows are at record levels, infrastructure Espenilla noted the latest inflation forecast investment is booming, and we have historically pointing to within-target inflation in 2019 and 2020 meetings amid FDI boom low levels of public sector debt,” he concluded. following the successive monetary policy increases by the BSP’s Monetary Board in 2018. “The elevated inflation in 2018 was mainly driven by Continued economic growth underpinned by sound supply-side factors that are beyond the control of monetary policy, but we acted pre-emptively to macroeconomic fundamentals, infrastructure development due to its sound economic Also, Fitch recognized the stability of the country’s address any brewing demand-side pressures and investment, resiliency to global uncertainty management, $180-billion infrastructure banking sector, which helps fund rising investment potential second-round e ects ahead. This investment program, and resiliency. With one of activities in the economy. “Rating profiles [of proactive move will help ensure that inflation the youngest populations in an increasingly ageing banks] should remain steady backed by settles within target, at least over the next two world, the Philippines is on the cusp of reaping the satisfactory risk controls, adequate years,” Espenilla said. benefits of a major “demographic dividend.” loss-absorption bu ers, and generally stable funding and liquidity profiles,” it said. Meantime, in response to Fitch’s statement of Surveying the range of monetary and some perceived overheating risks of the economy, non-monetary measures being taken to temper Welcoming Fitch’s decision are two of the country’s BSP Deputy Governor Diwa Guinigundo stressed inflation, Deputy Governor Guinigundo stressed top economic o icials. that the economy is not facing any material threat that the BSP will continue to sustain its vigilance of overheating. with a strong tightening bias while maintaining a Finance Secretary Carlos Dominguez III said: data-dependent approach. He pointed to the “Fitch’s forecast of strong growth in the years “While credit is growing, the pace of increase is numerous measures in place to address ahead a irms the soundness of the Duterte within levels considered manageable based not supply-side factors such as the price of food, which administration’s economic development strategy, only on the BSP’s own metrics but even on the BSP and the national government agree are the which is to sustain high growth, accelerate poverty international benchmarks. Additionally, credit main factors behind the rise in inflation. reduction, and achieve financial inclusion by way growth in the country is driven not only by of unmatched investments in infrastructure consumption, but more importantly by investment The briefing sessions provided an opportunity to modernization and human capital development activities which boost the economy’s productive update international investors on the progress of without losing its grip on fiscal discipline.” capacity. As such, we see growth in demand the Philippines’ $180 billion ‘Build, Build, Build’ continually and su iciently being matched by initiative. The once-in-a-lifetime nation building BSP Deputy Governor Diwa Guinigundo during his presentation at the IMF-World Bank Meetings Dominguez added: The first package of the CTRP rising supply, thereby continuing to dampen program has gained considerable momentum over (Comprehensive Tax Reform Program), which has demand-side inflationary pressures moving the last year, with 44 of the 75 largest projects already delivered in terms of raising more revenues forward,” Guinigundo said. already at the implementation phase, while 24 are to fund the government’s priority programs, along PHILIPPINE ECONOMIC o icials strengthened ties Bangko Sentral ng Pilipinas (BSP) Deputy Governor at the development stage. with the rest of the tax reforms that we hope the The Philippines’ “BBB” rating with Fitch matches with international investors in a series of Diwa C. Guinigundo and Budget Secretary Congress can pass in 2019, will put in place a the “BBB” rating assigned by S&P Global and the roundtable meetings on the sidelines of the 2018 Benjamin E. Diokno deepened understanding of ‘Build, Build, Build’ is currently unlocking the simplified tax system that will primarily benefit “Baa2” rating by Moody’s Investors Service. In the IMF-World Bank Annual Meetings held in Bali Nusa the Philippine economy in closed-door economic potential of the Philippines by removing ordinary taxpayers and small businesses while meantime, S&P assigns a “positive” outlook on its Dua, Indonesia in October. The sessions coincided presentations to potential investors over the historic infrastructure bottlenecks, creating jobs being supportive of our medium- and long-term rating on the Philippines, signaling opportunity for with a surge of positive investor sentiment, as FDI course of the week. The Philippines, as one of the and connecting the Philippines’ 7,000+ islands to goals for the Philippines to become an an upgrade. inflows grew by 1.8% to $8.53 billion in January to best-performing economies in the world’s fastest the opportunities of a more inclusive and growing upper-middle income economy by 2022 and a October 2018. growing region, is undergoing rapid growth and economy. high-income one by 2040.”

Q4 2018 ISSUE Think Growth. Think Philippines. | 29 FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at The debt watcher foresees the Philippine economy 37 percent by 2020. to grow by 6.6 percent in the next two years. The debt watcher has assigned a “stable” outlook At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of keeping its liabilities manageable even as public factors seen to materially change the country’s investments grow. It noted that rising public credit profile over the short term. expenditures, driven by infrastructure, are matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness of the successive rate hikes implemented by the “Growth prospects remain favourable, supported BSP and the measures done by the national by strong domestic demand and increasing government to ease constraints to rice supply. infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

Discussing the range of global economic BSP Governor Nestor Espenilla, Jr. said: “Fitch’s challenges impacting the region, including rising favorable growth projection for the economy is oil prices, inflation, and pressure on emerging consistent with that of the BSP. We expect growth currency markets, Deputy Governor Guinigundo to remain solid in the years ahead, owing in part to said he and the delegates from the national the BSP’s commitment to price and financial government remain confident in the resiliency of stability, which provides an enabling environment the Philippine economy. for businesses to thrive and for consumers to keep their purchasing power intact. We will continue to “We are very confident in the underlying strength complement the government’s development of our economy. The Philippines remains one of the e orts through conduct of sound and proactive best performing economies in the fastest growing monetary policy and financial supervision.” region in the world. GDP growth remains strong, FDI inflows are at record levels, infrastructure Espenilla noted the latest inflation forecast investment is booming, and we have historically pointing to within-target inflation in 2019 and 2020 BSP Deputy Gov. Diwa Guinigundo and Monetary low levels of public sector debt,” he concluded. following the successive monetary policy increases Board Member Felipe Medalla with the BSP by the BSP’s Monetary Board in 2018. “The delegation to the IMF-WB meetings elevated inflation in 2018 was mainly driven by supply-side factors that are beyond the control of monetary policy, but we acted pre-emptively to development due to its sound economic Also, Fitch recognized the stability of the country’s address any brewing demand-side pressures and management, $180-billion infrastructure banking sector, which helps fund rising investment potential second-round e ects ahead. This investment program, and resiliency. With one of activities in the economy. “Rating profiles [of proactive move will help ensure that inflation the youngest populations in an increasingly ageing banks] should remain steady backed by settles within target, at least over the next two world, the Philippines is on the cusp of reaping the satisfactory risk controls, adequate years,” Espenilla said. benefits of a major “demographic dividend.” loss-absorption bu ers, and generally stable funding and liquidity profiles,” it said. Meantime, in response to Fitch’s statement of Surveying the range of monetary and some perceived overheating risks of the economy, non-monetary measures being taken to temper Welcoming Fitch’s decision are two of the country’s BSP Deputy Governor Diwa Guinigundo stressed inflation, Deputy Governor Guinigundo stressed top economic o icials. that the economy is not facing any material threat that the BSP will continue to sustain its vigilance of overheating. with a strong tightening bias while maintaining a Finance Secretary Carlos Dominguez III said: data-dependent approach. He pointed to the “Fitch’s forecast of strong growth in the years “While credit is growing, the pace of increase is numerous measures in place to address within levels considered manageable based not ahead a irms the soundness of the Duterte supply-side factors such as the price of food, which BSP Deputy Governor Diwa Guinigundo with only on the BSP’s own metrics but even on administration’s economic development strategy, the BSP and the national government agree are the BSP-International Relations Department Senior international benchmarks. Additionally, credit which is to sustain high growth, accelerate poverty main factors behind the rise in inflation. Director Rosabel Guerrero, Investor Relations growth in the country is driven not only by reduction, and achieve financial inclusion by way O ice Director Evie Medina, and Bank O icer V consumption, but more importantly by investment of unmatched investments in infrastructure The briefing sessions provided an opportunity to Rica Amador modernization and human capital development activities which boost the economy’s productive update international investors on the progress of without losing its grip on fiscal discipline.” capacity. As such, we see growth in demand the Philippines’ $180 billion ‘Build, Build, Build’ continually and su iciently being matched by initiative. The once-in-a-lifetime nation building Dominguez added: The first package of the CTRP rising supply, thereby continuing to dampen program has gained considerable momentum over (Comprehensive Tax Reform Program), which has demand-side inflationary pressures moving the last year, with 44 of the 75 largest projects already delivered in terms of raising more revenues forward,” Guinigundo said. already at the implementation phase, while 24 are to fund the government’s priority programs, along PHILIPPINE ECONOMIC o icials strengthened ties Bangko Sentral ng Pilipinas (BSP) Deputy Governor at the development stage. with the rest of the tax reforms that we hope the The Philippines’ “BBB” rating with Fitch matches with international investors in a series of Diwa C. Guinigundo and Budget Secretary Congress can pass in 2019, will put in place a the “BBB” rating assigned by S&P Global and the roundtable meetings on the sidelines of the 2018 Benjamin E. Diokno deepened understanding of ‘Build, Build, Build’ is currently unlocking the simplified tax system that will primarily benefit “Baa2” rating by Moody’s Investors Service. In the IMF-World Bank Annual Meetings held in Bali Nusa the Philippine economy in closed-door economic potential of the Philippines by removing ordinary taxpayers and small businesses while meantime, S&P assigns a “positive” outlook on its Dua, Indonesia in October. The sessions coincided presentations to potential investors over the historic infrastructure bottlenecks, creating jobs being supportive of our medium- and long-term rating on the Philippines, signaling opportunity for with a surge of positive investor sentiment, as FDI course of the week. The Philippines, as one of the and connecting the Philippines’ 7,000+ islands to goals for the Philippines to become an an upgrade. inflows grew by 1.8% to $8.53 billion in January to best-performing economies in the world’s fastest the opportunities of a more inclusive and growing upper-middle income economy by 2022 and a October 2018. growing region, is undergoing rapid growth and economy. high-income one by 2040.”

Q4 2018 ISSUE Think Growth. Think Philippines. | 30 FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at The debt watcher foresees the Philippine economy 37 percent by 2020. to grow by 6.6 percent in the next two years. The debt watcher has assigned a “stable” outlook At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of keeping its liabilities manageable even as public factors seen to materially change the country’s investments grow. It noted that rising public credit profile over the short term. expenditures, driven by infrastructure, are matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness of the successive rate hikes implemented by the “Growth prospects remain favourable, supported BSP and the measures done by the national by strong domestic demand and increasing government to ease constraints to rice supply. infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

BSP Governor Nestor Espenilla, Jr. said: “Fitch’s favorable growth projection for the economy is consistent with that of the BSP. We expect growth Economic Briefing in to remain solid in the years ahead, owing in part to the BSP’s commitment to price and financial stability, which provides an enabling environment London for businesses to thrive and for consumers to keep their purchasing power intact. We will continue to complement the government’s development Philippine economic growth, infrastructure e orts through conduct of sound and proactive opportunities showcased before investors monetary policy and financial supervision.”

Espenilla noted the latest inflation forecast TOP ECONOMIC and infrastructure managers Development for Inclusive Growth.” The first pointing to within-target inflation in 2019 and 2020 under the administration of Philippine President roadshow in London under the administration of following the successive monetary policy increases Rodrigo Roa Duterte in September showcased the President Duterte, this leg of the PEB highlighted by the BSP’s Monetary Board in 2018. “The Philippines’ stable and robust growth prospects, the Philippines as one of the fastest growing elevated inflation in 2018 was mainly driven by Works and Highways Secretary Mark A. Villar, and The Philippines is one of the most resilient along with infrastructure projects and big-ticket economies in Asia and as an attractive investment supply-side factors that are beyond the control of Bases Conversion and Development Authority economies in the world, consistently posting investment opportunities under the government’s destination under a reform-minded leadership monetary policy, but we acted pre-emptively to President and CEO Vivencio B. Dizon. Trade and strong gross domestic product (GDP) growth massive ‘Build, Build, Build’ programme, before focused on delivering results. Industry Secretary Ramon M. Lopez and Tourism despite external headwinds. GDP growth reached Also, Fitch recognized the stability of the country’s address any brewing demand-side pressures and investors and other foreign stakeholders during a Secretary Bernadette Romulo-Puyat joined the 6.2 percent 2018, with investments as a leading banking sector, which helps fund rising investment potential second-round e ects ahead. This Philippine Economic Briefing (PEB) held at the Four The PEB was led by Finance Secretary Carlos G. team in a series of meetings and roundtable growth driver. activities in the economy. “Rating profiles [of proactive move will help ensure that inflation Seasons Hotel in Park Lane, London. Dominguez, along with Budget Secretary Benjamin discussions with British firms and companies. banks] should remain steady backed by settles within target, at least over the next two E. Diokno, Socioeconomic Planning Secretary “The rule of thumb, as you know, is that a country satisfactory risk controls, adequate years,” Espenilla said. Attended by around 250 participants, the PEB Ernesto M. Pernia, Bangko Sentral ng Pilipinas The private sector panel was composed of Tony with a debt-to-GDP ratio below 60% is fiscally loss-absorption bu ers, and generally stable carried the theme “Strengthening Economic Deputy Governor Diwa C. Guinigundo, Stringer, Managing Director of Fitch Ratings, and sound. The Philippines is comfortably below that,” funding and liquidity profiles,” it said. Meantime, in response to Fitch’s statement of Resilience and Spurring Infrastructure Transportation Secretary Arthur P. Tugade, Public some perceived overheating risks of the economy, Kevin Tan, CEO of Alliance Global, one of the largest said Budget Secretary Diokno. As of end-2017, conglomerates in the Philippines. general government debt was at 36.6 percent of Welcoming Fitch’s decision are two of the country’s BSP Deputy Governor Diwa Guinigundo stressed GDP. Fiscal space allows the government to spend top economic o icials. that the economy is not facing any material threat of overheating. “Like the rest of the economies in the world, the more on vital infrastructure. The Philippines will Philippines is not exempt from challenges. But increase its infrastructure spending from 4.7 Finance Secretary Carlos Dominguez III said: what di erentiates our economy from many is the percent of GDP in 2019 to as high as 7% by 2022 – an “Fitch’s forecast of strong growth in the years “While credit is growing, the pace of increase is decisiveness, extent, and the pace by which we are unprecedented infrastructure investment in its ahead a irms the soundness of the Duterte within levels considered manageable based not implementing policy and infrastructure reforms,” history. administration’s economic development strategy, only on the BSP’s own metrics but even on said Secretary Dominguez. He said that these which is to sustain high growth, accelerate poverty international benchmarks. Additionally, credit reforms have resulted in immediate revenue Credit rating firms recognize sustainability of the reduction, and achieve financial inclusion by way growth in the country is driven not only by increases, helping the government to implement Philippines’ favorable economic performance. In of unmatched investments in infrastructure consumption, but more importantly by investment necessary investments that will benefit the December 2017, Fitch Ratings upgraded the modernization and human capital development activities which boost the economy’s productive country well into the future. country’s sovereign credit rating from “BBB-” to without losing its grip on fiscal discipline.” capacity. As such, we see growth in demand continually and su iciently being matched by “BBB” and assigned a “stable” outlook on the new The Philippines enjoyed rising investor interest rating. Fitch retained the said rating and outlook Dominguez added: The first package of the CTRP rising supply, thereby continuing to dampen from in 2018, with FDI inflows from January to for the Philippines in July 2018. Meanwhile, S&P (Comprehensive Tax Reform Program), which has demand-side inflationary pressures moving October exceeding inflows during the same period raised its “BBB” rating outlook from “stable” to already delivered in terms of raising more revenues forward,” Guinigundo said. from record-breaking 2017. “positive” in April 2018, while Moody’s a irmed the to fund the government’s priority programs, along Philippines credit grade of “Baa2,” maintaining a with the rest of the tax reforms that we hope the The Philippines’ “BBB” rating with Fitch matches “The Philippine banking system is on a sound stable outlook for the country’s economy, in July Congress can pass in 2019, will put in place a the “BBB” rating assigned by S&P Global and the footing, and it has been sustained and continues to 2018. simplified tax system that will primarily benefit “Baa2” rating by Moody’s Investors Service. In the be a stable comfort for the economy,” said Deputy ordinary taxpayers and small businesses while meantime, S&P assigns a “positive” outlook on its Governor Guinigundo. “We have been building “The role played here by decisive leadership being supportive of our medium- and long-term rating on the Philippines, signaling opportunity for relationships with other countries to diversify cannot be understated. The road towards inclusive goals for the Philippines to become an an upgrade. From L-R: BSP Deputy Governor Diwa Guinigundo, DOTr Secretary Arthur Tugade, DBM Secretary Benjamin markets for our exports and to find other sources and sustainable growth is now open,” Dominguez upper-middle income economy by 2022 and a Diokno, DOF Secretary Carlos G. Dominguez, DPWH Secretary Mark Villar, and BCDA President and CEO for our foreign direct investments,” he added. reiterated. high-income one by 2040.” Vivencio Dizon

Q4 2018 ISSUE Think Growth. Think Philippines. | 31 FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at The debt watcher foresees the Philippine economy 37 percent by 2020. to grow by 6.6 percent in the next two years. The debt watcher has assigned a “stable” outlook At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of keeping its liabilities manageable even as public factors seen to materially change the country’s investments grow. It noted that rising public credit profile over the short term. expenditures, driven by infrastructure, are matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness of the successive rate hikes implemented by the “Growth prospects remain favourable, supported BSP and the measures done by the national by strong domestic demand and increasing government to ease constraints to rice supply. infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

BSP Governor Nestor Espenilla, Jr. said: “Fitch’s favorable growth projection for the economy is consistent with that of the BSP. We expect growth to remain solid in the years ahead, owing in part to the BSP’s commitment to price and financial stability, which provides an enabling environment for businesses to thrive and for consumers to keep their purchasing power intact. We will continue to complement the government’s development e orts through conduct of sound and proactive monetary policy and financial supervision.” From L-R: BCDA President and CEO Vivencio Dizon, NEDA Secretary Ernesto Pernia, DOTr Secretary Arthur Tugade, DBM Secretary Benjamin Diokno, DOF Secretary Carlos G. Dominguez, DOT Secretary Bernadette Espenilla noted the latest inflation forecast TOP ECONOMIC and infrastructure managers Development for Inclusive Growth.” The first Romulo-Puyat, PH Ambassador to UK Antonio Lagdameo, DPWH Secretary Mark Villar, BSP Deputy Governor pointing to within-target inflation in 2019 and 2020 under the administration of Philippine President roadshow in London under the administration of Diwa Guinigundo, DTI Secretary Ramon Lopez, IRO Director Evie Medina, and Alliance Global Co. CEO Kevin Tan following the successive monetary policy increases Rodrigo Roa Duterte in September showcased the President Duterte, this leg of the PEB highlighted by the BSP’s Monetary Board in 2018. “The Philippines’ stable and robust growth prospects, the Philippines as one of the fastest growing elevated inflation in 2018 was mainly driven by Works and Highways Secretary Mark A. Villar, and The Philippines is one of the most resilient along with infrastructure projects and big-ticket economies in Asia and as an attractive investment supply-side factors that are beyond the control of Bases Conversion and Development Authority economies in the world, consistently posting investment opportunities under the government’s destination under a reform-minded leadership monetary policy, but we acted pre-emptively to President and CEO Vivencio B. Dizon. Trade and strong gross domestic product (GDP) growth massive ‘Build, Build, Build’ programme, before focused on delivering results. Industry Secretary Ramon M. Lopez and Tourism despite external headwinds. GDP growth reached Also, Fitch recognized the stability of the country’s address any brewing demand-side pressures and investors and other foreign stakeholders during a Secretary Bernadette Romulo-Puyat joined the 6.2 percent 2018, with investments as a leading banking sector, which helps fund rising investment potential second-round e ects ahead. This Philippine Economic Briefing (PEB) held at the Four The PEB was led by Finance Secretary Carlos G. team in a series of meetings and roundtable growth driver. activities in the economy. “Rating profiles [of proactive move will help ensure that inflation Seasons Hotel in Park Lane, London. Dominguez, along with Budget Secretary Benjamin discussions with British firms and companies. banks] should remain steady backed by settles within target, at least over the next two E. Diokno, Socioeconomic Planning Secretary “The rule of thumb, as you know, is that a country satisfactory risk controls, adequate years,” Espenilla said. Attended by around 250 participants, the PEB Ernesto M. Pernia, Bangko Sentral ng Pilipinas The private sector panel was composed of Tony with a debt-to-GDP ratio below 60% is fiscally loss-absorption bu ers, and generally stable carried the theme “Strengthening Economic Deputy Governor Diwa C. Guinigundo, Stringer, Managing Director of Fitch Ratings, and sound. The Philippines is comfortably below that,” funding and liquidity profiles,” it said. Meantime, in response to Fitch’s statement of Resilience and Spurring Infrastructure Transportation Secretary Arthur P. Tugade, Public some perceived overheating risks of the economy, Kevin Tan, CEO of Alliance Global, one of the largest said Budget Secretary Diokno. As of end-2017, conglomerates in the Philippines. general government debt was at 36.6 percent of Welcoming Fitch’s decision are two of the country’s BSP Deputy Governor Diwa Guinigundo stressed GDP. Fiscal space allows the government to spend top economic o icials. that the economy is not facing any material threat of overheating. “Like the rest of the economies in the world, the more on vital infrastructure. The Philippines will Philippines is not exempt from challenges. But increase its infrastructure spending from 4.7 Finance Secretary Carlos Dominguez III said: what di erentiates our economy from many is the percent of GDP in 2019 to as high as 7% by 2022 – an “Fitch’s forecast of strong growth in the years “While credit is growing, the pace of increase is decisiveness, extent, and the pace by which we are unprecedented infrastructure investment in its ahead a irms the soundness of the Duterte within levels considered manageable based not implementing policy and infrastructure reforms,” history. administration’s economic development strategy, only on the BSP’s own metrics but even on said Secretary Dominguez. He said that these which is to sustain high growth, accelerate poverty international benchmarks. Additionally, credit reforms have resulted in immediate revenue Credit rating firms recognize sustainability of the reduction, and achieve financial inclusion by way growth in the country is driven not only by increases, helping the government to implement Philippines’ favorable economic performance. In of unmatched investments in infrastructure consumption, but more importantly by investment necessary investments that will benefit the December 2017, Fitch Ratings upgraded the modernization and human capital development activities which boost the economy’s productive country well into the future. country’s sovereign credit rating from “BBB-” to without losing its grip on fiscal discipline.” capacity. As such, we see growth in demand continually and su iciently being matched by “BBB” and assigned a “stable” outlook on the new The Philippines enjoyed rising investor interest rating. Fitch retained the said rating and outlook Dominguez added: The first package of the CTRP rising supply, thereby continuing to dampen from in 2018, with FDI inflows from January to for the Philippines in July 2018. Meanwhile, S&P (Comprehensive Tax Reform Program), which has demand-side inflationary pressures moving October exceeding inflows during the same period raised its “BBB” rating outlook from “stable” to already delivered in terms of raising more revenues forward,” Guinigundo said. from record-breaking 2017. “positive” in April 2018, while Moody’s a irmed the to fund the government’s priority programs, along Philippines credit grade of “Baa2,” maintaining a with the rest of the tax reforms that we hope the The Philippines’ “BBB” rating with Fitch matches “The Philippine banking system is on a sound stable outlook for the country’s economy, in July Congress can pass in 2019, will put in place a the “BBB” rating assigned by S&P Global and the footing, and it has been sustained and continues to 2018. simplified tax system that will primarily benefit “Baa2” rating by Moody’s Investors Service. In the be a stable comfort for the economy,” said Deputy ordinary taxpayers and small businesses while meantime, S&P assigns a “positive” outlook on its Governor Guinigundo. “We have been building “The role played here by decisive leadership being supportive of our medium- and long-term rating on the Philippines, signaling opportunity for relationships with other countries to diversify cannot be understated. The road towards inclusive goals for the Philippines to become an an upgrade. markets for our exports and to find other sources and sustainable growth is now open,” Dominguez upper-middle income economy by 2022 and a for our foreign direct investments,” he added. reiterated. high-income one by 2040.”

Q4 2018 ISSUE Think Growth. Think Philippines. | 32 FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at The debt watcher foresees the Philippine economy 37 percent by 2020. to grow by 6.6 percent in the next two years. The debt watcher has assigned a “stable” outlook At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of keeping its liabilities manageable even as public factors seen to materially change the country’s investments grow. It noted that rising public credit profile over the short term. expenditures, driven by infrastructure, are matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness of the successive rate hikes implemented by the “Growth prospects remain favourable, supported BSP and the measures done by the national by strong domestic demand and increasing government to ease constraints to rice supply. infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

BSP Governor Nestor Espenilla, Jr. said: “Fitch’s Dominguez during the Sulong news briefing. "To favorable growth projection for the economy is improve representation of all parts of the country consistent with that of the BSP. We expect growth Government caps Sulong and increase access for stakeholders, we decided to remain solid in the years ahead, owing in part to to hold regional forums, with the purpose of the BSP’s commitment to price and financial primarily gathering the inputs and Pilipinas 2018 recommendations of representatives from our stability, which provides an enabling environment for businesses to thrive and for consumers to keep small and medium enterprises or SMEs. This sector their purchasing power intact. We will continue to Private-sector recommendations for governance gathered is a crucial component of our economy, complement the government’s development representing 99 percent of business entities and employing the bulk of our workers." e orts through conduct of sound and proactive PHILIPPINE ECONOMY and infrastructure o icials, monetary policy and financial supervision.” led by Department of Finance (DOF) Secretary All four legs of Sulong Pilipinas 2018 were opened Carlos G. Dominguez, capped o November with by the Philippine Economic Briefing (PEB). The PEB Espenilla noted the latest inflation forecast the successful conduct of Sulong Pilipinas 2018. is a flagship activity of the Investor Relations O ice pointing to within-target inflation in 2019 and 2020 The program was also held in Cebu (November (IRO) of the Bangko Sentral ng Pilipinas (BSP). following the successive monetary policy increases 9th), San Fernando, La Union (November 14th), and registration (CPR) by the Food and Drug During the PEB, top economic and infrastructure by the BSP’s Monetary Board in 2018. “The Clark, Pampanga (November 26th). elevated inflation in 2018 was mainly driven by Administration (FDA); o icials presented updates on the country’s economic performance, outlook, and policies, as supply-side factors that are beyond the control of Sulong Pilipinas is a modern town hall consultative (7) Ensure proper planning in implementation of well as the government’s once-in-a-generation monetary policy, but we acted pre-emptively to activity where private sector participants give infrastructure projects to lessen disruptions to infrastructure drive. Also, Fitch recognized the stability of the country’s address any brewing demand-side pressures and policy recommendations and feedback on various business operations; banking sector, which helps fund rising investment potential second-round e ects ahead. This areas of governance, such as economic DOF Assistant Secretary Tony Lambino, lead Atty. Evie Medina-Navarro, IRO Director, said: “We activities in the economy. “Rating profiles [of proactive move will help ensure that inflation development, infrastructure, local governance, organizer of Sulong Pilipinas 2018, discusses (8) Simplify BIR processes; are happy to serve as the central o ice to bridge banks] should remain steady backed by settles within target, at least over the next two peace and order, agriculture, social services, and the workshop mechanics during the Clark leg of our stakeholders (local and international investors, satisfactory risk controls, adequate years,” Espenilla said. micro, small, and medium enterprise (MSME) Sulong Pilipinas 2018 (9) Enhance peace and order through : a) greater and members of the media) with various loss-absorption bu ers, and generally stable development. Meantime, in response to Fitch’s statement of police and military visibility in rural areas; b) government economic and infrastructure agencies funding and liquidity profiles,” it said. Top recommendations during Sulong Pilipinas some perceived overheating risks of the economy, intensive monitoring of illegal business in coastal to tell the Philippines’ dynamic and compelling The first Sulong Pilipinas for representatives of the 2018 were to: areas; and c) continuing martial law in Mindanao; story of continued growth and inclusive Welcoming Fitch’s decision are two of the country’s BSP Deputy Governor Diwa Guinigundo stressed business community was held in May 2016 by that the economy is not facing any material threat development. Information campaigns such as top economic o icials. then-incoming Cabinet members of (1) Prioritize farming education and use new of overheating. (10) Provide health services in every part of the these promote understanding and appreciation of President-elect Rodrigo R. Duterte. agricultural technology to improve agricultural country, with more funding for the Department of policies that will benefit and impact all Filipinos. Finance Secretary Carlos Dominguez III said: output and farmers’ income; Health to build more health centers and hospitals They serve as initial platforms for greater “Fitch’s forecast of strong growth in the years “While credit is growing, the pace of increase is Since then, annual Sulong Pilipinas events have within levels considered manageable based not to decongest district hospitals; cooperation and coordination among agencies of ahead a irms the soundness of the Duterte been spearheaded by the DOF and co-organized by (2) Build more infrastructure projects (seaports, only on the BSP’s own metrics but even on government and the public.” administration’s economic development strategy, other government agencies. airports, and mass-based transport systems) to international benchmarks. Additionally, credit (11) Provide tax incentives for MSME development; which is to sustain high growth, accelerate poverty improve access/mobility across regions and growth in the country is driven not only by and During the PEB, BSP Deputy Governor Diwa C. reduction, and achieve financial inclusion by way Hailing the importance of the consultative forum, minimize congestion; Guinigundo stated: “The Philippines has been an of unmatched investments in infrastructure consumption, but more importantly by investment DOF Assistant Secretary (ASec) Tony Lambino said: activities which boost the economy’s productive (12) Streamline government processes. outperformer in recent years. It is one of the fastest modernization and human capital development “In only two years of the Duterte administration, (3) Simplify loan requirements and o er capacity. As such, we see growth in demand growing and most resilient economies in the region without losing its grip on fiscal discipline.” top recommendations from the first Sulong event low/reasonable interest rates for MSMEs and continually and su iciently being matched by Secretary Dominguez noted: "Sulong Pilipinas and the world. This trend is expected to continue have already been legislated on or implemented. farmers; embodies the continuing e ort of the Duterte on the back of strong macroeconomic Dominguez added: The first package of the CTRP rising supply, thereby continuing to dampen These include the National ID System (signed into demand-side inflationary pressures moving administration to make our economic fundamentals.” He continued: “The BSP will (Comprehensive Tax Reform Program), which has law in August), comprehensive tax reform (the first (4) Improve access to education, particularly for forward,” Guinigundo said. development story holistic and inclusive. The continue to complement government e orts to already delivered in terms of raising more revenues package of which took e ect in January 2018), the the poor; previous years’ conferences have enabled the hasten sustainable, robust, and more inclusive to fund the government’s priority programs, along Ease of Doing Business law (signed in May 2018), The Philippines’ “BBB” rating with Fitch matches government to champion programs that will truly economic growth by staying committed to our with the rest of the tax reforms that we hope the and the launch of a more aggressive infrastructure (5) For the DSWD to conduct stricter profiling of 4P the “BBB” rating assigned by S&P Global and the benefit the business sector. All comments and price and financial stability mandates.” On Congress can pass in 2019, will put in place a development agenda through the ‘Build, Build, recipients and consider monitoring their expenses. “Baa2” rating by Moody’s Investors Service. In the recommendations made in the previous forums inflation, the Deputy Governor said that following a simplified tax system that will primarily benefit Build’ program.” Livelihood trainings should also be provided to meantime, S&P assigns a “positive” outlook on its were taken into consideration and were integrated slew of policy initiatives, including monetary policy ordinary taxpayers and small businesses while recipients; in President Duterte’s development agenda." actions by the BSP, “inflation is expected to revert being supportive of our medium- and long-term rating on the Philippines, signaling opportunity for Consistent with the principles of inclusive an upgrade. to within-target range in 2019.” goals for the Philippines to become an policy-making, a majority of the participants of (6) Enable speedy processing and issuance of "This year we have stepped up our e orts to upper-middle income economy by 2022 and a Sulong Pilipinas 2018 were representatives of license to operate (LTO) and certificate of product connect with the private sector," said Secretary high-income one by 2040.” MSMEs.

Q4 2018 ISSUE Think Growth. Think Philippines. | 33 FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at The debt watcher foresees the Philippine economy 37 percent by 2020. to grow by 6.6 percent in the next two years. The debt watcher has assigned a “stable” outlook At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of keeping its liabilities manageable even as public factors seen to materially change the country’s investments grow. It noted that rising public credit profile over the short term. expenditures, driven by infrastructure, are matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness of the successive rate hikes implemented by the “Growth prospects remain favourable, supported BSP and the measures done by the national by strong domestic demand and increasing government to ease constraints to rice supply. infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

BSP Governor Nestor Espenilla, Jr. said: “Fitch’s Dominguez during the Sulong news briefing. "To favorable growth projection for the economy is improve representation of all parts of the country consistent with that of the BSP. We expect growth and increase access for stakeholders, we decided to remain solid in the years ahead, owing in part to to hold regional forums, with the purpose of the BSP’s commitment to price and financial primarily gathering the inputs and stability, which provides an enabling environment recommendations of representatives from our for businesses to thrive and for consumers to keep small and medium enterprises or SMEs. This sector their purchasing power intact. We will continue to is a crucial component of our economy, complement the government’s development representing 99 percent of business entities and employing the bulk of our workers." e orts through conduct of sound and proactive PHILIPPINE ECONOMY and infrastructure o icials, monetary policy and financial supervision.” led by Department of Finance (DOF) Secretary DOF Secretary Carlos G. Dominguez delivers All four legs of Sulong Pilipinas 2018 were opened Carlos G. Dominguez, capped o November with the keynote during the Davao leg of Sulong by the Philippine Economic Briefing (PEB). The PEB Espenilla noted the latest inflation forecast the successful conduct of Sulong Pilipinas 2018. Pilipinas 2018 is a flagship activity of the Investor Relations O ice pointing to within-target inflation in 2019 and 2020 The program was also held in Cebu (November (IRO) of the Bangko Sentral ng Pilipinas (BSP). following the successive monetary policy increases 9th), San Fernando, La Union (November 14th), and registration (CPR) by the Food and Drug During the PEB, top economic and infrastructure by the BSP’s Monetary Board in 2018. “The Clark, Pampanga (November 26th). elevated inflation in 2018 was mainly driven by Administration (FDA); o icials presented updates on the country’s economic performance, outlook, and policies, as supply-side factors that are beyond the control of Sulong Pilipinas is a modern town hall consultative (7) Ensure proper planning in implementation of well as the government’s once-in-a-generation monetary policy, but we acted pre-emptively to activity where private sector participants give infrastructure projects to lessen disruptions to infrastructure drive. Also, Fitch recognized the stability of the country’s address any brewing demand-side pressures and policy recommendations and feedback on various business operations; banking sector, which helps fund rising investment potential second-round e ects ahead. This areas of governance, such as economic Atty. Evie Medina-Navarro, IRO Director, said: “We activities in the economy. “Rating profiles [of proactive move will help ensure that inflation development, infrastructure, local governance, (8) Simplify BIR processes; are happy to serve as the central o ice to bridge banks] should remain steady backed by settles within target, at least over the next two peace and order, agriculture, social services, and our stakeholders (local and international investors, satisfactory risk controls, adequate years,” Espenilla said. micro, small, and medium enterprise (MSME) (9) Enhance peace and order through : a) greater and members of the media) with various loss-absorption bu ers, and generally stable development. Meantime, in response to Fitch’s statement of police and military visibility in rural areas; b) government economic and infrastructure agencies funding and liquidity profiles,” it said. Top recommendations during Sulong Pilipinas some perceived overheating risks of the economy, intensive monitoring of illegal business in coastal to tell the Philippines’ dynamic and compelling The first Sulong Pilipinas for representatives of the 2018 were to: areas; and c) continuing martial law in Mindanao; story of continued growth and inclusive Welcoming Fitch’s decision are two of the country’s BSP Deputy Governor Diwa Guinigundo stressed business community was held in May 2016 by that the economy is not facing any material threat development. Information campaigns such as top economic o icials. then-incoming Cabinet members of (1) Prioritize farming education and use new of overheating. (10) Provide health services in every part of the these promote understanding and appreciation of President-elect Rodrigo R. Duterte. agricultural technology to improve agricultural country, with more funding for the Department of policies that will benefit and impact all Filipinos. Finance Secretary Carlos Dominguez III said: output and farmers’ income; Health to build more health centers and hospitals They serve as initial platforms for greater “Fitch’s forecast of strong growth in the years “While credit is growing, the pace of increase is Since then, annual Sulong Pilipinas events have within levels considered manageable based not to decongest district hospitals; cooperation and coordination among agencies of ahead a irms the soundness of the Duterte been spearheaded by the DOF and co-organized by (2) Build more infrastructure projects (seaports, only on the BSP’s own metrics but even on government and the public.” administration’s economic development strategy, other government agencies. airports, and mass-based transport systems) to international benchmarks. Additionally, credit (11) Provide tax incentives for MSME development; which is to sustain high growth, accelerate poverty improve access/mobility across regions and growth in the country is driven not only by and During the PEB, BSP Deputy Governor Diwa C. reduction, and achieve financial inclusion by way Hailing the importance of the consultative forum, minimize congestion; Guinigundo stated: “The Philippines has been an of unmatched investments in infrastructure consumption, but more importantly by investment DOF Assistant Secretary (ASec) Tony Lambino said: activities which boost the economy’s productive (12) Streamline government processes. outperformer in recent years. It is one of the fastest modernization and human capital development “In only two years of the Duterte administration, (3) Simplify loan requirements and o er capacity. As such, we see growth in demand growing and most resilient economies in the region without losing its grip on fiscal discipline.” top recommendations from the first Sulong event low/reasonable interest rates for MSMEs and continually and su iciently being matched by Secretary Dominguez noted: "Sulong Pilipinas and the world. This trend is expected to continue have already been legislated on or implemented. farmers; embodies the continuing e ort of the Duterte on the back of strong macroeconomic Dominguez added: The first package of the CTRP rising supply, thereby continuing to dampen These include the National ID System (signed into demand-side inflationary pressures moving administration to make our economic fundamentals.” He continued: “The BSP will (Comprehensive Tax Reform Program), which has law in August), comprehensive tax reform (the first (4) Improve access to education, particularly for forward,” Guinigundo said. development story holistic and inclusive. The continue to complement government e orts to already delivered in terms of raising more revenues package of which took e ect in January 2018), the the poor; previous years’ conferences have enabled the hasten sustainable, robust, and more inclusive to fund the government’s priority programs, along Ease of Doing Business law (signed in May 2018), The Philippines’ “BBB” rating with Fitch matches government to champion programs that will truly economic growth by staying committed to our with the rest of the tax reforms that we hope the and the launch of a more aggressive infrastructure (5) For the DSWD to conduct stricter profiling of 4P the “BBB” rating assigned by S&P Global and the benefit the business sector. All comments and price and financial stability mandates.” On Congress can pass in 2019, will put in place a development agenda through the ‘Build, Build, recipients and consider monitoring their expenses. “Baa2” rating by Moody’s Investors Service. In the recommendations made in the previous forums inflation, the Deputy Governor said that following a simplified tax system that will primarily benefit Build’ program.” Livelihood trainings should also be provided to meantime, S&P assigns a “positive” outlook on its were taken into consideration and were integrated slew of policy initiatives, including monetary policy ordinary taxpayers and small businesses while recipients; in President Duterte’s development agenda." actions by the BSP, “inflation is expected to revert being supportive of our medium- and long-term rating on the Philippines, signaling opportunity for Consistent with the principles of inclusive an upgrade. to within-target range in 2019.” goals for the Philippines to become an policy-making, a majority of the participants of (6) Enable speedy processing and issuance of "This year we have stepped up our e orts to upper-middle income economy by 2022 and a Sulong Pilipinas 2018 were representatives of license to operate (LTO) and certificate of product connect with the private sector," said Secretary high-income one by 2040.” MSMEs.

Q4 2018 ISSUE Think Growth. Think Philippines. | 34 FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at The debt watcher foresees the Philippine economy 37 percent by 2020. to grow by 6.6 percent in the next two years. The debt watcher has assigned a “stable” outlook At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of keeping its liabilities manageable even as public factors seen to materially change the country’s investments grow. It noted that rising public credit profile over the short term. expenditures, driven by infrastructure, are matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness of the successive rate hikes implemented by the “Growth prospects remain favourable, supported BSP and the measures done by the national by strong domestic demand and increasing government to ease constraints to rice supply. infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

BSP Governor Nestor Espenilla, Jr. said: “Fitch’s Government economic o icials who participated Art Milan, president of Davao City Chamber of favorable growth projection for the economy is in at least one leg of Sulong Pilipinas 2018 and PEBs Commerce and Industry, described Sulong consistent with that of the BSP. We expect growth included Secretary Dominguez, Secretary Pilipinas and the PEB as “a very useful exercise to to remain solid in the years ahead, owing in part to Benjamin Diokno, ASec Rolando Toledo, Assistant maintain communication and engagement the BSP’s commitment to price and financial Director Yolanda Reyes of the Department of between the government and the private sector.” stability, which provides an enabling environment Budget and Management, Secretary Arthur Tugade He added that “Compared to previous for businesses to thrive and for consumers to keep of the Department of Transportation, ASec Carlos administrations, the current administration is their purchasing power intact. We will continue to Abad-Santos of the National Economic and doing much better in terms of pursuing complement the government’s development Development Authority, and Undersecretaries infrastructure development for Mindanao. But e orts through conduct of sound and proactive (USec) Emil Sadain and Dimas Soguilon of the Mindanao lags far behind compared with other monetary policy and financial supervision.” Department of Public Works and Highways. DOF areas of the country in terms of competitiveness, USec Karl Chua and Director Juvy Danofrata also and so my recommendation for the government is Espenilla noted the latest inflation forecast explained the tax reform program of government to hasten the speed of implementation of pointing to within-target inflation in 2019 and 2020 and the Trabaho Bill. infrastructure projects in Mindanao. We need to following the successive monetary policy increases upli the economic situation in Mindanao so it can by the BSP’s Monetary Board in 2018. “The Joining them in various legs were BSP o icials help boost growth of the national economy.” elevated inflation in 2018 was mainly driven by including Deputy Governor Guinigundo, and supply-side factors that are beyond the control of Assistant Governors Wilhelmina Manalac and Given the warm reception of stakeholders to the monetary policy, but we acted pre-emptively to Francisco Dakila Jr. concluded Sulong Pilipinas and PEBs, organizers are considering holding these in more locations Also, Fitch recognized the stability of the country’s address any brewing demand-side pressures and Kenneth Reyes-Lao, owner of Cacao Culture Farms across the country in 2019. banking sector, which helps fund rising investment potential second-round e ects ahead. This based Davao City, said, “I find [Sulong Pilipinas and activities in the economy. “Rating profiles [of proactive move will help ensure that inflation Philippine Economic Briefing] very useful because DOF ASec Tony Lambino said: “We are pleased to banks] should remain steady backed by settles within target, at least over the next two we are given updates on latest government witness our stakeholders’ active participation in satisfactory risk controls, adequate years,” Espenilla said. programs, new laws, infrastructure projects for Sulong Pilipinas. Our policymakers find this event loss-absorption bu ers, and generally stable implementation, and other information. We are an e ective platform to generate valuable funding and liquidity profiles,” it said. Meantime, in response to Fitch’s statement of some perceived overheating risks of the economy, also given assurance that the government is doing feedback from the people. As such, we hope to something to improve the business environment.” continue to deepen our engagement through Welcoming Fitch’s decision are two of the country’s BSP Deputy Governor Diwa Guinigundo stressed further Sulong Pilipinas, and will aim for an even top economic o icials. that the economy is not facing any material threat of overheating. wider reach moving forward.” Finance Secretary Carlos Dominguez III said: “Fitch’s forecast of strong growth in the years “While credit is growing, the pace of increase is ahead a irms the soundness of the Duterte within levels considered manageable based not administration’s economic development strategy, only on the BSP’s own metrics but even on which is to sustain high growth, accelerate poverty international benchmarks. Additionally, credit reduction, and achieve financial inclusion by way growth in the country is driven not only by of unmatched investments in infrastructure consumption, but more importantly by investment modernization and human capital development activities which boost the economy’s productive without losing its grip on fiscal discipline.” capacity. As such, we see growth in demand continually and su iciently being matched by Dominguez added: The first package of the CTRP rising supply, thereby continuing to dampen (Comprehensive Tax Reform Program), which has demand-side inflationary pressures moving already delivered in terms of raising more revenues forward,” Guinigundo said. to fund the government’s priority programs, along with the rest of the tax reforms that we hope the The Philippines’ “BBB” rating with Fitch matches Congress can pass in 2019, will put in place a the “BBB” rating assigned by S&P Global and the simplified tax system that will primarily benefit “Baa2” rating by Moody’s Investors Service. In the ordinary taxpayers and small businesses while meantime, S&P assigns a “positive” outlook on its being supportive of our medium- and long-term rating on the Philippines, signaling opportunity for goals for the Philippines to become an an upgrade. upper-middle income economy by 2022 and a high-income one by 2040.” From L-R: DOF Director Juvy Danofrata, BSP Deputy Governor Diwa Guinigundo, DPWH Undersecretary Emil Sadain, and NEDA Assistant Secretary Carlos Abad Santos during the Clark leg of Sulong Pilipinas 2018

Q4 2018 ISSUE Think Growth. Think Philippines. | 35 FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at The debt watcher foresees the Philippine economy 37 percent by 2020. to grow by 6.6 percent in the next two years. The debt watcher has assigned a “stable” outlook At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of keeping its liabilities manageable even as public factors seen to materially change the country’s investments grow. It noted that rising public credit profile over the short term. expenditures, driven by infrastructure, are matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness of the successive rate hikes implemented by the “Growth prospects remain favourable, supported BSP and the measures done by the national by strong domestic demand and increasing government to ease constraints to rice supply. infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

Q4 2018 ISSUE Think Growth. Think Philippines. | 36 FITCH RATINGS has kept the Philippines’ go alongside the increase in government investment grade of “BBB”, projecting sustained expenditure.” robust economic growth in the years ahead, driven in part by massive public infrastructure Consistent with this, Fitch expects the investments. government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at The debt watcher foresees the Philippine economy 37 percent by 2020. to grow by 6.6 percent in the next two years. The debt watcher has assigned a “stable” outlook At the same time, Fitch sees the government on the country’s “BBB” rating, given the absence of keeping its liabilities manageable even as public factors seen to materially change the country’s investments grow. It noted that rising public credit profile over the short term. expenditures, driven by infrastructure, are matched by e orts to raise revenues, such as tax The debt watcher said inflation is likely to go back reform. As such, the budget deficit is projected to to within the Bangko Sentral ng Pilipinas’ (BSP) remain under control, thereby keeping the target level of 2.0 to 4.0 percent by 2019 aer being government’s outstanding debt in check. elevated in 2018. Fitch recognized the e ectiveness of the successive rate hikes implemented by the “Growth prospects remain favourable, supported BSP and the measures done by the national by strong domestic demand and increasing government to ease constraints to rice supply. infrastructure investment,” Fitch said, adding that From May to November 2018, the BSP raised its key the government’s budget deficit is expected “to policy rates by a total of 175 basis points, a remain within manageable levels of around -3% of proactive move meant to ensure inflation goes GDP in 2019 and 2020, as revenues are expected to back to within target range.

BSP Governor Nestor Espenilla, Jr. said: “Fitch’s favorable growth projection for the economy is consistent with that of the BSP. We expect growth Philippine economic, to remain solid in the years ahead, owing in part to the BSP’s commitment to price and financial infra managers hail stability, which provides an enabling environment for businesses to thrive and for consumers to keep their purchasing power intact. We will continue to golden age of infra to usher complement the government’s development e orts through conduct of sound and proactive monetary policy and financial supervision.” in higher economic growth Espenilla noted the latest inflation forecast pointing to within-target inflation in 2019 and 2020 following the successive monetary policy increases by the BSP’s Monetary Board in 2018. “The elevated inflation in 2018 was mainly driven by supply-side factors that are beyond the control of monetary policy, but we acted pre-emptively to Also, Fitch recognized the stability of the country’s address any brewing demand-side pressures and banking sector, which helps fund rising investment potential second-round e ects ahead. This proactive move will help ensure that inflation activities in the economy. “Rating profiles [of transactions, liberalization of foreign exchange, settles within target, at least over the next two banks] should remain steady backed by and e orts to develop the domestic capital market Details on railway systems, airports, inter-island years,” Espenilla said. satisfactory risk controls, adequate were highlighted. connector roads, expressways, and development loss-absorption bu ers, and generally stable of alternative growth hubs, such as New Clark City Meantime, in response to Fitch’s statement of funding and liquidity profiles,” it said. Secretary Diokno of the Department of Budget and being built north of Metro Manila were shared. some perceived overheating risks of the economy, Management shared the government’s budget These infrastructure projects aim to significantly BSP Deputy Governor Diwa Guinigundo stressed Welcoming Fitch’s decision are two of the country’s reforms, citing in particular a shi to a cash-based improve mobility, ease tra ic congestion, and that the economy is not facing any material threat top economic o icials. budgeting system which aims to enhance unleash the growth potential of areas outside of overheating. e iciency and speed of delivery of public services major cities. Finance Secretary Carlos Dominguez III said: and projects. “While credit is growing, the pace of increase is “Fitch’s forecast of strong growth in the years Question and answer sessions on both the within levels considered manageable based not ahead a irms the soundness of the Duterte The implementation of landmark laws and other macroeconomic and infrastructure portions of the only on the BSP’s own metrics but even on administration’s economic development strategy, policy reforms to further strengthen institutions PEB were held where the invited local and regional international benchmarks. Additionally, credit which is to sustain high growth, accelerate poverty and pave the way for an environment more bank analysts, portfolio strategists, and growth in the country is driven not only by reduction, and achieve financial inclusion by way conducive to investments and inclusive economic economists were given the opportunity to learn consumption, but more importantly by investment From L-R: DOTr Undersecretary Ruben Reinoso, DPWH Undersecretary Catalina Cabral, BCDA President and of unmatched investments in infrastructure growth were also discussed. more about the Philippine Government’s initiatives activities which boost the economy’s productive CEO Vivencio Dizon, DOF Secretary Carlos Dominguez, III, NEDA Secretary Ernesto Pernia, DBM Secretary modernization and human capital development to usher in the golden age of infrastructure and capacity. As such, we see growth in demand Benjamin Diokno, BSP Deputy Governor Diwa Guinigundo, and DOF Assistant Secretary Tony Lambino during without losing its grip on fiscal discipline.” Game-changing laws enacted recently include: (1) economic growth. continually and su iciently being matched by the panel discussion of the Philippine Economic Briefing, September 18, 2018 Tax Reform for Acceleration and Inclusion or rising supply, thereby continuing to dampen Dominguez added: The first package of the CTRP TRAIN), (2) Ease of Doing Business Act, (3) The PEB acted as a channel of communication demand-side inflationary pressures moving (Comprehensive Tax Reform Program), which has Bangsamoro Organic Law or BOL, (4) National ID between economic and infrastructure agencies, forward,” Guinigundo said. IN A Philippine Economic Briefing (PEB) held on BSP Deputy Governor Diwa C. Guinigundo each already delivered in terms of raising more revenues System law, and (5) Personal Property Security September 17, 2018 at the Assembly Hall of the presented macroeconomic updates. investors and other stakeholders to raise to fund the government’s priority programs, along law. awareness on the country’s sound economic The Philippines’ “BBB” rating with Fitch matches Bangko Sentral ng Pilipinas (BSP), the country’s top with the rest of the tax reforms that we hope the fundamentals and sustainable growth path. the “BBB” rating assigned by S&P Global and the economic and infrastructure o icials addressed The economic management team expressed Congress can pass in 2019, will put in place a During the second part of the PEB, Transportation “Baa2” rating by Moody’s Investors Service. In the over 350 guests from banks and other financial collective confidence in the continued growth of simplified tax system that will primarily benefit Secretary Arthur P. Tugade, Public Works and meantime, S&P assigns a “positive” outlook on its service organizations. the Philippine economy, citing decisive governance ordinary taxpayers and small businesses while Highways Secretary Mark A. Villar, and Bases rating on the Philippines, signaling opportunity for and vital policy reforms. being supportive of our medium- and long-term Conversion and Development Authority (BCDA) an upgrade. Secretary of Finance Carlos G. Dominguez, goals for the Philippines to become an President Vivencio A. Dizon delivered updates on Socioeconomic Planning Secretary Ernesto M. On the monetary and financial sector, the BSP’s upper-middle income economy by 2022 and a the government’s infrastructure initiatives under Pernia, Budget Secretary Benjamin E. Diokno and initiatives such as the digitization of financial high-income one by 2040.” the ‘Build Build Build’ program.

Q4 2018 ISSUE Think Growth. Think Philippines. | 37 From L-R: From L-R: DOTr Undersecretary Ruben Reinoso, BCDA President and CEO Vivencio Dizon, DOF Secretary Carlos Dominguez III, NEDA Secretary Ernesto Pernia, DBM Secretary Benjamin Diokno, and BSP Deputy Governor Diwa Guinigundo during the pre-event press conference for the Philippine Economic Briefing

transactions, liberalization of foreign exchange, and e orts to develop the domestic capital market Details on railway systems, airports, inter-island were highlighted. connector roads, expressways, and development of alternative growth hubs, such as New Clark City Secretary Diokno of the Department of Budget and being built north of Metro Manila were shared. Management shared the government’s budget These infrastructure projects aim to significantly reforms, citing in particular a shi to a cash-based improve mobility, ease tra ic congestion, and budgeting system which aims to enhance unleash the growth potential of areas outside e iciency and speed of delivery of public services major cities. and projects. Question and answer sessions on both the The implementation of landmark laws and other macroeconomic and infrastructure portions of the policy reforms to further strengthen institutions PEB were held where the invited local and regional and pave the way for an environment more bank analysts, portfolio strategists, and conducive to investments and inclusive economic economists were given the opportunity to learn growth were also discussed. more about the Philippine Government’s initiatives to usher in the golden age of infrastructure and Game-changing laws enacted recently include: (1) economic growth. Tax Reform for Acceleration and Inclusion or TRAIN), (2) Ease of Doing Business Act, (3) The PEB acted as a channel of communication Bangsamoro Organic Law or BOL, (4) National ID IN A Philippine Economic Briefing (PEB) held on BSP Deputy Governor Diwa C. Guinigundo each between economic and infrastructure agencies, System law, and (5) Personal Property Security September 17, 2018 at the Assembly Hall of the presented macroeconomic updates. investors and other stakeholders to raise law. Bangko Sentral ng Pilipinas (BSP), the country’s top awareness on the country’s sound economic economic and infrastructure o icials addressed The economic management team expressed fundamentals and sustainable growth path. During the second part of the PEB, Transportation over 350 guests from banks and other financial collective confidence in the continued growth of Secretary Arthur P. Tugade, Public Works and service organizations. the Philippine economy, citing decisive governance Highways Secretary Mark A. Villar, and Bases and vital policy reforms. Conversion and Development Authority (BCDA) Secretary of Finance Carlos G. Dominguez, President Vivencio A. Dizon delivered updates on Socioeconomic Planning Secretary Ernesto M. On the monetary and financial sector, the BSP’s the government’s infrastructure initiatives under Pernia, Budget Secretary Benjamin E. Diokno and initiatives such as the digitization of financial the ‘Build Build Build’ program.

Q4 2018 ISSUE Think Growth. Think Philippines. | 38 Government preps for Philippines’ longest railway system

THE PHILIPPINES will soon have its first integrated System is expected to ease Metro Manila tra ic commuter railway system connecting congestion and provide an alternative CALABARZON (Region IV-A), the National Capital transportation option for those commuting Region (NCR), and Central Luzon (Region III). between the three regions.

The big-ticket project is part of the Duterte In addition, the NSCR System will also be administration’s strong push to usher in the connected to the existing LRT-1, LRT-2 and MRT-3 Philippines’ “golden age of infrastructure” through railway lines as well as with the upcoming Metro massive public works and transportation projects Manila Subway. under the “Build, Build, Build” program. The NSCR System, which will cater to about Spanning about 145.2 kilometers, the double track 550,000 daily passengers, is expected to be North-South Commuter Rail (NSCR) System will partially operational by 2022 and fully operational link three rail systems: a) PNR South Commuter by 2023. Line (Tutuban-Calamba), (b) PNR North 2 (Malolos-Clark International Airport – New Clark Modern and sophisticated railway systems are a City); and (c) PNR North 1 (Malolos-National Capital key part of the ‘Build, Build, Build’ program. This is Region) in line with government’s objective of reducing easing tra ic congestion in urban areas by The improved connectivity between regions is Portions of the NSCR project cost will be funded Spearheaded by the Department of Transportation encouraging more people to use public transport likewise expected to attract more job-generating through o icial development assistance (ODA) (DOTr) and Philippine National Railways, the NSCR instead of driving their own motor vehicles. investments in areas outside Metro Manila. With from the Japan International Cooperation Agency easier transportation across regions, labor (JICA) and the Asian Development Bank (ADB). Last mobility will also encourage investments in new November 22, 2018, the Exchange of Notes for the locations. JPY167.199 billion loan (about $1.413 Billion) Railways have the biggest chunk of the budget among the representing the first tranche for the North-South At a 2018 economic managers’ roadshow in Commuter Railway (NSCR) Extension Project was 75 flagship infrastructure projects London, Transportation Secretary Arthur Tugade signed between the Department of Foreign A airs encouraged UK-based businesses to invest in the (DFA) and Embassy of Japan aer the sixth meeting Philippines amid a vibrant outlook for the on infrastructure and economic cooperation Philippine economy in the years ahead driven in between Philippines and Japanese o icials held on part by the massive infrastructure development November 21 in Pasay City. agenda. On November 23, the Philippines and Japan signed “I would like to encourage you to come to the a loan agreement worth approximately P95 billion Philippines and partner with us as we embark on (US$ 1.8 billion) covering JICA’s loan commitment what our President calls the golden age of for the construction of the NSCR System and infrastructure,” Tugade said during the roadshow. certain river projects. Present during the signing ceremony were Foreign A airs Secretary Teodoro The latest cost estimate for the NSCR System, Locsin Jr., Secretary Tugade, H.E. Ambassador of which has already secured approval of the National Japan to the Philippines Koji Haneda, and Dr. Economic and Development Authority’s NEDA Hiroto Izumi, Special Advisor to Prime Minister Board, is P733.7 billion (US$ 13.9 billion). Shinzo Abe.

Note: USD in millions

Q4 2018 ISSUE Think Growth. Think Philippines. | 39 THE PHILIPPINES will soon have its first integrated System is expected to ease Metro Manila tra ic commuter railway system connecting congestion and provide an alternative CALABARZON (Region IV-A), the National Capital transportation option for those commuting Region (NCR), and Central Luzon (Region III). between the three regions.

The big-ticket project is part of the Duterte In addition, the NSCR System will also be administration’s strong push to usher in the connected to the existing LRT-1, LRT-2 and MRT-3 Philippines’ “golden age of infrastructure” through railway lines as well as with the upcoming Metro massive public works and transportation projects Manila Subway. under the “Build, Build, Build” program. The NSCR System, which will cater to about Spanning about 145.2 kilometers, the double track 550,000 daily passengers, is expected to be North-South Commuter Rail (NSCR) System will partially operational by 2022 and fully operational link three rail systems: a) PNR South Commuter by 2023. From L-R: Department of Transportation Secretary Arthur Tugade, Department of Foreign A airs Secretary Line (Tutuban-Calamba), (b) PNR North 2 Teodoro Locsin Jr. and Japanese Ambassador Koji Haneda during the signing of the Exchange of Notes for (Malolos-Clark International Airport – New Clark Modern and sophisticated railway systems are a North-South Commuter Railway Extension Project City); and (c) PNR North 1 (Malolos-National Capital key part of the ‘Build, Build, Build’ program. This is Region) in line with government’s objective of reducing easing tra ic congestion in urban areas by The improved connectivity between regions is Portions of the NSCR project cost will be funded Spearheaded by the Department of Transportation encouraging more people to use public transport likewise expected to attract more job-generating through o icial development assistance (ODA) (DOTr) and Philippine National Railways, the NSCR instead of driving their own motor vehicles. investments in areas outside Metro Manila. With from the Japan International Cooperation Agency easier transportation across regions, labor (JICA) and the Asian Development Bank (ADB). Last mobility will also encourage investments in new November 22, 2018, the Exchange of Notes for the locations. JPY167.199 billion loan (about $1.413 Billion) representing the first tranche for the North-South At a 2018 economic managers’ roadshow in Commuter Railway (NSCR) Extension Project was London, Transportation Secretary Arthur Tugade signed between the Department of Foreign A airs encouraged UK-based businesses to invest in the (DFA) and Embassy of Japan aer the sixth meeting Philippines amid a vibrant outlook for the on infrastructure and economic cooperation Philippine economy in the years ahead driven in between Philippines and Japanese o icials held on part by the massive infrastructure development November 21 in Pasay City. agenda. On November 23, the Philippines and Japan signed “I would like to encourage you to come to the a loan agreement worth approximately P95 billion Philippines and partner with us as we embark on (US$ 1.8 billion) covering JICA’s loan commitment what our President calls the golden age of for the construction of the NSCR System and infrastructure,” Tugade said during the roadshow. certain river projects. Present during the signing ceremony were Foreign A airs Secretary Teodoro The latest cost estimate for the NSCR System, Locsin Jr., Secretary Tugade, H.E. Ambassador of which has already secured approval of the National Japan to the Philippines Koji Haneda, and Dr. Economic and Development Authority’s NEDA Hiroto Izumi, Special Advisor to Prime Minister Board, is P733.7 billion (US$ 13.9 billion). Shinzo Abe.

Q4 2018 ISSUE Think Growth. Think Philippines. | 40 Philippines’ first smart city rising in Clark Northern Luzon becoming major investment destination

NEW CLARK CITY (NCC) — A smart, green, and disaster-resilient metropolis — is on its way to becoming the Philippines’ new growth center and major investment destination in Northern Luzon.

First and only “smart and green city”

Located in Capas, Tarlac, NCC will be the “City of the Future,” featuring the juxtaposition of technology, mobility, and sustainability with innovative urban planning. It will become a modern city well-suited for business, lifestyle, and leisure.

The construction of NCC’s phase 1 is already in the works and is expected to be completed by 2021.

“The planned developments in Clark are already happening as we speak,” Bases Conversion and Development Authority (BCDA) President and CEO Vivencio Dizon said. Vivencio Dizon BCDA President and CEO Interconnectivity of transport networks Valenzuela in Metro Manila, and will cover the Phase 1, constituting 60 hectares, is the site of the major towns of Bulacan and Pampanga, as well as National Government Administrative Center Two access roads are being constructed to ensure Clark International Airport. The station at the (NGAC). Envisioned as a set of backup o ices to Next premier investment destination the accessibility of NCC. airport will be connected to NCC. ensure business continuity, NGAC will house o ices of various government agencies which would The government envisions NCC to be the country’s The Department of Public Works and Highways In 2019, the government, led by BCDA and DOTr, will operate should there be disruptions in Metro next preferred investment destination. (DPWH) is overseeing the construction of the also start the construction of the Subic-Clark Manila due to natural disasters or other 16-kilometer New Clark-Bamban-Capas Access railway which will transport cargo coming from the emergencies. NGAC broke ground on January 23, Finance Secretary Carlos Dominguez III hailed NCC Road as well as the seven kilometer Clark Green Subic port. 2018. as the “next big metropolis,” adding the city “will bring in several hundred enterprises and billions in City-MacArthur Access Road. The ‘Clark’ brand Phase 1 will also be the site for facilities needed for new investments. New Clark City is where the In addition, access roads from major points such as the country’s hosting of the Southeast Asian (SEA) future begins. We envision this as the hub of the Subic-Clark-Tarlac expressway (SCTEX) and In November 2018, BCDA and the Clark Games, to be held from November 10 to December agro-industrial facilities, as well as the home for Clark International Airport will soon be Development Corporation (CDC) launched the new 10, 2019. These world-class facilities include a cutting-edge technology companies.” constructed. Clark brand, which integrates the images of the 20,000-capacity stadium, a 2,000-capacity Aquatic districts of Clark Freeport Zone, Clark Global City, Center, a 1,000-capacity Athletes’ Village, and a NCC is widely expected to boost economic activity The Department of Transportation (DOTr) will also Clark International Airport, and New Clark City. training center. in Northern and Central Luzon, consistent with the Duterte administration’s agenda of spreading build a mass transit system – the 106-kilometer Manila-Clark Railway project – which is expected to Said BCDA President and CEO Dizon: “Clark is Retail, education, commercial, and health facilities economic growth across the country. significantly boost mobility to and from Northern di erent because it was built from scratch and will also be built alongside NGAC and the sports Luzon. The railway system will have 17 stations craed to be built for people to have the vibrancy facilities. starting from Tutuban, Tondo, Caloocan, and of a city without the pressure of city life.”

Q4 2018 ISSUE Think Growth. Think Philippines. | 41 NEW CLARK CITY (NCC) — A smart, green, and disaster-resilient metropolis — is on its way to becoming the Philippines’ new growth center and major investment destination in Northern Luzon.

First and only “smart and green city”

The construction of NCC’s phase 1 is already in the works and is expected to be completed by 2021.

“The planned developments in Clark are already happening as we speak,” Bases Conversion and Development Authority (BCDA) President and CEO (Photo credit: BCDA Presentation) Vivencio Dizon said.

Interconnectivity of transport networks Valenzuela in Metro Manila, and will cover the Phase 1, constituting 60 hectares, is the site of the major towns of Bulacan and Pampanga, as well as National Government Administrative Center Two access roads are being constructed to ensure Clark International Airport. The station at the (NGAC). Envisioned as a set of backup o ices to Next premier investment destination the accessibility of NCC. airport will be connected to NCC. ensure business continuity, NGAC will house o ices of various government agencies which would The government envisions NCC to be the country’s The Department of Public Works and Highways In 2019, the government, led by BCDA and DOTr, will operate should there be disruptions in Metro next preferred investment destination. (DPWH) is overseeing the construction of the also start the construction of the Subic-Clark Manila due to natural disasters or other 16-kilometer New Clark-Bamban-Capas Access railway which will transport cargo coming from the emergencies. NGAC broke ground on January 23, Finance Secretary Carlos Dominguez III hailed NCC Road as well as the seven kilometer Clark Green Subic port. 2018. as the “next big metropolis,” adding the city “will bring in several hundred enterprises and billions in City-MacArthur Access Road. The ‘Clark’ brand Phase 1 will also be the site for facilities needed for new investments. New Clark City is where the In addition, access roads from major points such as the country’s hosting of the Southeast Asian (SEA) future begins. We envision this as the hub of the Subic-Clark-Tarlac expressway (SCTEX) and In November 2018, BCDA and the Clark Games, to be held from November 10 to December agro-industrial facilities, as well as the home for Clark International Airport will soon be Development Corporation (CDC) launched the new 10, 2019. These world-class facilities include a cutting-edge technology companies.” constructed. Clark brand, which integrates the images of the 20,000-capacity stadium, a 2,000-capacity Aquatic districts of Clark Freeport Zone, Clark Global City, Center, a 1,000-capacity Athletes’ Village, and a NCC is widely expected to boost economic activity The Department of Transportation (DOTr) will also Clark International Airport, and New Clark City. training center. in Northern and Central Luzon, consistent with the Duterte administration’s agenda of spreading build a mass transit system – the 106-kilometer Manila-Clark Railway project – which is expected to Said BCDA President and CEO Dizon: “Clark is Retail, education, commercial, and health facilities economic growth across the country. significantly boost mobility to and from Northern di erent because it was built from scratch and will also be built alongside NGAC and the sports Luzon. The railway system will have 17 stations craed to be built for people to have the vibrancy facilities. starting from Tutuban, Tondo, Caloocan, and of a city without the pressure of city life.”

Q4 2018 ISSUE Think Growth. Think Philippines. | 42 Resort-themed gateway World-class Mactan-Cebu In August, MCIA took the ninth spot in the “Top 10 MCIA is the country’s first resort-themed airport. Most On-time Airports in Southeast Asia” by UK-based travel intelligence company OAG. Int’l Airport to boost Its tropical resort feel exemplifies Cebu’s attractiveness for travel, leisure, and business. The In December, MCIA was named “Asia Pacific Airport airport was designed by Hong Kong-based of the Year" by the Center for Aviation, a Philippines’ air connectivity, architectural firm Integrated Design Associates Ltd Sydney-based market intelligence firm for the (IDA). World-renowned Cebuano furniture maker aviation and travel industry. According to the tourism Kenneth Cobonpue and Filipino designer Budji Department of Transportation, the award is given Layug contributed to the unique design of the to an airport “with 10 to 30 million annual airport. passengers that has been the biggest standout WITH THE COMPLETION of its Terminal 2, the There are 26 airline carriers currently operating in strategically, has established itself as a leader, and Mactan-Cebu International Airport (MCIA) has MCIA. Both local and foreign carriers recently “While most other airports choose modern done the most to advance the progress of the become a world-class facility poised to increased frequency of their flights to and from structures made of glass and steel structures, we aviation industry.” significantly boost the Philippines’ air connectivity MCIA. They also launched new routes to maximize stayed true to our island resort identity, with Cebu with other countries, promoting tourism and the new international terminal. being one of the world’s favorite resort MCIA, including Terminal 2, is among the flagship economic growth. destinations,” Mr. Ferrer said. projects of the Duterte Administration’s ‘Build, GMR Megawide Cebu Airport Corporation (GMCAC), Build, Build’ program. Operator GMCAC, a The newly completed Terminal 2 consists of a operator of MCIA, is looking to attract more Increase in tourism arrivals consortium between Megawide Corporation and 65,000-square-meter property. It became international carriers, particularly those that fly to India's GMR Group, is tasked with developing and operational starting July 1, 2018, allowing the locations where there are currently no direct With the opening of Terminal 2, MCIA is not only be managing MCIA for the next 25 years under the resort-themed airport to now serve up to 12.5 flights from Cebu. able to accommodate an influx of passengers and Philippine government's Public Private million passengers per annum, up from 10 million tourists but has become the world’s central Partnership program. per annum. “We constantly explore new markets that have a gateway to the Visayas and Southern Philippines. potential to expand the connectivity of Cebu to Better air connectivity other countries - particularly North America, GMCAC actively implements destination marketing Europe, Australia, and other Asian countries,” initiatives to promote Cebu as a destination. MCIA connects Cebu to 23 international GMCAC President Louie Ferrer noted in July. destinations and 33 domestic destinations. Promoted as the “friendliest gateway to the Philippines,” MCIA has an array of shops, dining options, retail stores, and service facilities for travelers.

The opening of Terminal 2, along with the recent inauguration of the Bohol-Panglao Airport, is expected to boost tourism in Western Visayas in 2019. In 2017, around 6.9 million tourists visited the region, with Cebu emerging as the top destination.

“If there’s one big thing that happened in 2018, it is the opening of Terminal 2 of MCIA, which helps spur growth in Cebu,” said Department of Tourism Director Shahlimar Tamano during the inauguration of Cebu-Macau flights of carrier Cebu Pacific on December 7th.

Industry-renowned airport

Despite being new, MCIA has already garnered President Rodrigo Duterte leads the inauguration of the Terminal 2 of the Mactan-Cebu Int’l Airport expert recognition for its services. June 7, 2018 (Photo credit: PIA)

Q4 2018 ISSUE Think Growth. Think Philippines. | 43 Resort-themed gateway In August, MCIA took the ninth spot in the “Top 10 MCIA is the country’s first resort-themed airport. Most On-time Airports in Southeast Asia” by UK-based travel intelligence company OAG. Its tropical resort feel exemplifies Cebu’s attractiveness for travel, leisure, and business. The In December, MCIA was named “Asia Pacific Airport airport was designed by Hong Kong-based of the Year" by the Center for Aviation, a architectural firm Integrated Design Associates Ltd Sydney-based market intelligence firm for the (IDA). World-renowned Cebuano furniture maker aviation and travel industry. According to the Kenneth Cobonpue and Filipino designer Budji Department of Transportation, the award is given Layug contributed to the unique design of the to an airport “with 10 to 30 million annual airport. passengers that has been the biggest standout WITH THE COMPLETION of its Terminal 2, the There are 26 airline carriers currently operating in strategically, has established itself as a leader, and Mactan-Cebu International Airport (MCIA) has MCIA. Both local and foreign carriers recently “While most other airports choose modern done the most to advance the progress of the become a world-class facility poised to increased frequency of their flights to and from structures made of glass and steel structures, we aviation industry.” significantly boost the Philippines’ air connectivity MCIA. They also launched new routes to maximize stayed true to our island resort identity, with Cebu with other countries, promoting tourism and the new international terminal. being one of the world’s favorite resort MCIA, including Terminal 2, is among the flagship economic growth. destinations,” Mr. Ferrer said. projects of the Duterte Administration’s ‘Build, GMR Megawide Cebu Airport Corporation (GMCAC), Build, Build’ program. Operator GMCAC, a The newly completed Terminal 2 consists of a operator of MCIA, is looking to attract more Increase in tourism arrivals consortium between Megawide Corporation and 65,000-square-meter property. It became international carriers, particularly those that fly to India's GMR Group, is tasked with developing and operational starting July 1, 2018, allowing the locations where there are currently no direct With the opening of Terminal 2, MCIA is not only be managing MCIA for the next 25 years under the resort-themed airport to now serve up to 12.5 flights from Cebu. able to accommodate an influx of passengers and Philippine government's Public Private million passengers per annum, up from 10 million tourists but has become the world’s central Partnership program. per annum. “We constantly explore new markets that have a gateway to the Visayas and Southern Philippines. potential to expand the connectivity of Cebu to Better air connectivity other countries - particularly North America, GMCAC actively implements destination marketing Europe, Australia, and other Asian countries,” initiatives to promote Cebu as a destination. MCIA connects Cebu to 23 international GMCAC President Louie Ferrer noted in July. destinations and 33 domestic destinations. Promoted as the “friendliest gateway to the Philippines,” MCIA has an array of shops, dining options, retail stores, and service facilities for travelers.

Industry-renowned airport

Despite being new, MCIA has already garnered expert recognition for its services.

Q4 2018 ISSUE Think Growth. Think Philippines. | 44 (Photo sources: MCIA, GMR Megawide, and Mr. Justin Parco)

Q4 2018 ISSUE Think Growth. Think Philippines. | 45 WHAT THEY SAY ABOUT THE PHILIPPINE ECONOMY First Metro: Philippine Economy to grow faster in 2019

FIRST METRO Investment Corporation, the are projected to recover by 4.0-8.0%. Imports, on investment arm of the Metrobank Group, expects the other hand, soared in 2018, growing by 16.8% the Philippine economy to regain its strength and (January-October 2018) and are expected to grow at a faster pace in 2019 compared to 2018. sustain the double-digit growth of 10.0-14.0-% on the back of strong government infrastructure The country’s gross domestic product (GDP) is spending and private investments. projected to expand by 6.8-7.2% this year as macroeconomic fundamentals remain strong. (Source: First Metro Investment Corporation Press Economic expansion will be driven by the upturn in Release, issued January 15, 2019) consumption spending as a result of an improving inflation outlook. Sustained fiscal stimulus from infrastructure spending will also continue to power the economy. A recovery in manufacturing, rising tourist arrivals, and the expected hey election spending will further boost growth.

First Metro president Rabboni Francis Arjonillo said, “The Philippine economy is again in a growth trajectory. Apart from the country’s strong macroeconomic fundamentals and expected inflation easing this year, another important factor in pushing economic growth is the continued policy reform drive of the Duterte administration, which includes tax reform, corruption and red tape reduction, broadening the base of the financial system, and facilitation of new and disruptive technologies.”

Inflation is on a clear downward trend and is expected to taper-o to 3.0-3.5% attributable to the normalization of food supply and lower global oil prices. Rabboni Francis Arjonillo President First Metro Investment Corporation Cash remittances from overseas Filipino workers will sustain its 2.0-4.0% growth rate this year.

Exports did not grow as anticipated in 2018, weighed down by the lower demand from advanced economies and China. For 2019, exports

Q4 2018 ISSUE Think Growth. Think Philippines. | 46 ‘Philippines faces brighter prospects in 2019’

global oil prices and decisive government measures to address price pressures, including rice tari ication.

He also positively cited the government’s rising investments in human capital as well as the ‘Build, Build, Build’ program, under which it is investing significantly more in infrastructure. Ravelas said the government’s infrastructure development agenda is expected to help attract more investment, boosting manufacturing and tourism.

If the government continues its development strategy of spending more on infrastructure and social services, he said, the Philippines will remain resilient to external headwinds.

Jonathan “Jonas” L. Ravelas “This [2019] could be a great year for the First Vice President and Chief Marketing Strategist Philippines,” he added. BDO Unibank, Inc.

THE PHILIPPINES is looking at a brighter year ahead—with inflation normalizing, growth staying well within the 6-percent territory, the peso becoming more stable, and the stock market performing better.

This was according to Jonathan L. Ravelas, First Vice President and Chief Market Strategist of BDO Unibank Inc., who added there is reason to be optimistic, albeit with caution, about the prospects of the Philippine economy in 2019.

“We are cautiously optimistic because we know we’re not there anymore. The waters are no longer murky. [Portfolio] investors are ready to dive back into the Philippines,” Ravelas said.

This year, Ravelas said he does not see a repeat of last year’s temporary spike in inflation, citing lower

Q4 2018 ISSUE Think Growth. Think Philippines. | 47 ABOUT THE IRO The Investor Relations O ice of the Bangko Sentral ng Pilipinas Promoting excellence in investor relations; telling the Philippines’ compelling and dynamic growth story

1st row, L-R: Queen Cave, Ivy DeHitta and Justin Parco; 2nd row, L-R: Michelle Remo, Atty. Evie Medina-Navarro, and Melanie Calumpang; 3rd row, L-R: Sherelle Perez and Marvin Brabante; 4th row, L-R: Jemie Contad, Joanna Cobarrubias, and Rica Amador

The Investor Relations O ice (IRO) of the Bangko financial policy objectives and performance; Sentral ng Pilipinas (the Central Bank of the Philippines) was created in July 2001 to raise the • Arrange channels of active communication Philippines’ credit profile and promote the country and dialogue between the Republic of the as a viable investment destination. Philippines’ economic and infrastructure managers, and stakeholders, including: At the core of its mandate is to communicate before an international audience key messages on • Local and international investors and the strengths of the Philippine economy, including businesses sound macroeconomic fundamentals, • Credit rating agencies • Financial institutions game-changing policy reforms, and sustainable • Bilateral and multilateral organizations economic growth. • Members of the diplomatic corps • International media Pursuing the IRO’s mandate is a team of • The general public professional technical experts and communicators, who develop various Following the Philippines’ success in securing communication materials and organize investor investment-grade status in 2013 and achieving relations activities that fulfil the following subsequent credit-rating upgrades, the IRO is now functions: leading the Republic’s communication campaign to reach “A”-territory credit ratings. • Provide and disseminate timely information on the National Government’s key economic and

Q4 2018 ISSUE Think Growth. Think Philippines. | 48 Editorial Sta

Atty. Elizabeth Victoria Medina-Navarro EDITOR IN CHIEF

Michelle Remo MANAGING EDITOR

Melanie Calumpang Rica Amador DATA EDITORS

Joanna Cobarrubias Sherelle Perez WRITERS

Ivy De Hitta Queen Cave Justin Parco DATA RESEARCHERS

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Investor Relations O ice Room 410, 5-Storey Bldg., Bangko Sentral ng Pilipinas A. Mabini St. cor. P. Ocampo Sts. Malate, Manila 1004 DL: (+632) 708 74 87; (+632) 303 1581 www.iro.ph Facebook and Twitter: Think Growth Think Philippines

Q4 2018 ISSUE Think Growth. Think Philippines. | 49 INVESTOR RELATIONS OFFICE

Q4 2018 ISSUE