turning the crisis into an opportunity

DRAFTFORDISCUSSIONONLY.SUBJECT TOCHANGE.

TurningthecrisisintoanopportunityAproposedeconomicrecoveryprogram

Draftproposalfordiscussionpurposeonlyasof13May20201

“PH-PROGRESO”Philippine Program for Recovery

with Equity and Solidarity


1. Overview2. Wherearewenow?

a. Realeconomy:GDP,income,andjobsb. Fiscalposition:revenue,expenditure,deficitc. Surveyresults:consumers,MSME,farmers

3. Proposedphasedandadaptiveeconomicrecoveryprogram(PH-PROGRESO)a. BayanihanII(expenditureside)b. CREATE:CorporateRecoveryandTaxIncentivesforEnterprises

Act (taxincentivesside)2

Contents


Twoeconomicprinciplestomemorize,dreamabout,andapply

1. Nothingisfreefromheaven2. Everythingisatrade-off

3


JunetoDec2020

Dextroseinregularroom

BayanihanII,CREATE

PillarIIIandIV

● Budgetandprocurementflexibility● Reprioritizationof2020budget.● PriorityBBBresumption.● Demandsidetoraiseincomeandcreatejobs:bettertargetedandimplementedBayanihanIprograms.

● Supplysidetosupportfirms:Liquidityandequityinfusion,andguaranteethruthefinancialsector.

● Targetedtaxincentives.4

MarchtoMay2020

IntubationinICU

BayanihanI

PillarIandII

● Budgetandprocurementflexibility.

● Subsidytopoorandlowincome.● Smallbusinesssupport(graceperiod,wagesubsidy)

● Supporttokeysectors(e.g.agriandOFW).

● Healthsystem,capacity,andinsurance.

● Supportfront-liners.

Phasedandadaptiverecoveryapproach

Period

Analogy

Law

Pillar

Keyfeatures

2021onwards

Vitaminsathome

2021-22GAAandotherreformlaws

PillarIIIandIV

● Reprioritizationofthe2021and2022budget.

● Structuralreformstoturncrisisintoopportunitytoprepareforthenewnormal.

● SupportBalikProbinsya,BagongPag-asa(BP2)Program.


5

Overview


Keymessages

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a. Buildingonpastreformsandsolidmacroeconomicmanagement todeliverbetter.

b. Amongthefastestgrowingeconomies (averageof6.6%from2016to2019).c. Likelytobecomeuppermiddleincomecountry in2020(USD3,512percapita).d. Lowandstableinflation(averageof3.0%from2016to2019).e. Lowesteverratesofunemployment (5.3%),underemployment (14.8%),and

poverty (16.6%).f. Strongfiscalposition (revenueof16.1percentofGDP,highestsince1997).g. FallingdebttoGDPratio (39.6percentofGDP,lowestsince1986).h. Highgrossinternationalreserves (USD89billionor7.9monthsofimport).i. BBB+creditrating(onenotchbelowtheA-rating)

i. Illustration:foreveryonetrillionpesosinborrowing, a1%lowerinterestrateduetogoodcreditratingtranslatestoasavingsof10billionpesosperyear.

1. ThePhilippinesentered2020withstronggrowthprospects.


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Keymessages

a. Conservativeandresponsible fiscalmanagement.b. Taxreform(4taxlaws,3morepackagestogo).c. Structuralreforms (ricetariffication,easeofdoingbusiness,national ID,

UHC,universalaccesstotertiaryeducation,etc.).d. BBBprogram (infraspending exceeded5%ofGDPin2018).

a. Taalvolcanoeruption inJanuary.b. DeclineintourismandtradeduetoglobalpandemicstartingFebruary.c. ECQstartingMarchtocontainthevirus.

2.Thisstrongfoundationisdueto...

3.Butwehavefacedtotallyunexpectedshocksin2020:


1. Threepossiblegrowthcasesbuthardtoputanestimate.a. V-shape:quickrecoverystarting July2020.b. W-shape:quickrecoverystartingJuly2020followedbyasecondwaveof

infection.c. LongU-shape(valley):long recoveryspanningseveralquarters,withlikely

recoveryin2022whenvaccineisdeveloped.2. ButwecanproactivelyusepoliciestoachieveaV-shapedrecovery.

a. Viruscontainmentpolicy(ECQ,GCQ,minimumhealthstandards).b. Fiscalpolicy(socialameliorationprogram,support tobusinesses,health

capacity,BBBprogram).c. Monetarypolicyandfinancialsectorregulatory relief.d. Built-inflexibilityinthe2021and2022budgets incaseofaWorlongU-shape

recovery.e. Structuralreforms.

Wecanproactivelydetermineourgrowthtrajectory

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Weneverknowifthecrisisisover,thustheneedtobeconservative:1918to1920flupandemiccurve(UK)

9Source:Taubenberger, J.andD.Morens.2006.“1918Influenza:theMotherofAllPandemics.”EmergingInfectiousDiseases,Jan;12(1):15–22.Accessed13May2013https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3291398/


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Four-pillarstrategytorespondtotheCOVID-19crisis

P589.97billion(3.0%ofGDP)

P843.0billion(4.4%ofGDP)tofundPillar4

P58.55billion(0.3%ofGDP)

Grandtotal:P1.49trillion(7.7%ofGDP)asofMay12,2020

(tobecosted)


Strongfiscalandfinancialposition toaddressthecrisis.

TheEconomistranksthePhilippines 6thamongselected emergingeconomiesintheworld,andthebestamongthoserankedfromSoutheastAsia,intermsofeconomic,fiscal,andfinancialmanagement.

11Source:Economist,“Debt indevelopingcountries:nextinline,”2May2020.


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Wherearewenow


Macro-fiscalframeworkhasweakened,butfundamentalsstillstrong

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Keyvariables 2019

2020(approvedbyDBCCasofMarch26)

2020(approvedbyDBCCasofMay12)

GDPrealgrowth(%) 6.0 0to-0.8 -2.0to-3.4

NominalGDPrevised(trillionpesos) 19.5 19.8 19.3

Revenue (%GDP) 16.1 16.8 13.6

Expenditure (%GDP) 19.5 22.1 21.7

Deficit (%GDP) -3.4 -5.3 -8.1

NGdebt(%GDP) 39.6 44.4 49.8


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Keyvariables Consumersurvey MSME+largesurvey Agriculturesurvey

Respondents 389,859 44,097 6,863

Periodofsurvey April5to8,2020 April4to8,2020 April3to8,2020

Estimatedrevenue/income impact

44%sayincomeisnotenough tomeetbasicneeds

-87.2%inMarchvsFebruary(extrapolated:767billion)

(66%zerosales,33%decreasedsales)

65%wereabletosell35%werenotabletosell(108.5millioninlosses)

Estimatedjob loss 44%(ofnon-governmentworker

respondentslosttheirjoborsourceofincome)

-10.5%inMarchvsFebruary(extrapolated:2,240,610workers)(74.4%no lay-off,25.4%withlay-

off)

86%continued tofarm

Estimatedfirmclosures N/A 33,041firms(74.9%) 35%werenotabletosell

Top3needs Accesstofoodsupplyandessentials

Moreefficienthealthsystem

Transportation

Paymentdefermenttogovernment,banks,andutilities

Taxdiscountsortaxcredits

Lowinterestloansfromgovernmentandbanks

Cashassistance

Production support(seeds,plantingmaterials,fertilizers,etc.)

Machineryandequipment(tractors,cultivators,pumps,etc.)

Surveyresultscorroboratetheeconomicdecline

Sources:NEDAandDOF


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Recoveryprogram


JunetoDec2020

Dextroseinregularroom

BayanihanII,CREATE

PillarIIIandIV

● Budgetandprocurementflexibility● Reprioritizationof2020budget.● PriorityBBBresumption.● Demandsidetoraiseincomeandcreatejobs:bettertargetedandimplementedBayanihanIprograms.

● Supplysidetosupportfirms:Liquidityandequityinfusion,andguaranteethruthefinancialsector.

● Targetedtaxincentives.16

MarchtoMay2020

IntubationinICU

BayanihanI

PillarIandII

● Budgetandprocurementflexibility.

● Subsidytopoorandlowincome.● Smallbusinesssupport(graceperiod,wagesubsidy)

● Supporttokeysectors(e.g.agriandOFW).

● Healthsystem,capacity,andinsurance.

● Supportfront-liners.

Phasedandadaptiverecoveryapproach

Period

Analogy

Law

Pillar

Keyfeatures

2021onwards

Vitaminsathome

2021-22GAAandotherreformlaws

PillarIIIandIV

● Reprioritizationofthe2021and2022budget.

● Structuralreformstoturncrisisintoopportunitytoprepareforthenewnormal.

● SupportBalikProbinsya,BagongPag-asa(BP2)Program.


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Recoveryphase:threeinstruments(threebills)

1. Spendingandcapitalsupport(BayanihanII)

2.Taxincentives(CREATE:CorporateRecoveryandTaxIncentivesforEnterprisesAct)

3.2021GAApreparation


Demand side priority is to create jobs and restore income levels

We can use Bayanihan II to stimulate private consumption through:

1. Healthsystemcapacityandinfrastructure

2.Foodvaluechain:agriculture, foodmanufacturing, logistics,andfood trade

3.RestartthemostimpactfulBBBprojects.

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Recoveryphase:threeinstruments1Spendingandcapitalsupport(BayanihanII):restoreincomeandjobsofconsumers


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Recoveryphase:threeinstruments1Spendingandcapitalsupport(BayanihanII):provideliquiditytofirms

Objective: Provide liquidity and prevent insolvency:

Size of firm Supply side intervention

Micro firms Borrowings from microfinance, cooperative, rural, and thrift bank lending, supported by wholesale banking of LBP and DBP (to buy loans to free up lending envelope)

Small and medium firms

Credit guarantee through PhilGuarantee and wage subsidy

Large firms Targeted equity support to match bank lending, with conditions


a. Forallfirms:i. Across-the-boardimmediateloweringofCITratefrom30%to25%startingJuly

2020.ii. Enhancednetoperatinglosscarryoverfrom3to5years.Lossesin2020canbe

creditedtofuturetaxpayment.b. Fornewinvestors:Targeted,timebound,andtailor-fittedtaxincentivestoproactively

attracttherighttypesofinvestment(demanddrivenledbyBOI,notsupplydriven,toattachinvestorsleavingChina,etc.).

c. Forexistinginvestor:Nochangeinpresentincentivesforthenext4to9years.d. Forcountrysideinvestor: TargetedandtimeboundtaxincentivestosupporttheBalik

Probinsya,BagongPag-asa(BP2)Program(geographicandsectortargeting).e. Inallthese,FIRBtomanageanddecidethegrantoftaxincentivestoimprovegovernance:

performance-based,targeted,timebound,transparent.20

Recoveryphase:threeinstruments

2.Taxincentives(CREATE:CorporateRecoveryandTaxIncentivesforEnterprisesAct)


a. Agencybudget submissions thatprioritizes health,BBB,agricultureandfoodvaluechain,andothernewnormalpriorities.

b. Thiswillensurethattherecoverystageisadequatelysupported should theBayanihanIIbeinsufficient, oriftherecoverytakesalonger time.

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Recoveryphase:threeinstruments

3.2021GAApreparation


Fivelessonstomemorize,dreamabout,orapply

Economic1. Nothingisfreefromheaven

2. Everythingisatrade-off

Lifeingeneral3. Knowthefact

4. Contributesolutions,focusonthe“how”

5. Sharealsothegoodnews

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Thankyou.

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turning the crisis into an opportunity

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