Philippines Macroeconomic Updates December 2016 Table of Contents

° Policy Agenda 3 ° Favorable Macroeconomic Trends 7 ° Firm Institutional Foundations through Structural Reforms 21 ° Infrastructure Development 25 ° Sound and Strengthening Government Finances 31 ° Strong External Position 42 ° Sound Financial System 48 ° Economic Outlook 52 ° The President and the Economic Team 62 ° About the Investor Relations Office 65

2 Policy Agenda of the Duterte Administration Vision for the

° By 2022 ‹ Poverty rate reduced from 26.3% in 2015 to 17% by 2022 ‹ Law abiding country ‹ Peace within the country and with neighbors ‹ Achieve high middle income status (USD3,000 to USD4,100 GNI per capita) Vision for the Philippines ° By 2040* ‹ Extreme poverty eradicated ‹ Inclusive economic and political institutions offering everyone equal opportunities ‹ Achieve high income status (USD3,000 to USD 12,000 GNI per capita) ‹ President Duterte signed on 11 Oct 2016 Executive Order No. 5 adopting “Ambisyon 2040,” a 25-year long-term vision to eliminate poverty, as a guide for development planning in the country.

° Sustain economic growth of at least 7% every year for one generation ° Shift the source of growth from consumption to investment ° Massively invest in ‹ Health ‹ Infrastructure ‹ Education ‹ Life-long training ‹ Social protection ‹ Research and development Broad strategies to ° Tax policy reforms achieve the vision ‹ Lower personal income tax and corporate tax ‹ Index oil excise tax to inflation ‹ Levy tax on sugary and fatty products ‹ Expand the VAT base ‹ Reform property taxes ° Economic reforms: secure property rights, enhance competition, improve food security, simplify regulations, and relax foreign ownership restrictions ° The National Economic and Development Authority (NEDA) is coordinating the formulation of the Philippine Development Plan (PDP) for the period 2017-2022. The proposed PDP Framework will be anchored on the country’s long-term vision or the AmbisyonNatin2040 and will translate the President’s 0-10 Socioeconomic Agenda into concrete plans, strategies and programs. 4 *Refer to Vision 2040: http://2040.neda.gov.ph/ 10-Point Socioeconomic Agenda of the Duterte Administration Strong mandate from people ensures political capital to advance transformational reforms that will move the economy to even higher growth plane and improve welfare of Filipinos. Action-oriented, results-driven leadership style of the President boosts prospects for a more robust investment climate characterized by common compliance to law and order in a more conducive regulatory environment Economic Agenda Legislative Agenda 1

° Continue and maintain current macroeconomic policies, including ° Proposed FY 2017 Budget of PHP3.35tr fiscal, monetary, and trade policies. ° Shift to a federal system of government ° Comprehensive Tax Reform program ° Institute progressive tax reform and more effective tax collection, indexing taxes to inflation. ‹ Reduce in personal and corporate income tax rates ° Increase competitiveness and the ease of doing business. This ‹ Increase excise on all petroleum products & index to inflation ‹ Levy a tax on sugary products and index to inflation effort will draw upon successful models used to attract business to local cities (e.g., ), and pursue the relaxation of the ‹ Adjust sin taxes ° Constitutional restrictions on foreign ownership, except as Amendments to loosen the Bank Secrecy Law ° regards land ownership, in order to attract foreign direct Emergency powers to solve transport and traffic problems ° investment. The Bangsamoro Basic Law without unconstitutional provisions ° ° Accelerate annual infrastructure spending to account for 5% of Creation of the People’s Broadcasting Corp. to replace PTV-4, with separate GDP, with PPP playing a key role. television channels for Muslims and the Lumad ° ° Promote rural and value chain development toward increasing Whistleblower Protection Act ° agricultural and rural enterprise productivity and rural tourism. Creation of a Single Department to Handle Overseas Filipino concerns ° ° Ensure security of land tenure to encourage investments, and Universal health insurance through the Philippine Health Insurance Corp ° Amendments to the Anti-Money Laundering law, particularly to make tax evasion address bottlenecks in land management and titling agencies. 2 ° Invest in human capital development, including health and as a predicate crime to money laundering ° Amendments to the 1996 Passport Law to extend validity of passport education systems, matching of skills and training to meet the 2 ° demand of businesses and the private sector. PPP Act ° Exemptions from the salary standardization law for BIR and BOC personnel 2 ° Promote science, technology, and the creative arts to enhance 3 ° innovation and creative capacity towards self-sustaining, Freedom of Information covering the Executive Branch of Government ° Budget Reform Act 4 inclusive development. ° Streamlining the Government Act 4 ° Improve social protection programs, including the government’s ° Military and Uniformed Personnel (MUP) Compensation and Pension Reform 4 CCT program, to protect the poor against instability and ° Amendments to Anti-Terrorism Law 5 economic shocks. ° Amendments to Anti-Cyber Crime Act 5 ° Strengthen implementation of the Responsible Parenthood and ° Passage of an Act Creating the Department of Housing and Urban Development 5 Reproductive Health Law to enable especially poor couples to ° Amendments to the National Defense Act to Revise Reserve Officers’ Training make informed choices on financial and family planning. Corps 5 1Based on the State of the Nation Address of President on July 25, ° Reinstatement of the death penalty 5 2016 ° Freedom of Information Act 5 2Based on pronouncements of Economic Managers 3On July 24, 2016, President Duterte signed an Executive Order implementing 4Based on the President’s 2017 Budget Message 5 freedom of information in the Executive Branch 5http://www.rappler.com/nation/146324-list-priority-bills-duterte-administration Ample Political Capital to Pursue Difficult Structural Reforms

Continued Favourable Prospects under the Duterte Administration 86% Performance and Trust Ratings Performance & Trust Ratings of President Rodrigo R. Duterte ° President Rodrigo R. Duterte obtained overwhelming margin of more than 6mn vs. his September 25 – October 1, 2016 / Philippines (in %) closest rival at the May 2016 national elections ° Most Filipinos are satisfied with his performance in the first 3 months: ‹ Performance and Trust Ratings at 86% based on Sep 2016 Pulse Asia survey ‹ “Very good” net satisfaction and “Excellent” trust ratings based on 3Q Social Weather Survey (SWS) at 64% and 76%, respectively ° Based on BSP’s Business Expectations Survey, the confidence index for Q4 2016 while lower compared to the previous quarter remained positive at 39.8% ‹ Optimism of domestic-oriented companies increased at 48.8% in Q4 2016 from 44.9% a quarter ago on the back of robust domestic demand ‹ The percentage of businesses with expansion plans in the industry sector for Q1 2017 increased to 31.7% from 28.1% last quarter ° Consumer sentiment posts highest reading with a positive index for Q3 2016 based on BSP’s Consumer Expectations Survey. According to respondents, their optimism during the current quarter was due to improvements in the peace and order situation, and availability of more jobs, among others

Net trust rating of “Excellent” at +76% Net satisfaction rating of “Very good” at +64%

6 Source: Social Weather Station, Pulse Asia, BSP Favorable Macroeconomic Trends Economic Outperformance to Continue under the Duterte Administration Sound economic management and transformational reforms to accelerate growth and improve welfare of Filipinos

Favorable macroeconomic trends Commitment to ensuring medium-term supported by strong domestic demand, fiscal sustainability increasing contribution of investments Imperatives of V Efforts to embark on a sustainable public revenue and and services to GDP, an emerging higher the Duterte spending path include reforming the tax system through a value-adding manufacturing sector and comprehensive tax reform package, institutionalizing favorable demographic profile Administration transparency and accountability in granting fiscal incentives, reducing tax evasion and instituting stronger V IMF raised its forecasts for ROP’s GDP growth to 6.4% public finance accounting and management standards from 6.0% in 2016 and to 6.7% from 6.2% in 2017 Achieve Foster a Law Progress in strengthening the fiscal position on declining V Positive sentiment reflected in consumer and business V expectations surveys. Emerging as one of the top Lasting Abiding debt and manageable fiscal deficit provides greater fiscal promising destinations of FDIs based on United Nations space to accelerate spending on poverty reducing Peace Society measures as well as implement countercyclical policies in Conference of Trade and Development (UNCTD)’s World the event of a shock Investment Report 2016 ROP’s debt profile shows minimal refinancing risks; debt V Favorable demographics, policy focus and budgetary V affordability continues to improve with lower debt service allocation towards regional development and education Reduce and social protection to tackle poverty and inequality Poverty burden reducing growth Acceleration of infrastructure and Firmer institutional foundations bode well for industries development to bring about greater governance, competitiveness reforms more robust growth across the and quest for lasting peace Credible and effective monetary archipelago, create jobs and uplift the policy helps the economy stay V Accelerating anti-corruption reforms and strengthening law lives of more Filipinos resilient to domestic and external and order underpin the government’s growth agenda V Infrastructure remains a priority sector with public challenges V Important governance and economic reforms have been spending targeted to accelerate to account for 5.1% institutionalized over the years V BSP has ample monetary policy space and has at and 5.4% of GDP in 2016 and 2017, respectively its disposal a wide range of tools, including Institutions and citizenry eager for more reforms that are ∑ Infrastructure push will benefit from a robust PPP ∑ macroprudential measures to stem any emerging supportive of propelling long term economic growth and pipeline. Topmost in the government’s agenda is risks and financial stresses ensuring political stability easing bottlenecks to accelerate implementation V Continued solid growth in a low inflation Stronger institutions and more stable political environment ∑ Focus is on high-impact projects that increase the V environment have been positively recognized internationally, including productive capacity of the economy their impact on bolstering the Philippines’ economic V Diversified sources of foreign exchange V Stepped up agriculture and manufacturing fundamentals (remittances, IT-BPO, and tourism) support the development plan will create more jobs, particularly for country’s BOP and cushion economy from external ROP has achieved significant improvements in measured low-skilled labor ∑ stresses governance and competitiveness across the years ∑ Solidifying gains from these is top agenda 8 Economy on Higher Growth Trajectory

Real GDP Growth (6-year moving average) GDP (constant 2000 prices)

6-yr moving average 6.2% 2010-2015 ave

8 1971-1976; 2010-2015 1972-1977; 7 1973-1978

6

5

4

3

2

1

0

-1 1955-1960 1957-1962 1959-1964 1961-1966 1963-1968 1965-1970 1967-1972 1969-1974 1971-1976 1973-1978 1975-1980 1977-1982 1979-1984 1981-1986 1983-1988 1985-1990 1987-1992 1989-1994 1991-1996 1993-1998 1995-2000 1997-2002 1999-2004 2001-2006 2003-2008 2005-2010 2007-2012 2009-2014

Source: National Economic and Development Authority (NEDA) Staff Calculations 9 Solid Economic Performance Amidst Global Economic Turbulence

One of the fastest growing economies regionally and amongst similarly and higher rated peers Real GDP growth (%) 8.7 FY 2010-14 average 2015 Q1-Q3 2016 2016F 2017F 7.4 7.6 7.6 7.2 7.3 7.0 6.7 6.2 6.4 5.8 5.8 5.9 5.8 5.4 4.9* 5.2 5.3 5.0 4.9 4.8 4.8 3.9 3.9 3.8* 3.3 3.3 3.3 3.5* 3.2 3.0 3.1 3.2 3.1 2.9 2.7 2.9 2.6 2.4 2.3* 2.2 2.2 2.3 1.8 1.3 0.8 0.3* 0.2 0.1

(0.5)

India Panama Philippines Indonesia Thailand Turkey Colombia Spain Slovenia South Africa (BBB-/Baa3/BBB-) (BBB/Baa2/BBB) (BBB/Baa2/BBB-) (BB+/Baa3/BBB-) (BBB+/Baa1/BBB+) (BB+/Baa3/BBB-) (BBB/Baa2/BBB) (BBB+/Baa2/BBB+) (A/Baa3/BBB+) (BBB-/Baa2/BBB-)

Note: 2016 and 2017 Forecast based on IMF WEO October 2016 update *Latest available data is 1H2016 Ratings: S&P/Moody’s/Fitch ° According to the National Economic and Development Authority (NEDA), estimated potential output for 2016 is 6.4% to 6.9% while IMF placed it at 6.5%, aided by the success of ongoing structural reforms. NEDA estimates potential output to rise to 6.9% to 7.9% by 2022 ° This surpasses the country’s estimated potential output prior to the global financial crisis (4-5% in 2000’s), and is in contrast to the declining trend in potential growth across many emerging markets ° With increasing investment rate and young and educated workforce, there is sufficient scope for potential growth to rise further, aided by greater capital formation ° Over the medium-term, the Duterte administration aims for a steady acceleration of growth (7.0-8.0%) supported by sustained and deepened structural reforms. These include comprehensive tax reform, sustained investment in infrastructure, human capital development, easing of restrictions on foreign investments, reduction of cost of doing business, and strengthening of agro-industrial linkages ° The continued positive economic outturns bolster confidence that the policy track taken will further uplift the welfare of a greater number of and most especially the marginalized Filipinos. The Duterte Administration targets to reduce poverty incidence to 17.0% by 2022 Source: PSA; International Monetary Fund (IMF); Bloomberg L.P. 10 Source: PSA Economic Rebalancing Towards a More Broad Based Growth

Investments and services increasingly becoming major drivers of growth GDP breakdown by component Contribution to growth: demand (%) Contribution to growth: supply side (%) 7.0% 7.0% 6.2% 6.2% 5.7% 5.7% 5.4 4.5% 4.5% 2.8% 3.3 4.4 2.4 2.8% 3.7 1.1 3.7 0.7 0.6 0.6 0.4 2.8 0.3 4.2 4.9 2.5 3.3 3.8 1.8 -0.3 -0.8 1.2 2.4 2.7 -2.5 0.7 1.9 -5.4 1990-1999 2000-2009 2010-2015 Q1 - Q3 2015 Q1-Q3 2016

1990-1999 2000-2009 2010-2015 Q1-Q3 2015 Q1-Q3 2016 Agriculture Industry Services Consumption Government Investment Net Exports Capital formation remains strong … and is an increasingly key driver of growth Gross capital formation (PHP bn, constant prices) GDP breakdown by expenditure (%) -1.6 +15.1% Household 22.7 -0.1 +27.7% +5.2% 1,805 Expenditure +23.8% 26.3 -6.5 1,568 +2.8% -4.3% 1,490 1,556.5 Government 1,257.2 0.8 1,217 1,165 Spending 10.9

Capital 11.2 Q1-Q3 Formation 2016 Net Exports 68.2 2011 2012 2013 2014 2015 Q1-Q3 Q1-Q3 Statistical 2015 2016 Discrepancy Construction Durable Equipment Others 68.1

Source: PSA Q1-Q3 2015 11 Note: Numbers may not add up due to rounding Rising Investments Highlight Confidence in ROP’s Growth Prospects ROP is one of the top 15 destinations of investments, along with Australia, France and Malaysia, by multinational enterprises (MNEs) for 2016-2018 based on UNCTAD’s World Investment Report 2016. Further liberalization of industries and efforts to improve business operating environment are expected to attract more investments Sustained inflows from foreign investors and bright prospects highlight confidence in ROP’s fundamentals Net Foreign Direct Investment Flows* (USD bn) Total Approved Foreign Investment **(USD bn) 5.7 5.8 6.8 5.4 6.5 6.0 +71.1% 5.4 3.7 4.3 3.2 3.2 4.2 2.0 +9.2% 1.1 1.3 1.4

2010 2011 2012 2013 2014 2015 Jan-Aug Jan-Aug 2010 2011 2012 2013 2014 2015 H1 H2 2015 2016 2015 2016 Increasing investments in manufacturing ROP gaining attractiveness as an FDI destination Net FDI - Sector, 2012-2015 (%) Average Growth of FDI, 2012-2015 (%) Mining and 100.00 88.63 Others, 9% Quarrying, 5% Manufacturing, 49% 80.00 Wholesale and 60.03 Retail Trade, 60.00 Real Estate,7% 9% 40.00 32.43 12.68 9.38 Water Supply, 20.00 4.15 Sewerage, and Waste … 0.00 Finance and -0.68 -1.98 -2.85 Insurance, 15% -20.00 TH TW PH VN IN SG ID2 CH MY ° In order to attract massive flow of domestic and foreign investments and create more jobs, the Department of Trade and Industry DTI) is pushing to modernize BOI incentive regime, to be at par with ASEAN countries; remove nationality requirement and export-bias; provide menu of incentives, and strengthen regional investment promotions ° Investors confidence in the favourable growth prospects of the country buoyed BOI-approved investments to PHP324.5bn, up 35.5% in the first 11 months of 2016. For 2016, BOI investment approvals are expected to grow by 10-15% Source: PSA, NEDA, BSP, UNCTAD, Bloomberg; * BOP Concept; ** Investment approved by the Philippines’ Investment Promotion Agencies – Board of Investments (BOI), Clark Development Corporation (CDC), Philippine 12 Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB), BOI-Autonomous Region of Muslim Mindanao (BOI-ARMM), and Cagayan Economic Zone Authority (CEZA); amount of approved investments converted to USD Manufacturing and Agribusiness to Buoy Growth and Create Jobs

Economy increasingly supported by a vibrant manufacturing Roadmap for the structural transformation of a globally sector competitive Philippines manufacturing sector

Real growth (%) Phase I Phase II Phase III 14 GDP Manufacturing 2014 - 2017 2017 - 2021 2021 - 2025 12 10 ° Deepen participation ° Rebuild capacity of ° Shift to high value 8 7.1 in regional/global existing industries, added activities, production networks 6 strengthen emerging investments in 4 6.9 industries, maintain upstream industries ° Become hubs in competitiveness of auto, electronics, 2 ° Link and integrate comparative machinery, 0 industries advantage industries garments, food

Industry development is getting a big push ° Manufacturing sector targeted to contribute 30% to the country’s GDP by 2020 from the current 23% under the Comprehensive National Industrial Strategy (CNIS) while share of jobs to total is targeted to reach 15% from the current 8% ‹ DTI intensifying support programs to promote Micro Small & Medium Enterprises (MSMEs) through: trainings and capacity-building; one-town-one product (OTOP); next generation Negosyo Centers (Go Negosyo Act); shared service facilities/fabrication laboratory (FABLAB); innovation centers; incubation centers & coworking spaces; and access to finance ‹ Manufacturing Resurgence Program - will rebuild the existing capacity of industries, strengthen new ones, and maintain the competitiveness of industries with comparative advantage. The goals: close the gaps in the supply chain, provide access to raw materials, and expand domestic markets and exports • PHP 289bn program allocation in 2016 GAA from PHP239bn in 2015 • Comprehensive Automotive Resurgence Strategy (CARS) Program - PHP27bn (USD600mn) worth of incentives to local assemblers who can produce 200,000 units for a single model over a six-year period V Toyota and Mitsubishi were accepted under the program V SMEs in the car parts manufacturing sector that stand to benefit from the program V Targets to generate 200,000 new jobs, bring in USD1.2bn in fresh investments and stimulate local demand by increasing vehicle sales to USD9.2bn ° Agriculture is seen as a potential growth driver that can create more jobs for less skilled workers ‹ Accelerate production of high value crops - key words are processing and value-adding ‹ Regain the country’s status as No. 1 coconut producer ; support banana, rubber, pineapple, oil palm, etc. production ‹ Establish modern harvest and post-harvest facilities 13 Source: PSA, DTI, DA Industry Roadmapping Project

Elevating the development and growth of local industries as competitive players in the global market 36 Roadmaps completed

Manufacturing Agribusiness Services

1. Aerospace 1. Processed Fruit-Dried Mango 1. Book Publishing 2. Automotive 2. Processed Shrimp/Prawns 2. Information Technology and Business 3. Auto Parts 3. Seaweeds/Carrageenan Process Management (IT-BPM) 4. Bamboo 3. Health Care Services 5. Biodiesel 4. Mass Housing 6. Cement 5. Printing 7. Ceramic Tiles 6. Retirement 8. Chemicals 9. Coco coir 10. Copper and Copper Products 11. E-Vehicles 12. Electronics 13. Integrate Circuit (IC) Design 14. Furniture 15. Gifts and housewares 16. Holiday decor 17. Iron and Steel 18. Manufacturing 19. Metalcasting 20. Motorcycle 21. Natural Health Products 22. Petrochemicals 23. Plastics 24. Paper 25. Rubber Products 26. Shipbuilding 27. Tool and Die

° Industry Roadmaps -42 total sectoral roadmaps, 36 of which are completed (such as manufacturing, chemicals, copper products, rubber products, IT-BPM, electronics, aerospace, etc.) while 6 are still being finalized. These sectoral roadmaps are the building blocks of the Manufacturing Industry Roadmap (MIR) and the Comprehensive National Industrial Strategy (CNIS) ° The industry roadmaps serve as basis for effecting policies and implementing programs that support the development and growth of industries including 14 government funding to support its key initiatives Sustained Low Inflation Environment

BSP policy stance successfully balances growth and Latest baseline forecasts suggest inflation to be close to lower inflation end target in 2016 and within target bands in 2017-2018

GDP, CPI volatility (20Y Standard Deviation, 2001-2020F) BSP Private Sector Economists’ Survey (Mean forecast for full year, %)

1.7 CPI volatility 5.0 Poland 1.6 2016 2017 2018 target range 1.8 GDP volatility Colombia 1.5 2017: 2.7 1.6 4.0 Philippines 1.7 2018: 2.8 1.5 Spain 2.3 1.0 Mexico 2.2 3.0 1.7 Thailand 2.3 1.1 Peru 2.4 2.0 2.2 Panama 2.9 2016: 1.8 3.0 Iceland 3.3 1.0 2.8 Kazakhstan 4.1 3.2 Uruguay 3.6 2014 2015 2016 Source: IMF World Economic Outlook, October 2016 Inflation target: 3.0 ± 1.0 % for 2015-2018 Inflation remains benign demonstrating monetary policy credibility

Headline CPI (yoy, %)

8.3

5.5 4.6 4.2 4.1

2.9 3.8 3.2 1.4 1.6 3.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Oct 2016 Inflation Target Band Headline CPI Source: BSP; PSA 15 Promoting More Effective Monetary Transmission Mechanism

Interest Rate Corridor to enhance effectiveness of monetary policy ° Strengthen the relationship between BSP’s policy rate and money market interest rates ° Help limit interest rate volatility ° Provide the BSP another tool to siphon excess liquidity ° Provide opportunity for counterpart banks to manage internal liquidity ° Key features: ‹ Reconfiguration of the BSP’s existing facilities ‹ Introduction of Term Deposit Auction Facility (TDF) ° As of 29 November, the TDF has absorbed PHP490bn from the system

Old Structure Interest Rate Corridor Structure

Repurchase rate (RP)—6.0% Overnight Lending Facility—3.5% Ceiling

Reverse Repurchase (RRP) rate — 4.0% Overnight Reverse Repurchase Facility—3.0% Policy Rate --- Term Deposit Facility (7 and 28 day tenors) Special Deposit Account rate —2.5% Overnight Deposit Facility—2.5% Floor

Other reforms in the pipeline

Amendments to BSP Charter ° Expand mandate to include financial stability to allow BSP to oversee all nonbank credit provision ° Allow BSP to issue its own debt securities ° Increase the BSP’s capitalization by PHP 150bn, payable in three years ° In the area of bank regulations, provide immunity from lawsuits for personnel to allow the BSP to more effectively perform its function as regulator Payments and Settlements System Bill ° The proposed bill provides a legal framework to guarantee that payment and settlement systems in the country are efficient, safe, reliable, affordable and meet global standards. The bill also empowers the BSP to regulate all types of payment and settlement systems in the country

16 Source: BSP; Bloomberg L.P. Efficient Mobilization of Resources to Help Sustain Economic Growth PH financial system evolving to be more responsive to the needs of the citizenry and able to channel resources to productive activities Increased access to finance and improved usage of financial services Key Strategic Initiatives Archipelagic barrier poses a big challenge to financial access. 36.2% of °Enabling Enables banks and other financial service providers to 1,634 cities/municipalities without banking presence. BSP is at the Regulatory deliver a wide range of financial services – saving, forefront of ensuring increased access to credit particularly for Framework credit, insurance, payments and remittances – to all microenterprises. ° Philippine banks’ physical presence continues to expand – 10,936 as of Q2 System will promote electronic payments and 2016 from 7,585 in 2001 interoperability to facilitate efficiency, lead to lower ° Micro-banking offices are increasing – 617 as of Q2 2016 from 251 in 2011 National Retail business costs, drive innovation and possibly increase Payment System consumer expenditure. Greater access to payment or Microfinance transactional accounts can be an effective on-ramp to a ° No. of micro-deposit accounts – 2.9mn as of Q2 2016 from 1.1mn in 2012 broader range of financial services ° Amount of micro-deposits – PHP6.3bn as of Q2 2016 from PHP2.3bn in 2012 National Coordinated Roadmap to ensure policy coherence, ° Amount of microfinance loans – PHP11.7bn as of Q2 2016 from PHP8.4bn in Strategy for maximize partnerships, and address duplication to 2012 Financial improve financial access Micro, Small and Medium Enterprises (MSMEs) Inclusion (NSFI) ° As of Q2 2016, direct lending to Micro and Small Enterprises and Medium Survey to provide accurate benchmark on the state of Enterprises amounted to PHP199.21bn and PHP267.98bn, respectively, National benefitting 1.4mn MSMEs Survey on financial inclusion in the country, support evidence Financial based policy making and provide for an adequate ° Government financial institutions to come up with financing packages to Inclusion measurement of progress capacitate SMEs Highlighted Programs ° The Philippines is consistently ranked one of the best, placing 3rd globally in ° BSP’s Credit Surety Fund (CSF) - credit enhancement scheme which aims to 2014 EIU Report, across a range of indicators on financial inclusion , behind increase the credit worthiness of MSMEs that are experiencing difficulty in only Peru and Colombia obtaining loans from banks due to lack of acceptable collaterals, credit knowledge ° World Bank, in a blog article “Philippines pioneers approach to monitor and and credit track records. As of Dec 2015: 45 CSFs established nationwide; PHP evaluate the national financial inclusion strategy ”, lauded ROP citing “The 2.3bn lent to MSMEs; CSF has been institutionalized into law (RA No. 10774 Philippines pioneering and unique approach to gather relevant data on activities, dated 6 February 2016) inputs and indicators to enable collaborative reporting by the various implementing agencies [of the NSFI]. ° DTI’s Business Development Services – e.g., 1) Shared Service Facilities ° Based on Brookings Institute's 2016 Financial and Digital Inclusion Project Report: (SSF) which provides equipment for common use of MSMEs; and 2) SME Roving Advancing Equitable Financial Ecosystems, ROP gained the biggest improvement in Academy which provides learning programs designed to promote overall score in digital and financial inclusion. entrepreneurship and skills enhancement ‹ Proposed PHP 1bn regional credit access for MSMEs for construction of ° The Financial Inclusion Steering Committee (FISC), chaired by the BSP, was additional SSFs among others. institutionalized in June 2016 through EO No. 208. FISC provides strategic direction, 17 guidance and oversight in the implementation of the NSFI Sources: EIU; BSP, DTI; NSFI – National Strategy on Financial Inclusion Building Up Human Capital and Improving Social Protection Increasing per capita income Rising average income Per capita income at current prices, USD Per Capita GNI (US$ PPP basis)

x11 9,358 91,322 8,8… 7,953 8,422 6,870 7,377 6,392

41,510 x5 7,324 7,776 16,604 x2 6,122 6,545 6,958 5,069 5,735 8,302 2014in 10 yrs in 20 yrs in 30 yrs Year 2006-10 2011 2012 2013 2014 2015 2016* ° Sustained economic growth has enabled the acceleration in growth of average average incomes of households. According to latest World Bank estimates, the average income of Filipinos can double within 10 years and grow eleven-fold in GDP per capita (PPP basis) GNI per capita (PPP basis) 30 years at the current pace of economic growth (WB cited 6% annual growth)

Social reforms and programs to reduce people’s vulnerabilities and build resilient and empowered individuals and communities

Sin Tax Reform Law (RA No. 10351) ° Expected to generate revenue to finance investments in health, including enabling 14.7mn poor to be enrolled under the National Health Insurance Program (NHIP), upgrading of medical facilities and financing additional medical assistance programs Responsible Parenthood and Reproductive Health Act of 2012 (RA No. 10354) will be put into full force and effect ° Mandates the provision and delivery of essential services that are expected to significantly reduce maternal deaths, including clearly-defined responsibilities of national and local government agencies Full implementation of Magna Carta for Women from agencies up to barangay level to protect women’s rights Amendments to the Expanded Senior Citizens Act (RA No. 10645) ° Provision of mandatory Philhealth coverage for all senior citizens

Note: GNI is significantly larger than GDP in the Philippines owing to worker remittances that supplement residents’ domestically-generated income, and is a stronger measure of wealth; 2016 Per Capita Income data is annualized as of 1Q-3Q 2016 Source: NEDA; World Bank Report No. 93530-PH, January 2015 18 Building Up Human Capital and Improving Social Protection

Social reforms and programs to reduce people’s vulnerabilities, and build resilient and empowered individuals and communities

Strengthening access to education and training for life skills ° Increase spending on education and incorporate mandatory education about the effects of drugs ° Intensify and expand Alternative Learning System programs Enactment of the Kindergarten Act of 2012 (RA No. 10157) ° Provides for mandatory implementation of universal kindergarten Enhanced Basic Education Act of 2013 (RA No. 10533) ° Institutionalises the implementation of the K to 12 program, which helps align the country’s basic education system with international standards ° The K to 12 Program covers 13 years of basic education with the following key stages: Kindergarten to Grade 3; Grades 4 to 6; Grades 7 to 10 (Junior High School); Grades 11 and 12 (Senior High School) ° In SY 2016-2017, the Department of Education (DepEd) began implementation of Senior High School, a 2 year specialized upper secondary education ‹ The additional years will equip students with skills for work, entrepreneurship or higher education to better prepare them for the future ‹ Three tracks available for senior high school students: V Academic: Business, Accountancy, Management (BAM); Humanities, Education, Social Sciences (HESS); and Science, Technology, Engineering, Mathematics (STEM) V Technical-Vocational V Livelihood ‹ The proposed 2017 budget for DepEd of PHP570.4bn will sustain the K to 12 program through construction of nearly 37,500 classrooms, hiring of 53,831 additional teachers and provision of scholarships in private schools for 2.7mn students

19 Building Up Human Capital and Improving Social Protection

Social reforms and programs to reduce people’s vulnerabilities, and build resilient and empowered individuals and communities

Ladderized Education Act of 2014 (RA No. 10647) ° Empower workers by making tertiary education available to them Comprehensive & Unified Student Financial Assistance UniFAST (RA No. 10687) ° Speed up the delivery of government scholarships/ student financial assistance for qualified beneficiaries and adopting uniform standards for selection and retention Improving health access and quality ° Provide universal health insurance for all Filipinos ‹ Strategic thrusts: a) achieve health-related Millennium Development Goals (MDGs) of improving maternal and child health and combating priority infectious and non-communicable diseases; b) provide financial risk protection through expansion in the enrolment and benefit delivery of the National Health Insurance Program (NHIP); c) improve access to quality health care by upgrading public hospital and health facilities, ensuring adequate competent health human resources and securing the availability of essential medicines Expansion of social protection ° Public social assistance has also expanded significantly in recent years through conditional cash transfers (CCTs) or the Pantawid Pamilyang Pilipino Program (4Ps) – Philippines has the third largest CCT coverage in the world, behind Brazil and Mexico, according to the IMF ‹ Dual objectives of 4Ps: V social assistance – a) health grant equivalent to PHP500 per household every month, or a total of PHP6,000 every year; and b) education grant equivalent to P300 per child every month for ten months, or a total of PHP3,000 every year (up to a maximum of three enrolled children only) V social development through programs such as health check-ups for pregnant women and children aged 0 to 5; deworming of schoolchildren aged 6 to 14; enrolment of children in day care, elementary and secondary schools; and family development sessions ‹ CCT budget amounts to PHP62.7bn in 2016 with 4.4mn beneficiaries and PHP78.7bn proposed in 2017 with 4.62mn beneficiary-families ‹ Provide assistance to beneficiaries of Pantawid Pamilyang Pilipino Program (4Ps) or CCTs who graduate from the program to become independent and self-reliant ‹ Proposed to be expanded to include rice subsidies to poorest families V 2017 proposed budget for CCT fund includes PHP23.4bn rice allowance for 3mn CCT-beneficiary V Eligible households will be given 20 kilos of rice for 12 months starting 2017

20 Firm Institutional Foundations Through Structural Reforms Long Track Record of Purposeful Structural and Policy Reforms

Year Selected Structural/Policy Reforms in the Philippine Economy

1993 Creation of the Bangko Sentral ng Pilipinas (RA No. 7653) 1994 Liberalization of foreign bank entry (RA No. 7721) 1995 Liberalization of the telecommunications industry (RA No. 7925) 1996 An Act to Further Liberalize Foreign Investments, Amending for the Purpose RA7042 (RA No. 8179) 1997 Privatization of water services (MWSS) (RA No. 8041) 1998 Deregulation of the oil industry (RA No. 8479); Adoption of consolidated bank supervision 2000 Philippine E-Commerce Act (RA No. 8792) 2001 Liberalization of the power sector (EPIRA) (RA No. 9136) 2002 Inflation Targeting Framework; Special Purpose Vehicle Act (RA No. 9182); PhilPass 2002 Government Procurement Reform Act (RA No. 9184) 2004 Securitization Act; Adoption of Basel 2; Financial Sector Forum (FSF) 2005 Expanded value-added tax (E-VAT) (RA No. 9337); Fixed Income Exchange 2006 Wholesale Electricity Spot Market (WESM) 2007 Risk-based bank supervision

2009 Privatization of National Transmission Corporation (TransCo) and National Power Corporation’s (NPC) assets

2011 EO 29 on Open Skies Policy; Adopted phased-immigration to Basel III

2011 Government-Owned-and-Controlled Corporations Governance Act of 2011 (RA No. 10149)

2012 Amendments to Sin Tax Law (RA No. 10351)

22 Long Track Record of Purposeful Structural and Policy Reforms

Year Selected Structural/Policy Reforms in the Philippine Economy

2012 Amendments to the Anti-Money Laundering Law (RA No. 10365)

2013 Act Allowing the Infusion Of Foreign Equity In The Capital Of Rural Banks (RA No. 10574)

2014 Comprehensive Agreement on the Bangsamoro

2014 Go Negosyo Act [promotes the development of micro, small, and medium enterprises ] (RA No. 10644)

2014 Ladderized Education Act (RA No. 10647)

2014 Full Entry of Foreign Banks in the Philippines (RA No. 10641)

2015 Philippine Competition Act (RA No. 10667)

2015 Act Allowing Foreign Vessels to Transport and Co-Load Foreign Cargoes for Domestic Transhipment (RA No. 10668)

2015 Department of Information and Communications Technology Act of 2015 (RA No. 10844)

2015 Tax Incentives Management and Transparency Act (RA No. 10708) Amendments to the Act to Facilitate the Acquisition of Right-of-Way Site or Location for National Government Infrastructure Projects (RA No. 2016 8974) 2016 Amendments to the Philippine Deposit Insurance Corp. (RA No. 10846)

2016 Customs Modernization and Tariff Act (RA No. 10863)

2016 Operationalizing in the Executive Branch Full Public Disclosure and Transparency (Executive Order (EO) No. 2)

2016 Amendment to Investment Restrictions for Adjustment, Lending and Foreign Companies and Investment Houses (RA No. 10881)

2016 Approving and Adopting the Twenty-five-year Long Term Vision Entitled Ambisyon Natin 2040 as Guide for Development Planning (EO No. 5)

23 Relentless Pursuit of Structural Reforms Super Majority Coalition in both Houses of Congress and convening of LEDAC* will help facilitate passage of priority legislative agenda

House of Representatives Senate Based on speech of House Speaker Pantaleon Alvarez on July During the 25 July 2016 inaugural address of Senate President Aquilino 25, 2016 during the opening of Congress Pimentel III, he said that the Senate will support the legislative initiatives ° Federal parliamentary system through Constitutional that President Rodrigo Duterte envisions as necessar y to promote public Convention welfare. ° Re-imposition of the death penalty for heinous crimes ° Emergency powers for the President to address Metro He also said that the following essential elements of the Program of Traffic Government for Change that majority senators have agreed upon will ° Amendment of the Government Procurement Act. or RA hopefully, lay the basis for the development and progress of our country No. 9184, as amended and people: ° Freedom of Information Law ° Adoption of a Federal System of Government ° Simplified Income Taxation ° Reform the taxation system to make it more just, progressive ° Legislative Franchise for Mining Firms ° All-out search for peace ° Exportation of Processed Ore only ° All-out war against crime, drugs, corruption ° Increase penalties presently in the statutes for the non- ° Strengthen the rule of law payment of minimum wage and address contractualization ° Reform the budget, declare war on waste ° SSS Pension Hike ° Work for sustainable, inclusive economic growth ° Protect the environment ° Deliver quality education, quality health care ° Fight abuse and the abusive ° Focus on the needs and situation of the helpless, impoverished members of Philippine society, especially the sick, the elderly, and the children, because they need the help of government more than the others

LEDAC is composed of 20 members with the President as Chair and the following as members: ° Vice President (Vice Chairman); Senate President; Speaker of the House of Representatives; Seven members of the Cabinet designated by the President; three members of the Senate designated by the Senate President (nominated are Sen. Franklin Drilon, Sen. Vicente Sotto III, and Sen. Ralph Recto); three members of the House of Representatives designated by the Speaker of the House (nominated are Cong. Rodolfo Fariñas, Cong. Danilo Suarez, and Cong. Dakila Carlo Cua); representative of the Local Government Units (LGUs); representative from the Youth Sector; representative from the Private Sector 24 *Legislative-Executive Development Advisory Council Infrastructure Development The Duterte Administration’s Infrastructure Plan: Build Build Build

° Accelerate public infrastructure spending to account for 5.1% of GDP (PHP756.4bn) in 2016 , 5.4% of GDP (PHP860.7bn) in 2017 and further to 7.1% of GDP by 2022 to expand further the country’s productive capacity. ° Projects expected to create jobs, increase incomes and boost the economy, and deal with problems such as traffic congestion, insufficient and inefficient transportation system. In the long run, the infrastructure investments are expected to propel the economy to grow 7-8% ° The budget of DPWH, a key infrastructure agency, increased by 30.1% to PHP397.1bn in 2016 from PHP304.1bn in 2015 . Its 2017 budget is proposed to increase by 15.5% to PHP 458.6bn ° Closer coordination between major infrastructure agencies such as NEDA, DPWH, DOTr and BCDA to facilitate project implementation ° Successful coordination and implementation ensure completion of priority projects listed below within 3-5 years timeframe

Priority Projects (announced on 3 November 2016)

Bridges and Roads Railways, Urban Mass Transport, Airports and Seaports New and Better Cities

° NLEX-SLEX Connector Road – reduces travel time ° Manila Clark Railway - Guaranteed 1 hour from ° Clark International Airport New Terminal from Alabang to Balintawak to 30 minutes which Metro Manila to Clark International Airport Building – first worldclass airport in the Philippines usually takes more than an hour ° Metro Manila Bus Rapid Transit System – fast that will reduce traffic and congestion at NAIA ° Santa Monica - Lawton – Bonifacio Global City and reliable schedule of bus trips in EDSA ° Clark Green City – the first of many new cities; a Link Bridge – cuts down the number of vehicles ° Mindanao Railway – 2 hours travel time from Davao long-term solution to congestion and traffic woes in passing EDSA by 100,000 to Surigao and CDO ensures freshness of produce Metro Manila ° UP - Miriam - Ateneo Viaduct – 80% decrease in ° Regional Airport Development – new and ° BGC to NAIA Bus Rapid Transit (BRT) System – travel time modernized airports for increased accessibility 15 minutes travel time from Fort Bonifacio to NAIA ° -Guimaras-Negros- Link Bridge – ° Roll-on/Roll-off (RoRo) Ports Development - ° Subic-Clark Cargo Railway Project – connection allows travel by car and bus accessibility and affordability of travel within the of Subic Airport and Clark airport that will decongest ° Bypass Construction Project – country Metro Manila with cargo trucks and reduce the price of reduces travel time from Digos, to goods Panabo, Davao del Norte to 45 minutes from the usual 2-hour travel Jobs Created Investment Mix 3% 3% 120,000 Sea Ports 97,500

BRT & Other Transport 19% 18% 730,000 Others 675,000 5% Airports 2,000,000 195,000 Rail, Roads & Bridges 52%

New Cities 26 Source: Presidential Communications Office Infrastructure Buildup to Increase Productive Capacity

Measures to Facilitate Infrastructure Development Administrative measures ° Sustain PPP Program to include also unsolicited projects and also pursue hybrid schemes (government to build then tap private sector for O&M) ° Execute expenditure reforms from budget preparation to project implementation to ensure speedy development of critical infrastructure ° Step up right-of-way acquisitions to speed up delivery of projects ° Started implementation of the following policies to improve and streamline the Government’s approval processes of major public investment projects: (1) Updated the economic hurdle rate from 15 percent to 10 percent to facilitate the economic justification for more projects; (2) Raised the cost of projects that will require Investment Coordination Committee (ICC) approval from PHP1bn to PHP5bn to declog the ICC project pipeline approval; (3) Streamlined ICC review procedures for minor changes in scope, design, cost, and extension of implementation or loan/grant validity of projects; and (4) Streamlined the NEDA Board and ICC membership i.e. NEDA Board membership down to 11 from 22 [new composition: President, Secretaries of NEDA, DOF, DTI, DPWH, DBM, DOTr, DOE, Executive Secretary, Chairperson of MINDA, and Deputy Governor of BSP] while the ICC has been limited to 6 members, composed of the Secretaries of DOF, NEDA, DBM, DOE, the Executive Secretary, and Governor of BSP ° Public Investment Program Online system (PIPOL) allows online submissions by agencies of their priority programs and projects, including comprehensive details and status updates. It also allows NEDA to review and validate agency submissions, as well as to generate reports ° Implement 24/7 construction work: higher expense to be offset by reducing economic cost of delays; will result in jobs and generate multiplier effects e.g., related enterprises such as convenience stores Legislative support ° RA No. 8975 or An Act to Ensure Expeditious Implementation of Government Infrastructure Projects - Prohibits lower courts from issuing temporary restraining orders on national government infrastructure projects covered by the Build-Operate-Transfer Law (BOT Law) ° RA No. 10752 or An Act Facilitating the Acquisition of Right-of-Way (ROW) Site or Location for National Government Infrastructure Projects Proposed critical measures to address institutional, legal and policy issues ° Amend the Electric Power Industry Reform Act (RA No. 9136) ° Amend the Build-Operate-Transfer (BOT) law (RA No. 7718) ° Amend the IRR of the Government Procurement Law (RA No. 9184) ° Amend the Water Code of the Philippines (RA No. 1067) ° Create National Transport Policy

27 Source: Expenditures and Sources of Financing (BESF) 2017 - Department of Budget and Management (DBM) Infrastructure Buildup to Increase Productive Capacity

Addressing Metro Manila traffic and flooding ° An interagency task force led by the Department of Transportation (DOTr) has been created to manage traffic on all national roads in Metro Manila to solidify traffic enforcement under one chain of command ‹ The Inter-Agency Committee on Traffic (IACT) includes personnel from the DOTr, Metro Manila Development Authority, Philippine National Police-Highway Patrol Group (PNP-HPG), Land Transportation Office (LTO), and Land Transportation Franchising and Regulatory Board (LTFRB). ‹ The IACT removed the window hours for the number coding scheme along major thoroughfares in Metro Manila i.e., EDSA, C5, Roxas Boulevard, Alabang- Zapote Road and roads within the cities of Mandaluyong, Las Piñas, and ° Request grant of emergency powers for the President/Executive Branch of the government to manage, mitigate and solve the traffic and congestion across the country for 3 years unless withdrawn sooner by Congress. The following are its proposed salient provisions : 1) decongest traffic in highly urbanized areas; 2) establish a single authority to manage traffic; 3) expedite procurement processes for transportation projects; 4) limit the issuance of temporary restraining orders and injunctions to the Supreme Court; exempt key transportation projects from restrictive audit rules; 5) expedite expropriation process for Right-of-Way acquisitions; and 6) reorganize the DOTr to provide enough manpower in implementing projects. Status: The Senate Committee on Public Services chaired by Senator Grace Poe concluded public hearings on the emergency powers on 22 September 2016. Ongoing reconciliation between Congress and Senate on draft bill on draft bill granting emergency powers to the President. DOTr submitted to the Senate a list of infrastructure projects that reflects costs and timelines for each project with and without emergency powers to convince and make Congress understand better the necessity for an emergency power ° Use of Batangas and Subic ports to decongest Manila ports ° Revival of the operation of the Pasig River Ferry Service System ° Expansion of point to point (P2P) bus services (Existing: Trinoma (North EDSA) to Glorietta 5 (Maka ti); Robinson’s Galleria (Ortigas) to Park Square Makati (Makati); Alabang Town Center (Alabang) to Greenbelt 1 (Makati); North EDSA (North EDSA) to SM Megamall (Ortigas) and Fairview to Makati ° Deployment of more Premium Airport Shuttle Buses ° Consider a cable-car system and putting up pontoon bridge in Pasig River for Makati Business District ° Maximize the use of existing roads - coordinate with LGUs to map out secondary routes and to consult various stakeholders, including public transport operators ° Intensify anti-colorum campaign and out-of-line apprehension including the removal of terminals ° Improve capacity of existing mass transit system and station experience by: ‹ reducing queuing time at ticketing stations by having ticket stalls in malls and convenience stores ‹ providing extra customer service for waiting passengers e.g., free WIFI ‹ increasing the number of running trains from 16 trains to 20 trains ‹ increasing the train speed from 40 [kph] to 60 [kph] ‹ reducing headway time from 5 minutes to 3 minutes ‹ extending operating hours from 9:30 p.m. to 10:30 p.m. ‹ addressing delays in the procurement of additional trains ° Implement structural mitigation measures to address the perennial flooding in Metro Manila and neighbouring areas and put up new pumping stations in strategic places Support infrastructure for growth ° Construct more access roads and tourism gateways to service centres and tourist sites ° Road development projects to support modern agriculture; expand and improve the construction and rehabilitation of roads and bridges, irrigation facilities ° Review power mix with end goal of ensuring adequate power supply at affordable cost 28 Sustained Implementation of the PPP Program

Projects awarded amounting to No. of Est. Project Status 15 USD7.05bn* Projects Cost (USD bn) Sustaining PPP development ° Bid out shovel ready projects PROJECTS UNDER IMPLEMENTATION ° Pursue solicited and unsolicited projects ° Encourage LGU PPP projects Awarded 15 7.0* ° Develop and implement hybrid PPP projects (e.g., government to build, private sector to PPP PIPELINE operate and maintain) 7.5 President Rodrigo Duterte has announced that his administration would honour existing Projects under procurement 13 For approval of relevant government government contracts and projects awaiting implementation and speed up the roll-out of 3 5.1 projects under the PPP programme by streamlining the procurement system and reducing bodies red tape. This bodes well for the construction and infrastructure sector. We expect rail and airport projects to gain traction and a slow transition from coal to renewables. – BMI For finalization of project structure 2 111.9** Research, Philippines Infrastructure Report (November 2016) Projects with ongoing studies 3 0.1 The Philippines has one of the best performing Public-Private Partnership (PPP) Under conceptualization or development 17 TBD programs in Asia…government is in the driver’s seat when it comes to infrastructure development, bringing in the private sector for expertise, capacity, Sub-total for PPP Pipeline 38 124.6 and relevant experience…The Philippine PPP Center has done much to reduce TOTAL 53 131.6*** some of the roadblocks to PPP implementation…Indeed, there are promising *Amount does not include premium payments. Change in the total cost of awarded projects from USD4.8bn opportunities ahead for the Philippines’ successful PPP program, already a regional to USD4.4bn accounts for (1) exclusion of O&M cash support of MPOC and approved minimum bid price of leader. With improvements, the Philippine PPP program will go even further in CALA and (2) inclusion of variation cost (for MCX and NAIA Expressway) and ODA component (for LRT Line 1 Cavite Ext. and O&M) reducing the infrastructure gap in the Philippines, and become a model for ASEAN **Amount includes reclamation cost of USD100mn infrastructure spending. – Jesse Ang, Principal Investment Officer, ***This does not include 16 projects with no estimated cost yet. International Finance Corp. PPP Asia (26 November 2015) Status as of 16 November 2016; USD 1 = PHP 45.00

Rapid Response of Administration for Infrastructure Development The NEDA Board approved the following major projects last 14 September 2016, On 14 November 2016, the NEDA Board approved 8 projects as well as the ICC guidelines on including PPP: processing projects that will require Chinese support for the conduct of pre-investment and ° Metro Manila Flood Management Project, Phase I (PHP23.5bn) investment activities. Out of the 8 approved projects, 6 are infrastructure while 2 are agriculture projects but with infrastructure component: ° Metro Manila Bus Rapid Transit (BRT) – EDSA (PHP37.8bn) ° Improvement/Widening of General Luis Road (Quezon City to Valenzuela City ) (estimated cost Increase in Passenger Terminal Building (PTB) Area of the Bicol International ° is PHP3.0bn if 24/7 work schedule is adopted and PHP2.8bn if through regular work schedule) Airport (PHP4.8bn) ° Plaridel Bypass Road Project (PHP10.5bn) ° Change in Scope of the New Bohol Airport Construction and Sustainable ° New Cebu International Container Port Project (PHP9.2bn) Environment Protection Project (PHP7.8bn) ° North-South Railway - South Line Project (PHP170.7bn) ° Ninoy Aquino International Airport (NAIA) PPP Project (PHP74.6bn) ° Malitubog-Maridagao Irrigation Project, Stage 2 (PHP5.4bn) 29 ° New Nayong Pilipino at Entertainment City (PHP1.5bn) Awarded Projects to Help Close the Infrastructure Gap

Awarded Projects Indicative Project Private Proponent Status Target Cost* Completion (USD mn) Date 1. Daang Hari-SLEX Link Road Project - Construction of a new 4-km 4-lane toll 49.6 Ayala Corporation Started operation on 24 July 2015 Completed 2. PPP for School Infrastructure Project (PSIP) Phase I - Design, financing and 219.8 Citicore – Megawide As of 15 Dec 2015: 9,296 classrooms (100%) completed Completed construction of about 9,303 one-storey and two-storey classrooms, including furniture Consortium Inc. & Bright and delivered and fixtures Future Educational Facilities 3. NAIA Expressway (Phase II) Project - Construction, operation and maintenance 398.4 Vertex Tollways Devt. Inc. (a As of 23 September 2016: 94.14% completed April 2017 (O&M) of a 4-lane, 7.75 km elevated expressway and 2.22 km at-grade feeder road wholly owned subsidiary of San Miguel Corporation) 4. PPP for School Infrastructure Project (PSIP) Phase II - Designing, financing, 85.8 Megawide Construction As of 31 August 2016: 2,626 classrooms (60.13%) TBA and constructing of 4,370 one-storey, two-storey, three-storey and four-storey Corporation, Consortium of BSP completed classrooms, including furniture, fixtures, and toilets & Co., Inc. & Vicente T. Lao Construction 5. Automatic Fare Collection System (AFCS) - Decommissioning of the old- 38.2 AF Consortium Operational since December 16, 2015 Completed magnetic-based ticketing system and replacing the same with contactless-based smart card technology on LRT Line 1 and 2 and MRT Line 3 6. Mactan-Cebu International Airport Passenger Terminal Building - 389.3 Megawide-GMR (India) As of 30 September 2016: 30.83% completed June 2019 Construction of a new world-class passenger terminal building and the operation of the Consortium old and new facilities 7. LRT Line 1 Cavite Extension and O&M – O&M of existing LRT-1 and 11.7 km 1,442.2 Light Rail Manila Consortium Financial Closure achieved on 11 February 2016; and April 2019 extension of the current LRT 1 starting from Baclaran Station to the future Niyog Station (LRMC) Ongoing soft renovation and upgrades of LRT Line 1 in Bacoor, Cavite existing system and other pre-construction activities 8. Southwest Integrated Transport System - Design, construction, financing, O&M 55.6 MWM Terminals Contract signed on 24 April 2015; and Notice to Proceed March 2018 of a 4.59ha ITS terminal issued by the DOTr on 17 October 2016 9. Cavite-Laguna Expressway - Financing, design, construction, O&M of a 4-lane, 787.3 Metro Pacific Investments Corp Contract signed on 10 July 2015; and Ongoing review of June 2021 44.63 km closed-system tolled expressway draft Detailed Engineering Design and other pre- construction activities 10. South Integrated Transport System - Design, construction, financing, O&M of a 115.6 Ayala Land Incorporated (ALI) Contract signed on 26 January 2016; and Ongoing April 2018 4.7ha ITS terminal Independent Consultant procurement and pre- construction activities 11. Bulacan Bulk Water Supply Project - Financing, detailed design, construction, 542.2 Consortium of San Miguel Groundbreaking ceremony held on April 15, 2016; and September and maintenance of conveyance facilities, treatment facilities and water source Corporation and Korea Water Ongoing pre-construction activities 2018 Resources Corporation 12. Metro Manila Skyway Stage 3 (MMSS-3) Project - The MMSS-3 Project is an 831.8 Citra Central Expressway As of 25 August 2016: 15.239% completed January elevated expressway over its entire length from Buendia, Makati to Balintawak, Q.C. Corporation (CCEC) 2018 with a distance of about 14.82 kms. and also includes improvement works in selected at-grade sections. 13. MRT Line 7 Project - Financing, design, construction, O&M of the 23-km. 1,540.0 San Miguel Corp. Groundbreaking ceremony held on April 20, 2016; and September elevated railway line with 14 stations from San Jose Del Monte, Bulacan to MRT 3 Ongoing pre-construction activities 2019 North Ave. in Quezon City and the 22-km. asphalt road from Bocaue Interchange of the North Luzon Expressway (NLEX) to the intermodal terminal in Tala 14. Civil Registry System IT Project (Phase II) - Computerization of the civil 35.3 Unisys Public Sector Services Contract signed on 30 September 2016 TBA registry operations of the Philippine Statistics Authority (PSA) Corp. 15. NLEx-SLEx Connector Road - Construction, O&M of a 8 km. 4-lane elevated 515.6 Metro Pacific Tollways MPTDC and its subsidiary MNTC accepted the NOA on TBA expressway over the Philippine National Railway (PNR) right of way Development Corp. (MPTDC) September 26, 2016 and its subsidiary Manila North Tollways Corporation (MNTC) *Indicative project cost does not include premium payments 30 Source: PPP Center Sound and Strengthening Government Finances Institute Progressive Tax Policy Reform and More Effective Tax Collection

Administrative measures to complement proposed legislative fiscal Tax effort is back on a higher trajectory reforms to ensure healthy fiscal position

14.2 Revenue impact from administrative measures is estimated to reach PHP200bn or 1% of GDP by 2019 13.6 13.6 13.6 13.5 13.3 Proposed administrative measures at the BIR and BOC 12.9 ° Simplify tax system to expand the tax base, modernize governance, reduce corruption and inefficiency, and cut red tape 12.4 12.2 ° Expand BIR’s electronic filing saturation (current baseline of 12.1 62.5% or 22mn returns in 2015) ° Expand BIR’s Large Taxpayer Service which monitors 3,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Sep taxpayers and improve taxpayer segmentation for better 2016 management of revenue base ° Rationalize the import permit requirements for BOC Rigorous tax administration continues to yield positive results ° Craft IRR of Customs Modernization and Tariff Act (RA No. NG Revenue (% of GDP), BIR and BOC Revenue (PHP mn) 10863) with inputs from stakeholders ° Adopt random audit of shipment 1,600,000 17 ° Peg valuation of goods to prevailing real time prices in the 15.9* 16 15.1 15.8 international market 1,400,000 14.9 15 14.5 14 ° Accelerate the RATE, RATS and RIPS program and work closely 1,200,000 14.0 14.0 13 with DOJ to speed up resolution of pending cases 13.4 12 1,000,000 11 1,433,302 1,433,302

1,334,762 1,334,762 10 800,000 1,293,226 9 1,216,661 Other legislative measures being studied to support 8

600,000 1,057,916 7 collection efficiency 924,146 924,146 369,277 369,277 367,534 367,534 6 822,623 822,623 304,925 304,925 321,298 321,298 289,866 289,866 265,108 265,108 400,000 259,241 5 750,287 750,287

220,307 220,307 ° Exempt BIR and BOC employees from Salary Standardization 4 200,000 3 Law 2 ° Increase fiscal autonomy of BIR and BOC 0 1 2009 2010 2011 2012 2013 2014 2015 Jan-Oct 2016 Revenue-to-GDP BIR Reveneus BOC Revenues Sources: Department of Finance (DOF), Bureau of the Treasury (BTr) 32 *Q1-Q3 2016 Proposed Tax Reform Packages to Broaden the Tax Base

Priority Legislative Measures Offsetting Measures ° The Comprehensive Tax Reform Package which aims for a simpler, more equitable and efficient tax system with a goal of lowering the tax rate at the same time broadening the tax base and increasing revenues ‹ Lower personal income and corporate tax rate to be competitive with the region to boost spending power of wage earners and encourage investment inflows ‹ Revenue impact from package 1 of the tax policy reform is estimated to reach PHP400bn or 2% of GDP by 2019 Package 1 – Personal income tax (PIT) and consumption ‹ Expand VAT base by limiting exemptions to raw food and other necessities (e.g., education, health) tax V Low income consumers and businesses are already protected by the marginal threshold which ‹ Adjust brackets to correct “income creeping” can be adjusted if needed ‹ Reduce PIT max rate to 25% from 32%, except for the ‹ Use targeted programs to protect the poor and vulnerable highest income earners to maintain progressivity ‹ Increase excise on all petroleum products and index to inflation ‹ Shift to modified gross system to simplify PIT system ‹ Relax strict bank secrecy laws for fraud cases Status: Draft Bill submitted by the Department of Finance ‹ Make tax evasion as a predicate crime to money laundering to the House of Representatives on Sep 26, 2016 Other Reforms in the Pipeline Package 2 – Healthy tax ‹ Levy tax on sweetened beverages and index to inflation ‹ Increase excise on alcohol after the current sin tax measures Package 3 – Corporate income tax (CIT) ‹ Rationalize fiscal incentives to be more transparent, targeted, performance-based, & time-bound ‹ Reduce CIT rate to 25% from 30% sunset provisions to existing incentives ‹ Simplify other corporate income tax provisions to ‹ Expand the coverage of the Fiscal Incentives Review Board to include all incentive recipients improve compliance beyond GOCCs ‹ Replace the 5% gross income earned tax rate to a reduced CIT rate of 15% ‹ Limit VAT zero-rating to direct exporters ‹ Give full VAT refund in cash, abolish tax credit certificates Package 4 – Property tax ‹ Rationalize valuation of properties ‹ Lower estate and donor’s tax rate as well as rate of ‹ Increase valuation closer to market prices transaction taxes on land (DST, transfer tax, ‹ Review valuation every 3 years and adjust accordingly registration fees) Package 5 – Capital income tax ‹ Harmonize capital income tax rates for dollar deposits and investment, dividends, equity, fixed ‹ Reduce tax on interest income earned on peso deposit income rates towards 10% and investment from 20%-10% ‹ Increase tax on stocks traded in the stock market from 0.5% to 1% on gross selling price Package 6 – Other tax measures as needed ‹ Tax on fatty food, luxury items such as automobiles, yachts and jewelry, lottery and casino ‹ Mining taxes 33 Strengthened Public Finances and Debt Dynamics ° Republic’s fiscal commitment is enshrined in laws and administrative issuances: ‹ Presidential Decree No. 1177 provides for the automatic appropriation of principal and interest payments on public debt ‹ The 1987 Philippine Constitution requires all foreign loans may only be incurred pursuant to the BSP’s law and regulations ‹ Republic Act (RA) No. 245 and DOF Order 141-95 or An Act Authorizing the Secretary of Finance to Borrow to Meet Public Expenditures Authorized By Law, mandates issuance of T-bonds shall not be shorter than 1year and not longer than 25 years ‹ RA No. 7653 or New Central Bank Act mandates BSP to maintain adequate reserves to meet demands for foreign currency ‹ Letter of Intent 158 and Administrative Order 99: all foreign borrowing is required to be submitted to the Monetary Board for approval-in-principle ‹ RA No. 4860 or the Foreign Borrowings Act tasked BSP to promulgate and enforce measure to reduce external debt service requirements ‹ Administrative Order (AO) No. 270 - Prescribing the Implementing Rules and Regulations of the Local Government Code of 1991: The appropriated aggregate budgetary amount of local government units (LGUs) shall not exceed the estimates of income ° Republic’s credit profile strengthened by market-oriented practices of managing debt ‹ Debt Management: Strategic and proactive approach to debt management has enhanced the portfolio risks profile and reduced the cost of borrowing for the Government ‹ Subsidy Expenditures: Unlike many peers, ROP expenditures is not encumbered by large structural subsidies ‹ Diversified Sources of Financing: Government is shifting towards domestic markets for PHP denominated debt, while retaining options to tap comparatively cost-effective financing from markets other than USD bonds (e.g. Samurai Bonds, Global Peso bonds, Euro Bonds, Dimsum Bonds) as well as external official development financing ‹ Bond Sinking Fund: The Fund assures investor of the Government’s capability to repay maturing Peso-denominated debt as it falls due

Strategic Guidelines Set for the 2013 2014 2015 2014 2015 2016 2017 2018 Liability Management Program Actual Actual Actual Program a. Reduce debt service payments (Interest 18.8 16.8 14.7 17.0-19.5 15.5-18.5 14.3-16.9 12.6-15.5 10.9-14.1 payments/Revenue, %) b. Minimize foreign exchange risk by reducing foreign currency denominated 34.3 31.6 32.9 29.0-33.7 28.6-32.6 29.9-32.7 30.5-32.5 29.9-31.8 debt (as % of total debt stock, excludes Global Peso Notes) c. Minimize financing risks by: °Minimizing debt maturing in one 9.9 6.2 4.9 Not more than 15% year (% of total) °Maintaining average maturity of 10 9.9 10.1 7-10 years debt portfolio (in years) 34 * Excludes Global Peso Notes Sources : Bureau of the Treasury Sound Fiscal Position

Manageable fiscal deficits National Government (NG) Revenue, Expenditure and Deficit (% of GDP), General Government Revenue (% of GDP)

22.7 21.0 21.0 21.5 17.0 18.0 16.7 16.7 16.5 17.7 16.9 16.0 16.8 16.3 15.7 16.8

16.5 15.6 15.6 14.9 15.1 15.8 15.9 14.4 14.0 13.4 14.0 14.5

-0.2 -0.9 -0.6 -0.9 -1.0 -2.0 -2.3 -1.4 -2.1 -2.6 -3.7 -3.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Sep 2016

NG Revenues/GDP NG Expenditures/GDP NG Deficit/GDP Gen. Gov. Revenues/GDP

Healthy primary balance

NG Primary Surplus (% of GDP) 3.9 3.7

2.7 2.6 2.0 1.4 1.4 0.8 0.7

-0.2 -0.2 0.3 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Sep 2016

Primary Surplus/GDP

35 Sources: DOF, BTr Sustainable Fiscal Revenue and Spending Path

Sustained improvement in revenue collection with National Government revenue-to-GDP of 15.9% in Jan-Sep 2016

National Government Fiscal Performance

Actual Actual 2016 Outlook 1 Jan-Oct Jan-Oct Jan-Sep 2015 2016 2015 2016 YoY Growth (%) PHP Bn % of GDP PHP Bn % of GDP PHP Bn % of GDP

Total Revenues 1,821.4 1,768.0 3.0 15.9 2,109.0 15.8 2,256.7 15.5

Tax Revenues 1,629.6 1,505.1 8.3 14.2 1,815.5 13.6 2,044.0 14.1

Bureau of Internal 1,293.2 1,190.6 8.6 11.3 1,433.3 10.8 1,620.0 11.2 Revenues

Bureau of Customs 321.3 300.7 6.8 2.8 367.5 2.8 409.0 2.8

Non-Tax Revenues 191.8 262.9 (27.0) 1.7 293.3 2.2 210.7 1.5

Bureau of the Treasury 91.1 97.4 (6.5) 0.8 110.0 0.8 n.a. n.a.

Privatization 0.6 62.7 (99.1) 0.0 62.8 0.5 2.0 0.0

Expenditure 2,037.4 1,820.6 11.9 18.0 2,230.6 16.8 2,645.6 18.2

Surplus/(Deficit) (216.0) (52.6) 310.9 (2.1) (121.7) (0.9) (388.9) (2.7)

Primary Surplus 49.8 219.3 (77.3) 0.3 187.7 1.4 n.a. n.a.

1Emerging outlook or projection for the year approved by the DBCC on Jul 5, 2016 n.a. – not available Note: Some values may not sum up to exact figure due to rounding Source: DOF, Budget of Expenditures and Sources of Financing (BESF) 2017 - Department of Budget and Management (DBM) 36 Declining Debt Service Burden

No bunching of maturities; amortization is spread out over the long-term As of End Jun 2016 (PHP bn)

343 290 273 301 173 0 313 128 156 78 234 217 143 302 166 199 73 28 225 187 17 0 32 215 155 143 148 131 50 141 138 89 145 24 20 81 99 107 100 84 97 110 49 58 61 51 51 52 36 32 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040

Domestic External 2016 Jun 2041-2056 Steady decline in the Republic’s interest service burden

Interest payments / NG revenue (%) and Interest payments / NG expenditure (%) 36.9 36.7 35.4

31.7

31.1 29.7 24.8 29.2 23.6 24.4 27.0 22.6 20.5 20.4 23.3 18.8 16.8 21.4 15.4 19.6 19.3 14.7 14.9 14.6 17.9 17.6 17.2 13.0 16.2 13.9 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jan-Oct Jan-Oct Jan-Oct IP/Rev Jan-Oct IP/Exp Interest Payments/Revenue Interest Payments/Expenditure 2015 2016

Source: BTr 37 Fiscal Deficit is Increasingly being Funded from Domestic Sources Ample domestic liquidity allows ROP to source majority of its Sustained decline in debt/GDP ratio financing needs from domestic market minimizing FX risks NG debt /GDP and GG Debt /GDP (%) Total debt breakdown (%) 68.5 59.2 61.4 54.7 54.8 51.6 53.9 52.4 51 48 44 51.5 49.2 45.4 44.7 * 44 41 44.2 44.1 44.3 42.2 43.1 43 44 42 42 36 34 35 41.4 40.6 39.2 33 36 36.4 36.3 35.4 ** 64 66 67 65 64 59 57 58 58 52 56 56 56

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 end- National Gov't Debt General Gov't Debt Sep External Domestic 2016 * End Sept 2016 **End June 2016 Long-dated debt profile reduces refinancing risk

Domestic debt breakdown (%) External debt breakdown (%)

27 29

44 54 90 96 100 100 100 100 100 41 100 100 70 78 79 26 82 83 84 20 29 30 14 19 12 10 10 8 10 8 9 7 7 8 10 4 2003 2005 2010 2011 2012 2013 2014 2015 end-Sep 2003 2005 2010 2011 2012 2013 2014 2015 end-Sep 2016 2016 Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr Long-term: >10yrs Medium-term: 1yr to 10yr Short-term: <1yr Unless otherwise stated, graphs pertain to National Government (NG) debt 38 Sources: BTr, DOF Markets Recognize Philippines’ Strong Credit Quality

5Y sovereign CDS levels (basis points)

400 Philippines (Baa2/BBB/BBB-) Slovenia (Baa3/A/A-) Peru (A3/BBB+/BBB+) Thailand (Baa1/BBB+/BBB+)

Mexico (A3/BBB+/BBB+) Malaysia (A3/A-/A-) Indonesia (Baa3/BB+/BBB-) Colombia (Baa2/BBB/BBB) 350

300

250

204.338 Colombia 200 192.387 Mexico 181.514 Indonesia 172.106 Malaysia 150 131.888 Philippines 124.359 Peru 102.372 Slovenia 100 96.532 Thailand

50

0

(Moody’s/S&P/Fitch) Source: Bloomberg L.P. (Data as of 21 November 2016) 39 Sophisticated Debt Management

Innovative liability management exercises have been consistently met with strong investor interest

Jan 2012 Nov 2012 Jan 2014 Jan 2015 Sep 2015 Feb 2016

° 1st Asian issuer ° Largest global ° 1st one-day ° 1st benchmark ° Domestic debt ° 1st trade to launch a tender offer accelerated USD transaction swap will coming out of transaction in ever done by a “Switch” Tender announced in result in EM Asia in 2012 sovereign in Offer executed 2015 PHP2.4bn 2016 Asia ex-Japan by an Asian savings on ° Lowest ever ° Lowest coupon ° Concurrent sovereign interest coupon (4.20%) ° Deal swapped ever achieved execution of expense in the achieved by an higher-cost ° Received by the ROP for one-day first year Highlights of Asian sovereign FCY- aggregate a USD issue of accelerated Transaction for a bond denominated offers of over any tenor ° Minimum switch tender greater than the debt with USD 2.6bn in coupon of offer ° Lowest coupon 10-year tenor lower-cost notional value 3.625% for (3.95%) ever ° Lowest- LCY- and accepted 10Y and ° Lowest ever achieved in the coupon by denominated USD 870mn 4.625% for coupon (5.0%) 25Y/30Y tenor ROP at 3.7% debt with notional with a 25Y achieved for the by an Asian for a 25-year longer tenors purchase price ROP in the 25- sovereign debt of USD 1.08bn year tenor ° Resulted in NPV savings of over USD 14mn

Order book Oversubscription 8.3x 7.8x 9.0x 9.2x 3.9x 6.7x

Source: Bureau of the Treasury; Bloomberg L.P . 40 Deepening Capital Markets Provide Funding Options Strong confidence witnessed from ROP’s benchmark bond issuances have paved the way for the successful capital raising efforts of domestic corporate entities, who are able to increasingly tap both local and international capital markets, to meet their funding needs Expansion plans of firms increasingly financed by capital market Issuer ExpansionProjects South Luzon Tollway Corp ° Listed in PDEX in May 2015 bonds worth PHP7.3bn to fund road building activities ° Completing the construction of tollroad 4: Sto. Tomas, Batangas to Lucena, Quezon 8990 Holdings Inc. ° On Jul 16, 2015 raised PHP9bn in their maiden bond issuance in order to secure diversification of their long term financing in constructing houses for the masses Aboitiz Equity Ventures, Inc. ° Issued in Aug 2015 this is the largest corporate bond issuance (PHP24bn) in 2015. The issuance is for planned acquisitions and further investments e.g., take active part in infrastructure sector Filinvest Land, Inc. ° Issued PHP8bn worth of bonds in Aug 2015 to develop 19.2 hectares of Cebu’s South Road Properties (SRP) that they won through bidding SM Prime Holdings, Inc. ° On Nov 25, 2015 raised PHP20bn in order to support the funding needs of their mall expansion programs ° On Jul 26, 2016 raised PHP10bn to sustain their development roadmap which includes provincial expansions where there are huge growth potentials SMC Global Power Holdings ° Issued an aggregate of PHP15bn worth of bonds in Jul 2016 to support the current building of additional capacities for their Corp Greenfield power plants in Limay, Bataan and Malita, Davao. ° Shelf registration program boosts corporate bond issuance. Taking advantage of the program to date are SM Prime Holdings Inc., Ayala Corp., SMC Global Power Holdings Corp., DMCI Project Developers Inc., Ayala Land Inc. The SEC has been active in promoting efficiency-related measures such this shelf registration program, seen as a step in improving the quality of business regulation. Of the total PHP 137bn fixed rate and deferred coupon paying bonds for the period January-July 2016, PHP121bn were registered under this system.

Funding of corporates through the market remains robust IPOs well-received despite ongoing global volatilities

New Bond Listings, 2013-2016 IPOs, 2013- 2016

2013 2014 2015 2016* 2013 2014 2015 2016*

Number of Issuers 9 19 11 9 Number of Issuers 4 5 4 3 Average Issue Size (PHP bn) 9.3 10.1 9.8 8.0 Total Amount (PHP bn) 61.0 14.5 5.2 55.6 Total Amount (PHP bn) 83.5 191.9 107.4 71.7 *as of November 2016

*as of November 2016 Issuer names still in the pipeline includes Ayala Land, Inc., Double Dragon Shakey’s (a popular pizza chain) IPO has been approved by PSE for listing and GT Capital on 25 November 2016.

41 Strong External Position Robust External Profile Lends Resiliency to Global Economic Stresses

The Philippines posted 13 consecutive years of current account surplus from 2003-2015 Balance of payments (USD mn)

15,243

9,236 11,400 5,085 8,556 3,769 6,421 2,616 2,410 1,684 89 634

Net Unclassified Items Financial Account

Capital Account Current Account

Overall BOP Position -2,858

2005 2006 2007 2008 2009 2010 2011 2012 r/ 2013 r/ 2014 r/ 2015 r/ 1H 2015 1H 2016 Note: Beginning 2005, the BOP is based on IMF’s BPM6

° BOP surplus in 2015 was USD2.6bn, a reversal from the BOP deficit recorded in 2014 of USD2.9bn. In 2016, BOP is projected to remain in surplus of USD2.0bn. BOP position as of end-Oct 2016 is USD1.5bn ° ROP’s current account continues to be in surplus at USD778mn at end-June 2016, supported by robust remittances from overseas Filipinos (OFs), substantial Business Process Outsourcing (BPO) revenues and increasing tourism receipts. The 2015 current account posted a surplus of USD8.4bn, equivalent to 2.9% of GDP

Source: BSP 43 Structural and ‘Sticky’ Current Account Surplus Provides Buffer Against Shocks

Business Process Outsourcing (BPO) and increasingly tourism sector act as additional, strong economic engines, helping ensure resiliency of ROP’s external payments position against external stresses

BPO – a strong driver of employment and revenues Tourism receipts provide key support to the current account BPO employment (‘000s) and revenues (USD bn) International visitor receipts (USD bn) and arrivals (mn)

+13.9% Arrivals 6.5* +12.6% revenue Revenues 1,800 growth in Growth Receipts 4.8* 5.0* in 2015 4.4 arrivals Employment 3.8 1,146 3.4 3.5 1,044 3.0 958 858 2.5 777 4.0 640 527 3.6 371 424 236 298 4.5 6.1 7.1 8.9 11 13.2 15.8 18.0 20.5 22.9 38.9 3.5 3.9 4.3 4.7 4.8 5.4 6.0 3.4 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E2022P 2010 2011 2012 2013 2014 2015 2016P Jan-Aug Jan-Aug 2015 2016 Sustained growth of remittances over the years

Overseas Filipinos' cash remittances (USD bn) +4.0% growth in 2015 24.6 25.6 26.8 +4.8% 21.4 23.0 18.8 20.1 19.1 20.0 16.4 17.3 12.8 14.5 10.7 8.6

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016P Jan-Sep 2015 Jan-Sep 2016

*Exchange Rate: USD1=PHP44.4 for 2014; USD1=PHP45.5 for 2015 ; [Jan-Aug 2015: USD1=PHP44.836 and Jan-Aug 2016: USD1=PHP46.895; 2016 projection based on DOT statements] Sources: BSP, Department of Tourism, IBPAP 44 Notes: OF Remittances projection for 2016 computed based on actual 2015 data and MB approved 2016 growth projections Remittances’ Growth Remains Strong and Diversified

Even during periods of conflict in the Middle East, ROP experienced positive remittance growth Diversified sources of remittances Gross Loans/Deposits Ratio (%) Domestic Credit to Private Sector (% of GDP, 2014)* Overseas worker’s YoY growth remittance (USDbn) 2008 2015 USD 25.8 bn Falling Oil USD 16.4 bn 30 30% Prices Others Middle Others 0% Middle East 0% East 15% Asia 23% 15% 25 25.0% 25% Asia 12%

Europe Arab Spring Rise of Isis 16% 20 20% 19.4% Oceania Europe 1% 16% Cedar Revolution Americas Oceania Americas 15 15% 56% 2% 44% 13.7% 13.2% 12.8%

Iraq ° YoY net cash remittances growth averaged 10.9% for 2003- 10 War 10% Israeli- 7.4% 2015, highlighting the consistency and strength of remittance Lebanon 8.2% 7.20% Conflict 7.2% growth in ROP over the past decades Shia 6.3% Insurgency in 5.6% ° Remittances come from diversified sources, the largest coming 5 5% Yemen from Americas (44%) 4.60% ‹ Middle East contributes only 23% towards total remittances; Asia increasingly a source 0 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ° Based on historical evidence and current outlook, ongoing tensions in the Middle East are unlikely to significantly impact Overseas worker's remittance YoY growth remittances to ROP ° Low oil prices have not shown any visible impact on Sources: BSP for remittances data remittance thus far 45 Healthy External Finances Mitigate Against BOP Stresses

… while helping smoothen volatility in the foreign exchange Reserve buffer provides protection against external market by enabling the necessary adjustments in a continued payments shocks… volatile global environment FX reserves (USD bn) and months of import cover Implied Volatility (YOY %, as of November 21, 2016) 90.0 14 11.5 11.6 9.9 Indonesia Malaysian Korean Japanese Philippine Chinese FX reserves 9.9 10.3 80.0 11.6 Rupiah Ringgit Won Yen Peso Renminbi Thai Baht 12 10.4 13.10 12.90 70.0 75.3 12.15 12.05 Import cover 9.2 83.8 83.2 85.1 10 60.0 80.7 62.4 79.5 50.0 6.7 6.4 8 7.75 7.72 40.0 5.1 6.93 4.6 44.2 6 30.0 37.6 33.8 4 20.0 23.0 2 10.0 18.5 0.0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Oct-16

Sustained decline in external debt-to-GDP ratio underscores ° ROP enjoys a healthy level of international reserves of the health of external finances USD85.1bn as of Oct 2016, sufficient to cover 9.9 months of total imports External debt (USD bn) and external debt/GDP (%) ° Adequate reserves help guard against external shocks and 75.6 80.0 78.5 77.5 77.7 73.6 77.7 underscores the ability of ROP to pay back any foreign currency 61.6 66.5 65.2 61.4 64.7 denominated debt ° The Philippines is now a net external creditor nation to the IMF. 59.7 Furthermore, the Philippines is a fully participating member of the 50.2 44.5 Chiang Mai Initiative Multilateralization (a USD240bn swap facility of 37.6 38.4 36.9 which ROP has a committed contribution of USD9.1bn; ROP may 33.7 32.0 28.9 27.3 26.5 26.2 borrow up to 2.5 times its contribution), enhancing the strength of ROP’s external and FX positions

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q2 ° BSP and Bank of Japan also recently entered into a peso-yen swap External Debt External Debt Ratio 2016 facility under a cross-border liquidity arrangement 46 Source: BSP, Bloomberg Export Market Diversified ° To further diversify its export market, ROP plans to i mprove access in both domestic and international markets and maximize gains in FTAs : ‹ increase inbound and outbound trade missions; ‹ participate in exhibitions and trade fairs; ‹ focus on ASEAN as market for ROP products (ASEAN population: 620mn); and ‹ maximize availment of EU-Generalised Scheme of Preferences Plus (GSP+), pursue renegotiation of Japan-Philippines Economic Partnership Agreement (JPEPA), push for ratification of Philippines and the Europe Free Trade Association (EFTA) Free Trade Agreement (PH-EFTA FTA) ‹ In December 2014, it gained stronger foothold in Europe with the approved application of the Philippines for the EU-GSP+. The Philippines is the first ASEAN country to join the GSP+. This initiative covers 6,274 products, all of which are subject to zero duty. o The country’s beneficiary status has helped increase exports to EU by 6.8% in 2015 ‹ In April 2016, ROP and EFTA states Iceland, Liechtenstein, Norway and Switzerland signed a FTA. The PH-EFTA FTA has a comprehensive coverage, including trade in goods (industrial and agricultural goods, fish and other marine products), rules of origin, trade facilitation, trade in services, investment, competition, protection of intellectual property rights, government procurement and sustainable development. ‹ The direct effect of Brexit on the Philippines is seen as minimal - merchandise exports and imports between the UK and ROP is small, accounting for only 0.9% and 0.5% of the total in 2010-2015, respectively ° ROP is expected to benefit from existing trade agreements: ASEAN Free Trade Agreement (AFTA), ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), ASEAN-China Free Trade Agreement (ACFTA), ASEAN-India Free Trade Agreement (AIFTA), ASEAN-Japan Comprehensive Economic Partnership Agreement (AJCEPA), ASEAN-Korea Free Trade Agreement (AKFTA) ° APEC Trade Repository, a single online reference point on APEC economies' trade and tariff mechanisms with the objective of further promoting APEC's work on transparency, connectivity and trade facilitation, was launched in November 2015 ° The Philippines will now implement the Trade Facilitation Agreement (WTO-TFA) as it complied with its Category A Notification commitments that covered areas of customs administration ° The country's export industry benefits from a revitalized manufacturing sector and its continued linkage with the agriculture sector ° Updated Philippine Export Development Plan approved in February 2016 sets the targets and strategies for the growth of the exports industry

ROP’s diversified export markets act as buffer for softening global demand Exports by destination (USD bn) EU China Japan USA ASEAN Others 15.5 13.9 15.3 12.9 15.6 9.2 14.8 19.6 15.6 8.8 8.5 9.8 4.8 4.5 11.2 4.2 4.4 8.3 8.7 8.8 8.6 8.2 3.4 7.4 7.6 7.1 13.9 7.3 7.7 6.8 12.0 12.4 6.2 7.8 8.9 9.9 5.7 5.5 2.9 5.7 6.1 6.2 7.0 8.0 6.4 8.5 8.4 7.9 6.6 5.9 5.9 6.6 6.7 7.2 2007 2008 2009 2010 2011 2012 2013 2014 2015 47 Source: PSA. DTI, NEDA. For more details on the PEDP please refer to this link - http://www.dti.gov.ph/emb/images/PEDP_2015-2017_Executive%20Summary%20_28as_of_09_Mar2016_29.pdf ; on EU GSP+ please refer to this link - http://www.dti.gov.ph/emb/index.php/emb-focus-2/eu-gsp Sound and Stable Financial System Robust Banking System

Asset quality of the banking system remains extremely strong Prudent NPL coverage ratios will ensure that the banking with an NPL ratio of only 1.6% system is well-prepared for any unforeseen shocks

Gross loans (PHP bn) and NPL ratios (%) of U/KBs 9.0 NPL coverage ratio (%) of U/KBs 6,144.62 8.0 7.0 135.6 6.0 5.0 4.0 3.0 1.6 2.0 1.0 0.0

Loans outstanding NPL ratio

… is supported by strong balance sheets – with capitalization Sustainable profitability of banking sector… levels well above international norms

Net profit of U/KBs (PHP bn) 2016 Q3: Capital adequacy ratio (%) of U/KBs PHP101.7bn 16.1

15.4

BSP Regulatory Requirement: 10% International Standard: 8%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jun-16 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Note: Banking system statistics refers to universal and commercial banks data Solo basis Consolidated basis Source: BSP 49 Banking System Poses Minimal Risk

Limited exposures of banks mitigate the system’s potential risk from contingent liabilities Strong deposit base and low leverage support banking sector Potential contingent liabilities of the banking sector is smaller funding than neighbors given size of the sector Gross Loans/Deposits Ratio (%) Philippine Banking System Domestic Credit to Private Sector (% of GDP, 2015)*

73.3 73.5 72.4 Philippines 41.9 71 70.7 71.23 70 69.3 69.7 68.1 68.4 Indonesia 39.1

64.5 64.4 Malaysia 125.2

Korea 140.6

China 155.3

Thailand 151.3

Steady decline in non-performing real estate loans despite Residential Real Property Price Index to help better assess higher real estate exposure trends in housing prices Real estate exposure (PHP bn) and Non-performing real estate loans ratio (%) (%, year-on-year) 20 17.9 18.4 3.7 18 3.6 3.8 3.6 16 3.3 3.2 3.4 14 12.8 3.2 12 9.7 11.3 2.8 3.0 9.2 9.4 2.8 10 8.3 8.6 2.6 2.6 2.6 2.8 2.5 8 6.3 2.3 2.6 5.9 2.2 5.1 2.1 2.1 6 4.3 2.0 2.4 1516 1554 2.2 4 2.7 814 843 900 940 1007 1035 1116 1159 1221 1273 1359 1432 1623 1.8 2.0 2 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 0 2012 2013 2014 2015 2016 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Real estate exposure Non-performing real estate loans ratio Overall National Capital Region (NCR) Areas outside NCR 50 Sources: BSP; *World Bank Ahead of the Curve: BSP Continues to Strengthen Financial Intermediation ° Higher minimum capital standards than Basel recommendations; early adoption in January 2014 of Basel III capital requirements ° BSP requires banks to carry out stress tests twice a year on the effect of a 20% and 50% write off of Sound regulatory various credit exposures (including real estate) on banks’ balance sheets. Based on latest stress test, the banking system can withstand significant decline in real estate prices. Banks would have enough capital to framework for banks meet the minimum regulatory requirement. ° Measures to strengthen credit underwriting standards (e.g., focus on cash flow analysis and ability-to-pay) and consumer protection standards (e.g., institutionalize disclosure and transparency, financial awareness and education)

° BSP broadened the coverage of banks’ real estate activities that it monitors, expanding reporting guidelines which now covers loans to developers of socialized and low-cost housing, and to individuals, and credit supported by non-risk collaterals of Home Guarantee Corp. Moreover, banks are also required to report their investments in real estate securities ° BSP will require banks to put up additional capital rather than limit exposure to the real estate sector. In a new prudential guideline, banks must meet the requirement of 10 percent capital adequacy ratio (CAR) of Stepping up surveillance of qualifying capital while its subsidiary thrift banks will have to maintain a common equity tier 1 (CET1) real estate sector level of at least six percent of qualifying capital. These two specific thresholds reinforces the macro- prudential policy that banks must have sufficient capital to absorb any possible shock on its credit exposures ° Banks are permitted to purchase developers’ previously issued loans to buyers only if the loans meet minimum standards ° BSP has generated Residential Real Estate Price Index using information from banks' approved housing loan applications to provide a tool in assessing the real estate and credit market conditions in the country

Stronger policy coordination ° Created a high-level Financial Stability Committee at the BSP to ensure early ° Institutionalized the Financial Stability Coordination Council, with purview over financial crisis identification and mitigation management, non-bank sources of credit, capital flows management, capital market reforms, and of system risks and warning corporate leverage signals ° Establish a system-wide Crisis Resolution Framework for the Philippine Financial System

Source: BSP; IMF 51 Economic Outlook ROP Expects Continued Robust Growth in the Medium-Term The Philippine economy is now on a higher growth trajectory with increasing contribution from the manufacturing sector, infrastructure investment, and robust services sector

2015 2016 2017 2018 2019 2020 2021 2022 Actual Projections 2/

Real GDP Growth (%) 5.8 6.0-7.0 6.5-7.5 7.0-8.0 7.0-8.0 7.0-8.0 7.0-8.0 7.0-8.0

Dubai Crude Oil (USD/bbl) 50.9 35-50 40-55 45-60 50-65 50-65 50-65 50-65

Inflation (%, average) 1/ 1.4 2.0-4.0 2.0-4.0 2.0-4.0

364 Days T-bill Rate (%) 2.08 2.0-4.0 2.5-4.0 2.5-4.0 2.5-4.0 2.5-4.0 2.5-4.0 2.5-4.0

LIBOR, 6 mos (%) 0.5 0.8-1.8 1.0-2.0 1.5-2.5 1.5-2.5 1.5-2.5 1.5-2.5 1.5-2.5

Exchange Rate (PHP/USD) 45.5 45-48 45-48 45-48 45-48 45-48 45-48 45-48

Balance of Payments (USD, bn) 2.6 2.0 3/

3/ Current Account (USD, bn) 8.4 5.8

OF Cash Remittances (USD, bn) 25.8 26.8 3/

Merchandise Exports a/ (% growth) -13.1 3.0 6.0 8.0 10.0 10.0 11.0 11.0

Merchandise Imports a/ (% growth) -3.2 7.0 10.0 11.0 12.0 12.0 13.0 13.0

Gross International Reserves (USD, bn) 80.7 82.7 3/b/

Sources: PSA, BSP, Bloomberg 1/ Inflation target range for 2016-2018 2/ Assumption adopted by the DBCC on July 5, 2016 3/ MB approved on 26 May 2016; OF remiitances computed based on MB approved growth a/ Based on Balance of Payments and International Investment Position Manual, 6th Ed. (BPM6) b/ without revaluation 53 r/ revised; NA Not Applicable Expected Drivers of Growth in 2016

° Household consumption: remittance inflows, better employment prospects, strong consumer confidence, low inflation, low interest rates ° Government spending: expansion of human development and social protection programs (i.e., conditional cash transfer (CCT), K to 12, health, etc.) Demand Side ° Investment: public construction, including infrastructure and reconstruction; private construction ° Exports of services: good prospects for Business Process Management (BPM) and tourism

° Low petroleum prices ° Real estate, renting, business activities in response to demand from the BPM sector ° Construction and infrastructure development Supply Side ° Tourism-related services ° Wholesale and retail trade ° Manufacturing resurgence

Source: NEDA 54 Risks to Growth and Opportunities

Vigilant and well-positioned against the downside risks to growth

° Fragile growth in Japan and European Union ° Slowdown in large emerging economies, particularly China ° Uncertainties over Brexit External ° Asynchronous monetary policies in major developed economies ° Geopolitical tensions in the Middle East, extended period of low oil prices ° Maritime dispute in the West Philippine Sea

° Natural hazards, potential La Niña ° Delays in infrastructure and reconstruction projects Domestic ° Logistics bottlenecks ° Closure of mines

While at same time watchful of opportunities

° Closer economic integration in the ASEAN and with other neighbors which would open up new sources of capital and markets ° Philippine hosting of ASEAN meetings in 2017 ° Commitment to continue current macroeconomic policies and programs, sustain reform momentum ° Resumption of peace talks with National Democratic Front (NDF), Moro Islamic Liberation Front (MILF), Moro National Liberation Front (MNLF)

Source: NEDA, DOF 55 2017 Proposed National Budget: “A Budget for Real Change” Focus on Social Services to empower human capital development Infrastructure and Other Capital Outlays gets a big allocation 2017 Proposed Budget by Sector, PHP bn and % Share 2017 Proposed Budget by Expense Class, PHP bn and % Share

Department 2017 2016 Share of Total Allocation to LGUs* NEP* GAA Budget (%) PHP554.9bn, 16.6% Personnel Services (PHP billion) 2017 2016 PHP997.0bn, 29.8% Support to GOCCs Social Services 1,344.8 1,119.8 40.1 37.3 PHP131.5bn, 3.9%

Economic Services 924.0 834.0 27.6 27.8 PHP3,350bn

General Public Services 581.8 498.0 17.4 16.6 Infrastructure and Debt Burden 351.6 419.3 10.5 14.0 other Capital Outlays Maintenance Expenditures Defense 147.8 130.7 4.4 4.4 PHP780.6bn, 23.3% PHP534.5bn, 16.0% Debt Burden Total 3,350.0 3,001.8 100.0 100.0 PHP351.6bn, 10.5%

2016 General Appropriations Act *Includes other transfers to LGUs ° 94.9% of 2016 agency budgets were released as of Sep 2016 ° Improved absorptive capacity of agencies with 92.9% utilization rate of cash allocation as of Sep 2016; DPWH utilization rate at 98.5% 2017 Proposed Budget ° PHP3.35tn proposed budget for 2017 is 11.6% higher than the PHP3.002tr budget for 2016. It is equivalent to 21% of GDP ° The 2017 until 2022 budgets will support the President’s promise to improve the country’s infrastructure, invest in human resources, modernize agriculture and rural development, and develop lagging regions ° Strictly compliant with the Supreme Court decision on the Disbursement Acceleration Program (DAP) and the Priority Development Assistance Fund (PDAF) ° Congress and Senate have approved the proposed budget. Bicameral conference ongoing to reconcile differences betweeen Congress and Senate versions. Budget is expected to be passed before end-2016 Highlights of the 2017 Proposed budget: ° Infrastructure outlays for 2017 is equivalent to 5.4% of GDP to make it at par with ASEAN countries ° Proposed budget of PHP31.5bn for Mindanao Logistics Infrastructure Network to pay equal attention to connecting lagging regions with growth centers ° Proposed budget of PHP6.9bn for Technical Education and Skills Development Authority (TESDA) to support 293,333 enrollees to its Training-for-Work Scholarship program ° Proposed budget of PHP4.3bn for full implementation of the Responsible Parenthood and Reproductive Health Law ° PHP78.7bn proposed allocation for conditional cash transfer (CCT) program for 4.62mn beneficiary families 56 Source: DBM – BESF 2017 and DBM Presentation to Congress on Aug 22, 2016; *National Expenditure Program 2017 Proposed National Budget: “A Budget for Real Change”

Higher allotment for infrastructure and social development agencies Proposed Infrastructure Outlays Budget , PHP Billion Budget of Top Departments, 2017 vs. 2016 Particulars 2017 2016 2015 Department 2017 NEP* 2016 GAA Growth Infrastructure Outlays 860.7 756.4 575.7 (%) PHP % PHP % Percent of GDP 5.45.1 4.3 (%) billion Share billion Share Growth Rate 13.8 31.4 66.3(%) of which: Education 567.6 16.9 433.4 14.4 31.0 Road Networks 328.2 298.1 223.5 Public Works and Highways 458.6 13.7 397.1 13.2 15.5 Flood Control Systems 75.8 69.0 48.3 Seaport Systems 2.7 1.8 2.7 Interior and Local Gov’t. 150.1 4.5 125.4 4.2 19.7 Airport Systems 5.7 9.6 12.3 Health 144.2 4.3 125.0 4.2 15.4 School Buildings 124.6 91.3 72.5 National Defense 134.5 4.0 117.7 3.9 14.3 Hospitals and Health Centers 10.0 19.2 9.5 Irrigation Systems 26.0 23.6 26.5 Social Welfare and Dev’t. 129.9 3.9 110.9 3.7 17.1 Other Infrastructure Assets 224.5 170.4 131.4 Transportation 55.5 1.7 44.3 1.5 25.2 Agriculture 45.3 1.4 48.9 1.6 (7.5) Proposed Education Budget , PHP Billion Environment & Natural Resources 29.4 0.9 22.3 0.7 31.9 Particulars 2017 2016 2015 Finance 23.0 0.7 20.2 0.7 13.6 Education 649.6 501.8 373.6 Growth rate (%) 29.4 34.3 14.4 Total Budget 3,350.0 3,001.8 11.6 Basic Education 571.5 435.4 311.1 Growth rate (%) 31.3% 40.0% 13.0% ° 2017 expenditure priorities show commitment to accelerate infrastructure Department of Education 567.56 433.38 309.90 development Department of Science and Technology 3.9 2.0 1.2 ° Road Networks gets the highest share of the infrastructure budget at 38.1% or Tertiary Education 75.1 61.6 57.0 PHP328.2bn Growth rate (%) 22.0 8.0 24.0 ° School buildings will receive a budget of PHP124.6bn or 14.5% share of the State Universities and Colleges 58.8 49.7 47.7 infrastructure budget Commission on Higher Education 13.4 9.7 7.0 ° Spending for human capital development and a more agile and competitive Department of Science and Technology 3.0 2.3 2.2 work force through education will be boosted with provision for basic and tertiary Technical-Vocational Education education growing by 31.3% and 22.0%, respectively Technical Education and Skills Dev’t. Authority 6.9 6.9 5.6 Growth rate (%) 0.1 22.7 5.3 57 Source: DBM – DBM Presentation to Congress on Aug 22, 2016 2017 Proposed National Budget: “A Budget for Real Change”

Proposed Social Protection Budget, PHP bn Proposed Health Budget , PHP bn

Particulars 2017 2016 2015 Particulars 2017 2016 2015 Social Protection 169.6 159.6 128.6 Health 151.5 132.7 105.0 Growth rate (%) 6.3 24.1 0.5 Growth rate (%) 14.1 26.5 23.5 Welfare and Social Protection Programs of which: Department of Social Welfare and Department of Health 94.1 81.1 64.1 Development 129.9 110.9 110.1 Growth rate (%) 16.0 26.5 37.8 Growth rate (%) 17.1 0.7 27.8 of which: Conditional Cash Transfer 78.7 62.7 54.8 Preventive and Promotive Health Programs 24.6 19.5 15.5 Social Pension for Indigent Senior 17.9 8.7 5.7 Health Facilities Enhancement Program 21.9 26.9 13.4 Citizens Responsible Parenthood Program 4.3 2.3 3.3 Kalahi-CIDDS NCDDP 10.7 11.0 14.7 Philippine Health Insurance Corp. Sustainable Livelihood Program 9.6 9.6 4.6 National Health Insurance Program 50.2 43.9 36.3 Supplementary Feeding Program 3.4 4.3 2.8 Growth rate (%) 16.0 26.5 37.8 Labor and Employment Department of Labor and Employment 13.5 11.9 7.7 Growth rate (%) 13.4 54.1 3.9 Social Housing 21.7 32.4 6.0 ° The proposed budget of PHP13.5bn for the Department of Labor and Employment will be utilized primarily for the implementation of livelihood Growth -32.9rate 444.1 (%) -76.9 programs, Special Program for Employment of Students, Rural and National Housing Authority 12.6 30.5 4.2 Emergency Employment Program and Job Start Program Relocation (DOTr) 7.4 National Home Mortgage Finance ° 2017 proposed budget is consistent with the government’s goal of Corporation 1.5 1.0 1.0 investing to ensure a healthy population with budget for health sector Social Housing Finance Corporation 0.3 0.9 0.8 growing by 14.1% or PHP151.5bn Energization of Households 4.5 4.4 4.8 Growth 3.1 -9.9rate -44.2 (%) Department of Energy 2.7 1.9 2.8 National Electrification Administration 1.8 2.5 2.0

58 Source: DBM – DBM Presentation to Congress on Aug 22, 2016 Medium-Term Fiscal Program

2016 2017 2018 2019 PHP Billion Outlook Growth (%) Projection Growth (%) Projection Growth (%) Projection Growth (%) Revenues 2256.7 7.0 2481.5 10.0 2990.1 20.5 3326.5 11.3 % of GDP 17.2 17.0 15.6 15.5 Tax Revenues 2044.0 12.6 2313.0 13.2 2821.3 22.0 3155.5 11.8 % of GDP 16.3 16.1 14.5 14.1 BIR 1620.0 13.0 1829.2 12.9 2189.7 19.7 2435.9 11.2 BOC 409.0 11.3 467.9 14.4 614.8 31.4 701.9 14.2 Non-Tax Revenues 210.7 -8.7 166.5 -21.0 166.8 0.2 169.0 1.3 % of GDP 0.9 0.9 1.0 1.5 Privatization 2.0 -96.8 2.0 0.0 2.0 0.0 2.0 0.0 % of GDP 0.0 0.0 0.0 0.0 Disbursements 2645.6 18.6 2959.7 11.9 3517.1 18.8 3907.3 11.1 % of GDP 20.2 20.0 18.6 18.2 Current Operating Expenditures 1973.1 10.5 2208.5 11.9 2424.2 9.8 2672.7 10.3 % of GDP 13.8 13.8 13.9 13.6 of which Interest Payments 327.7 5.9 334.9 2.2 349.5 4.4 385.8 10.4 % Share of Total Disbursements 12.4 11.3 9.9 9.9 Capital Outlays 655.7 50.4 734.4 12.0 1076.1 46.5 1217.8 13.2 % of GDP 6.3 6.1 4.6 4.5 Net Lending 16.8 73.2 16.8 0.0 16.8 0.0 16.8 0.0 % of GDP 0.1 0.1 0.1 0.1 Deficit -388.9 … -478.1 … -526.9 … -580.7 … % of GDP -3.0 -3.0 -3.0 -2.7

Financing Mix (%) External 23.0 20.0 20.0 20.0 Domestic 77.0 80.0 80.0 80.0

Consolidated Public Sector Financial Position -222.8 -310.7 % of GDP -0.019-0.015

Nominal GDP 14528.9 15937.4 17564.7 19358.0

Source: Budget of Expenditures and Sources of Financing (BESF) 2017 - Department of Budget and Management (DBM) 59 Ensuring Manageable Debt

Sustained decline in debt/GDP ratio National Government Debt /GDP (%)

42.7 Projected NG Debt 40.9 39.1 37.5 37 35.9 35.4

2016 2017 2018 2019 2020 2021 2022

° Total borrowings in 2017 expected to reach PHP631.3bn and will be used to: ‹ finance the PHP478.1bn deficit ‹ settle PHP89.3bn maturing debt obligations ‹ contribute PHP45bn to the Bond Sinking Fund; and ‹ maintain cushion of cash in the Treasury ° Maintaining heavy bias for domestic borrowing while at the same time optimizing available concessional loans from development partner ° Improving revenue collections through comprehensive tax reform, spending on the right priorities and keeping fiscal risks in check to grow the economy are key to meeting debt targets ° Debt/GDP is expected to decline over time, as the expanded fiscal spending is expected to drive the growth momentum

60 Continued Favorable Macroeconomic Backdrop Bolster Economic Outlook

Early indications are that domestic economic activity should remain Growth and investment dynamics across Emerging Markets has become robust, supported not only by the government’s continued efforts to more complicated in recent weeks due to uncertainty in developed increase infrastructure spending, but also from broader strength in markets, but we believe the Philippine growth story is relatively income and sentiment. On that basis, our forecast for real GDP growth to straightforward. Investment and private consumption, prompted by stay solidly above 6% is driven by domestic demand, which we expect to fiscal expansion and steady remittances growth, respectively, should continue growing above 8% (following double-digit growth this year). Q3 fuel growth through 2018 (estimate).– HSBC, November 2016 GDP data showed that growth momentum remains strong. The basic dynamic of growth enjoying a significant lift from investment spending The Philippine economy expanded a firmer-than-expected 7.1% over and robust consumer spending also looks likely to continue. Indeed, we a year ago (oya) in 3Q16 (J.P. Morgan: 6.6%oya; Consensus: believe the large investments in infrastructure have helped to raise trend 6.7%oya). In sequential terms, growth was up 4.8%q/q, saar last growth in the Philippines, and we now expect the economy to grow by quarter. In relative terms, growth in the Philippines has bucked the 6.8% in both 2016 and 2017, before moderating to 6.5% in 2018. – regional trend in recent years, with growth outperforming the region. Barclays, November 2016 The 3Q16 GDP print affirms that relative strength, leading us to revise our 2016 growth forecast up to 6.8%oya from 6.4% in the prior Q3 GDP growth beat expectations, rising to 7.1% y-o-y from 7.0% in Q2 forecast. 3Q16 print reaffirms ongoing domestic demand strength. led by still strong investment spending. This underscores our view that the Domestic demand, in particular fixed investment, drove the expansion quality of growth is improving. Given that year-to-date GDP growth has in 3Q16. - JP Morgan, November 2016 averaged 7%, we are raising our 2016 GDP growth forecast to 6.9% from 6.7%. Despite the noise from President Duterte’s controversial rhetoric, The outlook for the Philippine economy remains favorable despite we expect this government to make more progress on infrastructure external headwinds…The Philippine economy has performed well in spending than its predecessor and boost reforms, particularly by cutting recent years with rising potential growth and strong macroeconomic red tape and implementing comprehensive fiscal changes (see Asia Special fundamentals and is broadly in line with potential while the outlook for Report - Philippines: Beyond words, 20 October 2016). The continued inflations is well within the target band. – IMF, November 2016 strength in domestic demand will provide significant buffers against downside risks from external factors, including the impact of President- elect Trump’s proposed policies. - Nomura, August 2016 We have not seen significant changes in macroeconomic policies in the country and we haven’t seen domestic policies turning more negative for foreign investors. Overall, despite (his) rhetoric, if he continues to pursue There is indeed upside risk to our current full-year GDP forecast given economic policy among these lines, we could actually see improvements the very strong performance in the third quarter” - Moody’s, for economic support for the rating.– S&P, November 2016 November 2016 . 61 The President and the Economic Team President Rodrigo R. Duterte, 16 th President of the Philippines

President Rodrigo Roa Duterte was born on March 28, 1945 in Maasin, Southern Leyte to Vicente Duterte and Soledad Roa who were both civil servants. His mother was a public school teacher while his father was a government worker. Duterte traces his roots to the Visayas. He spent his early years in Danao, Cebu, the hometown of his father. But his lineage has also direct ties from Mindanao as his mother hails from Cabadbaran, Agusan del Norte while his paternal grandmother was a Maranao. In 1949, when Duterte was four years old, his family resettled in the then-undivided Davao where his father Vicente later entered the political arena and was elected governor of the province and served from 1959 to 1965. Duterte graduated in 1968 with a Bachelor of Arts degree in Political Science at the Lyceum of the Philippines University and obtained a law degree from San Beda College of Law in 1972. He passed the bar exam that same year. He served as special counsel and later on became a city prosecutor at the City Prosecutor’s Office in Davao City from 1977 until 1986, when he was appointed as OIC Vice . He ran and successfully won the mayoralty post in 1988. Since then, Duterte has not lost an election. He is among the longest-serving mayors in the Philippines and has been Mayor of Davao City for seven terms, totalling more than 22 years. He has also served as vice- mayor and as congressman of the city’s first congressional district. On May 9, 2016, Duterte won a landslide victory as the Philippine’s 16th President. He was officially proclaimed by a joint session of the Philippine Congress on May 30, 2016. He is the first Mindanaoan President and the first local chief executive to get elected straight to the Office of the President.

63 Seasoned Professionals Leading the Philippine Economy

Agency Appointee Brief Profile

Department of Finance Former BOD of RCBC Capital Corp., Agriculture Secretary under Pres. Corazon Aquino, President of Philippine Carlos Dominguez Airlines, Chairman of Planters Bank

Bureau of Internal Revenue Cesar Dulay Lawyer, former Commissioner of the Integrated Bar of the Philippines

Bureau of Customs Nicanor Faeldon Former Marine Captain

National Economic and Development Dr. Ernesto Pernia University of the Philippines Economics Professor Emeritus; former ADB Lead Economist Authority

Former Budget Secretary under Pres. Joseph Estrada; Professor at the University of the Philippines School of Department of Budget Management Dr. Benjamin Diokno Economics

Former Vice President of RFM Corporation, Executive Director of Go Negosyo, a non-stock, non-profit organization Department of Trade and Industry Ramon Lopez that seeks to promote entrepreneurship in the country

Department of Energy Alfonso Cusi Former Chief of Manila International Airport Authority and Civil Aviation Authority of the Philippines

Former President and CEO of Clark Development Corporation (an economic zone north of Manila and formerly a US Department of Transportation Arthur Tugade Military Air Base)

Department of Public Works and Former Congressman, Lone District of Las Piñas City, Metro Manila; was re-elected Congressman for the 17th Mark Villar Highways Congress

Former Governor and Vice Governor of North Cotabato, Mindanao, credited for bringing down poverty incidence in Department of Agriculture Emmanuel Piñol his province to 25.6% in 2009 from 41.6% in 2000

Former President of the National Association of Independent Travel Agencies, the biggest travel association in the Department of Tourism Wanda Corazon Teo Philippines

Served as senior vice president for corporate and regulatory affairs of Globe Telecom; Asia Pacific representative Department of Information and Rodolfo Salalima and vice chairman of the International Telecommunication Union (ITU) Council Working Group for the Amendment Communications Technology of the ITU Constitution and Convention 64 Investor Relations Office Investor Relations Office Promoting excellence in investor relations. Enhancing sovereign value

Strengthening the Investor Community 15 Years and Beyond With stable macroeconomic fundamentals, the Philippines remains as one of the The effective implementation of the Government’s economic program and its most viable economies for investments in the emerging market. success depends on regular two-way dialogue between economic policy makers The IRO is proud to have played a role in communicating the successes of the and the investment community. Government’s reform program in the last fifteen years and is committed to The Investor Relations Office (IRO) was established in July 2001 to strengthen continuing its efforts to promote the Philippine economy. the country’s relations with investors and other stakeholders by promoting active channels of information flow and dialogue between economic policy Serving Philippine and International Stakeholders makers and investors. The IRO provides services to a wide range of stakeholders – the Government’s Based in the Philippine central bank, the Bangko Sentral ng Pilipinas (BSP), the economic agencies, financial institutions, credit rating agencies, bilateral and IRO has a dedicated staff comprised of trained economists and communication multilateral organizations, domestic and foreign investors, the diplomatic corps, specialists who work with colleagues in the BSP and the economic agencies to business people, the media and the general public. All services to its stakeholders implement a wide-ranging program of investor relations activities. are underpinned by a set of fundamental principles : transparency, accessibility, timeliness, consistency and feedback. As the Government has implemented its economic reform program over the last fifteen years, the IRO’s program of investor outreach has helped to ensure that The IRO adopts a multi-pronged approach to serving its stakeholders through: investor decisions benefit from a comprehensive understanding of the progress • Dissemination of key economic and financial information about economic policy in reforms and what they mean for the economic fundamentals of the objectives and performance Philippines. • Seeking market feedback on current and proposed policy measures In turn, the Government’s economic reform program has made the economy • Providing feedback to economic policy-makers about investor sentiment relatively more resilient amid the global financial and economic crisis. • Facilitating candid and constructive dialogue between policy-makers and investors

66 Investor Relations Office Promoting the Philippine economy at home and abroad

The IRO undertakes a range of initiatives to build awareness among domestic and international investment audiences around the Government’s economic reform program, promote specific investment opportunities in the Philippines and facilitate information exchange and dialogue between key economic policy decision-makers in the Government and domestic/international investors. These initiatives include: • Regular Economic Briefings to update the business community, media and industry organizations on the country’s economic performance • Investor Roadshows to bring the Government’s resilient economic performance record, commitment to sound economic management and responsible reform to members of the international financial community • Media Briefings to raise awareness of the Government’s progress in economic reforms and plans for ongoing reforms • Government Policy Roadshows to increase the business community’s understanding of government policy measures to generate support for the policy implementation process • Investor Teleconferences to provide timely updates on key economic performance indicators • E-mail service to keep investors and other investors abreast of data releases on a regular basis • An English Language website, www.iro.ph, to provide a wide range of easily accessible information about the Philippines’ economic performance and the government’s economic policies

Contact Information For further information about the Investor Relations Office, or about the Philippine economy, please contact: Editha L. Martin Investor Relations Office

Budget and Bangko Sentral ng Transportation Bangko Sentral ng Pilipinas Finance Secretary Economic Planning Management Trade and Industry Pilipinas Governor Secretary Arthur A. Mabini St. cor. P. Ocampo St. Carlos Dominguez Secretary Secretary Benjamin Secretary Malate Manila, Philippines 1004 Amando M. Tetangco, Jr. Ernesto Pernia Tugade Ramon Lopez Diokno Tel: (632) 708-7487 / (632) 303-1581 Email: [email protected] Fax: (632) 708-7489 Website: www.iro.ph

Tourism Secretary Agriculture Secretary Energy Secretary Public Works and Highways Information and Wanda Teo Emmanuel Piñol Alfonso Cusi Secretary Mark Villar Communications Technology Secretary 67 Rodolfo Salalima Philippines Macroeconomic Updates December 2016