tesda financing options prof. b. diokno

TESDA Financing OptionsBenjamin E. Diokno

DioknoIEJAP Economic Update

Long-term impact of the global economic crisis


What the next President will inherit

A domestic economy that has slowed sharply and a world economy that is facing a slower, new ‘normal’ long-term growth potential.

A more fragile fiscal house characterized by large deficits, huge public debt, and sputtering tax-to-GDP ratio

A weaker education system; a public health system that needs radical reform; a dilapidated public infrastructure system

Higher incidence of poverty, joblessness, and hunger


Overview of the Philippine economy

The structure of the economy has not changed significantly; the services sector dominates

The fastest growing sector is the services sector. But the slowdown which started in 2008 is broad-based. In Q1 2009, the industrial sector contracted by 2.1%.


Aggregate demand slowed in 2008 and 2009

The economy is consumer-driven; capital formation is low and falling

Personal consumption plummets, capital formation dives, public construction contracting by 4.4%. The slowdown in 2008 and Q1 2009 was across-the-board


Economic growth has slowed sharply


Economic Growth: Below Target

Except for 2004 and 2007, both election years

2009 GDP ForecastsEmerging consensus is that the Philippine economy will barely grow by 0.4%

Institution Growth Rate (%)

Revised Growth rate(%)

GOP [June 2009 rev] 6.1-7.1 0.8-1.8

ADB 3.5 2.5

World Bank [June 2009] 3.0 -0.5

IMF [June 2009 rev] 2.25 -1.0

Moody’s [April 13th rev] 3.3 2.0

Fitch [June 2009 rev] 2.5 0.1

S&P [June 2009 rev] 2.2 1.0-1.5

Economist Intel Unit 1.8 -1.9

UBS AG [June 2009 rev.] 1.8 0.5

Standard Chartered 0.7 0.7

Consensus 0.4DioknoIEJAP Economic Update

Weaker, low-yielding tax system

Tax-to-GDP ratio risks reverting to low levels seen during the Marcos final years


Fiscal House in DisarrayGMA run large deficits from 2001-04; huge deficits have reemerged in recent years

Fis


High and Rising Public DebtAs the world economy recovers, interest rates would rise, leading to higher debt service


A ballooning national government debt

In 2000, the national government outstanding debt was P2.0 trillion. This soared to P4.2 trillion in December 2008, or by P2.2 trillion during Mrs. Arroyo’s watch.

The next President will be faced with a monumental national government public debt of P4.5 to P4.8 trillion pesos. Higher debt service means either lower spending for essential public services, or higher taxes, or both.


An educational system that requires radical reform

Declining enrollment rate Falling quality of instruction Worsening quality of citizenry


School attendance has declined to alarming levels


Worsening Unemployment It’s unemployment stupid: the focus of

government intervention should be on job creation and job preservation.

Even before the global economic crisis, the Philippines’ employment situation was in a critical state: in 2007, there were on average, 2.7 million unemployed and 6.8 million underemployed. In addition, about 1.3 million young Filipinos join the labor force every year.


Year/Survey Unemployed in thousand

Underemply in thousand

Unemploymt rate (%)

Underemploy rate (%)

Jan 2009 2,855 6,238 7.7 18.2

April 2009 2,830 6,622 7.5 18.9

2008(Aver) 2,716 6,574 7.4 19.3

January 2,675 6,368 7.4 18.9

April 2,914 6,625 8.0 19.8

July 2,750 7,275 7.4 21.0

October 2,525 6,028 6.8 17.5

2009(Aver) 2,653 6,757 7.3 20.1

January 2,850 7,214 7.8 21.5

April 2,692 6,378 7.4 21.5

July 2,824 7,327 7.8 22.0

October 2,246 6,109 6.3 18.1Diokno I Economic Briefing 071709

16

It’s unemployment, stupid

Wide gap between the promise and reality

To create 10 million jobs over 6 years (approx 1.5m annually)


Worsening poverty Poverty worsened in recent years –

from 2003 to 2006. But with higher core and food inflation rates in 2008 combined with rising unemployment and underemployment, poverty is expected to worsen in 2009.

At current expectations of slow recovery and assuming ‘business as usual’, it is highly unlikely that the MDG goal of reducing poverty by half by 2015 will be met.

In the meantime, poverty reduction has been quite rapid in other Asian countries.


Unemployment-hunger linkWith weak social protection, hunger incidence deepens as unemployment rises


Philippines: long-term economic reforms

Diversify exports. This should have been done many years ago. But with changing consumer behavior in developed countries, export diversification has become imperative. The focus should be on reviving the contracting manufacturing sector.

Revisit the labor export policy. An unwanted consequence of the large OFW remittances is that crucial policy reforms have been deferred or ignored. The next administration should also consider the social costs of the labor export policy.

Modernize the agricultural sector. It is the responsibility of the state to feed its people. More resources should be allocated for the sector, and that funds budgeted are used properly and not stolen.


Philippines: long-term economic reforms

Adopt and implement a strong population management program. The next President should show political will on this issue. He should provide sufficient resources to allow parents a choice in determining the family size by making available to them modern methods of family planning.

Reform the tax system and the budget process. The next President will be faced with a looming fiscal crisis. He might consider the following measures: higher taxes on consumption, lower taxes on income; better allocation and more efficient use of public resources; and adopt a multi-year budget framework.


TESDA Budget, FY 2004-2009Rising in nominal terms-- MOOE rose sharply in 2007 but

stagnating while UN rises


…and shrinking in % of total budget and constant in % of GDP


Alternative TVET financing schemes

On efficiency grounds, those who benefit from the TVET system should contribute more

Financing Sources A B C D

Budgetary support

User charges Out-of-pocket expenses Private sector support Official assistance by benefitting countries


Thank you!

Benjamin E. Diokno, Ph.D.

School of Economics, U. of the Philippines

[email protected]

Diokno I Economic Briefing 081309

25

tesda financing options prof. b. diokno

Economy & Finance

economic growth

economic briefing

longterm economic reforms

huge public debt

worsening poverty poverty

world economy

worsening unemployment

philippine economy