Philippines: Staff Report for the 2004 Article IV Consultation and Post-Program Monitoring Discussions
Author: International Monetary Fund
Publication Date:
21 Mar 2005
eISBN:
9781451831344
Language:
English
Keywords:
ISCR; CR; VAT bill; government; target; authorities definition; short-term debt; restructuring government; MTPDP projection; Philippine authorities; Public sector; Inflation; Global
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This paper examines the Philippines’s 2004 Article IV Consultation and Post-Program Monitoring Discussions. GDP growth has exceeded expectations, but unemployment remains high. With exports staging a recovery and consumption boosted by overseas remittances and the election, GDP grew by 6.1 percent in 2004, up from 4.7 percent in 2003. The near-term outlook for the Philippines economy is clouded by the uncertain external environment. The rapid growth in 2004 is unlikely to be sustained, particularly given slowing global demand in the information technology sector and rising interest rates.

Abstract

This paper examines the Philippines’s 2004 Article IV Consultation and Post-Program Monitoring Discussions. GDP growth has exceeded expectations, but unemployment remains high. With exports staging a recovery and consumption boosted by overseas remittances and the election, GDP grew by 6.1 percent in 2004, up from 4.7 percent in 2003. The near-term outlook for the Philippines economy is clouded by the uncertain external environment. The rapid growth in 2004 is unlikely to be sustained, particularly given slowing global demand in the information technology sector and rising interest rates.

I. Introduction and Background

1. In early 2004, the Philippines stood at a critical point. Nonfinancial public sector (NFPS) debt had risen above GDP, and the fiscal deficit, already 5½ percent of GDP in 2003, looked set to increase further, reflecting the failure to reverse a significant decline in tax revenue and mounting losses at the National Power Corporation (NPC). Substantive revenue measures were required, but were precluded by the upcoming May 2004 elections. Poor asset quality in the banking system was also a serious concern. Moreover, considerable uncertainty surrounded the election, which promised to be closely-fought and threatened to lead to populist policies.

2. The 2003 Article IV Consultation was concluded in March 2004 against this backdrop of heightened uncertainty. During the discussions, the Fund stressed the urgency of implementing comprehensive reforms to address the economy’s vulnerabilities and achieve a sustainable fiscal position. Three sets of actions, many of which echoed Fund advice in past consultations, were identified as critical: tax measures, such as raising excises and VAT; power sector reforms, including higher electricity tariffs and privatization; and strengthening the banking system, particularly through empowering supervisors to deal with distressed institutions. The authorities recognized the need for these actions, but noted that the speed of implementation was being affected by the lead-up to the elections. At a minimum, they endeavored to avoid fiscal policy slippages in the pre-election period.

3. One year later, progress is being made in implementing reforms. In the power sector, a 40 percent hike in generation tariffs (yielding revenue of 0.7 percent of GDP) has been provisionally awarded to NPC, and the authorities have announced the sale of a large generation plant. In the fiscal sector, tight control has been maintained over the budget, and a tax measure increasing excises on alcohol and tobacco (yielding 0.2 percent of GDP) has been passed by Congress (Table 1). In the banking sector, banks have begun to use the special purpose vehicle (SPV) framework to dispose of a portion of nonperforming assets, and legal amendments that would strengthen bank supervision have been submitted to Congress. In the mining sector, a recent Supreme Court ruling allowing foreign control of mining projects has opened the way for FDI.

Table 1.

Status of Revenue Measures Proposed by New Administration

article image
Sources: Philippine authorities; and Fund staff estimates.

In percent of GDP.

4. Nonetheless, much more remains to be done. While financial markets have been relatively stable since the election, the reforms implemented to date are a small part of the total reform effort required, and market sentiment will remain brittle until more substantive progress is made. Indeed, one rating agency downgraded the sovereign rating in January 2005 on the grounds that the tax reforms to date were inadequate. The Philippines will remain vulnerable to sudden shifts in investor confidence and market conditions as long as the public sector deficit and debt levels remain high, and other structural problems remain unresolved.

uA01fig01

FX AND EMBI PLUS SOVEREIGN SPREADS

Citation: IMF Staff Country Reports 2005, 105; 10.5089/9781451831344.002.A001

II. Recent Economic Developments

5. GDP growth has exceeded expectations, but unemployment remains high. With exports staging a recovery, and consumption boosted by overseas remittances and the election, GDP grew by a little over 6 percent in 2004, up from 4¾ percent in 2003. On the production side, the growth drivers were strong performances by agriculture and services such as telecommunications, business process outsourcing (BPO) and tourism. Employment increased by 3.6 percent in 2004, mainly reflecting the rapid creation of services sector jobs. Even so, unemployment averaged 11.8 percent, up from 11.4 percent a year earlier.1

6. Inflation has risen above the target range. The rate of inflation (1994 base) climbed to 7.9 percent (y/y) in December, from 3.1 percent (y/y) in December 2003, causing average inflation to increase to 5.5 percent, above the BSP’s target range of 4–5 percent.2 The primary cause was a succession of supply shocks, led by a jump in meat and fish prices, and followed by the surge in world oil prices, and, more recently, the hike in power tariffs. Nonetheless, some signs have emerged of more broad-based inflationary pressures, including a rise in core inflation.3 The Bangko Sentral ng Pilipinas (BSP) has so far kept policy rates on hold, preferring to wait for more definitive evidence that inflation is becoming generalized before taking monetary policy action.

Figure 1:
Figure 1:

Philippines: External Developments, 1997–2005

Citation: IMF Staff Country Reports 2005, 105; 10.5089/9781451831344.002.A001

Sources: Data provided by the Philippine authorities; and CEIC; and Fund staff estimates.1/ Adjusted for pledged assets.2/ Includes private sector inter-company accounts, loans without BSP approval, and obligations under capital lease.
Figure 2:
Figure 2:

Philippines: Domestic Developments, 1999–2005

Citation: IMF Staff Country Reports 2005, 105; 10.5089/9781451831344.002.A001

Sources: Data provided by the Philippine authorities; and CEIC; and Fund staff estimates.
uA01fig02

CONTRIBUTIONS TO THE 12-MONTH INFLATION RATE

(Dec. 2002 - Dec. 2004, percent y/y)

Citation: IMF Staff Country Reports 2005, 105; 10.5089/9781451831344.002.A001

7. The fiscal deficit is set to edge down. The national government deficit (authorities’ definition) is estimated to have declined to 3.8 percent of GDP in 2004, below the budget target of 4.2 percent of GDP, and down from 4.6 percent of GDP in 2003. Revenue is estimated to have remained broadly unchanged as a share of GDP, while primary spending has been compressed. The major sources of expenditure savings were personnel services, due to the absence of a general wage increase for the second consecutive year, and transfers to local government units (LGUs) staying fixed in nominal terms as a result of the re-enactment of the 2003 budget. However, with NPC losses expanding from 1.1 percent of GDP in 2003 to 1.5 percent of GDP in 2004, the NFPS deficit is estimated to have only declined to 5.3 percent of GDP in 2004, compared to 5.6 percent of GDP in 2003.

8. The balance of payments proved fairly resilient in 2004. Strong growth of exports, tourism receipts, and remittances more than offset higher oil imports, causing the current account surplus to increase slightly to an estimated 4½ percent of GDP in 2004.4 For much of the year, this surplus looked insufficient to finance net capital outflows and negative errors and omissions, and a loss of foreign exchange reserves was expected. However, in the fourth quarter, the weak U.S. dollar took pressure off the peso and allowed the BSP to make modest purchases of foreign exchange.5 As a result, reserves, adjusted for pledged assets, ended the year up slightly at $15 billion (119 percent of short-term debt by residual maturity). The BSP was also able to wind down the oversold non-deliverable forward (NDF) position of about $0.8 billion built up during the pre-election uncertainties in early 2004.

III. Near-term Outlook and Risks

9. A number of uncertainties weigh on the near-term outlook. The rapid growth in 2004 is unlikely to be sustained, particularly given slowing global demand in the information technology sector. Thus, GDP is expected to grow at a more moderate 4¾ percent in 2005. One source of downside risk is that the ongoing depreciation of the U.S. dollar could become disorderly and lead to even weaker global growth. Another is that oil prices might retrace the path back toward US$60 per barrel.6 Equally, there is an upside to the 2005 growth projection should oil prices drop from their current level. There is further upside if implementation of reforms proves to be particularly strong, although the benefits will mostly accrue over the medium term.

uA01fig03

PHILIPPINES AND GLOBAL REAL GDP GROWTH

(In percent change, y/y)

Citation: IMF Staff Country Reports 2005, 105; 10.5089/9781451831344.002.A001

10. The major source of vulnerability arises from the large external debt and financing requirements. Vulnerabilities are likely to rise in 2005 even in the absence of adverse shocks due to the less benign external environment of rising global interest rates and tighter liquidity, which could lead to more discrimination by foreign investors and more difficulty in meeting the sizable public sector external commercial borrowing needs (estimated by staff at $4–4½ billion (5-6 percent of GDP) if reserves are to be maintained at comfortable levels). The high level of external debt makes the economy extremely vulnerable to a sharp rise in global interest rates; staff estimate that an increase in rates of 100 basis points would add about $0.3 billion to interest payments in 2005. External financing difficulties could also be triggered by the markets losing patience with the speed at which the Philippines is implementing reform.

IV. Report on Policy Discussions

11. Staff reiterated the need for rapid progress in implementing comprehensive economic reforms. Staff welcomed the new administration’s reform plans, as well as the broad awareness of the fiscal problem among the politicians who met with the mission. However, staff expressed concern that implementation of reforms was proceeding slowly and that markets might lose patience. Some of the past fiscal problems had political economy roots (Box 1) and staff hoped that the authorities would be able to capitalize on the administration’s strengthened majorities in Congress to take bold upfront actions. Such a strategy would recognize that reforms would only become more difficult as the term of the administration progressed and politicians became distracted by the next election.

12. The authorities, by contrast, considered reforms to be proceeding at a reasonable pace. Substantive progress had already been made with power sector reforms. With regard to tax reforms, the new Congress had only started working in July, and given the time taken to forge political consensus on individual measures, it was necessary to be realistic as to what was achievable. In any case, although only one tax measure was passed during 2004, a number of bills were set to be passed early in 2005.

A. Fiscal Policy

13. The fiscal problems in the Philippines stem primarily from a long-term decline in the revenue effort. NFPS revenue fell by 6 percentage points of GDP between 1997 and 2003 due to weak tax administration, nonindexation of excises to inflation, and the failure to combine trade liberalization with offsetting revenue measures, as well as the government’s decision in 2002 to cap increases in electricity tariffs.7 Over the past two years, the authorities have attempted to strengthen tax administration, including through registration checks, prosecution of tax evaders, lifestyle checks, dismissal of corrupt tax officials, and computerized matching of VAT receipts. However, while these efforts have arrested the decline in the tax to GDP ratio, they have yet to cause any increase. Staff therefore welcomed the new administration’s goal of raising significant additional revenue through new tax measures, as well as the extra revenue that will accrue to NPC as a result of the tariff increase.

uA01fig04

NONFINANCIAL PUBLIC SECTOR FISCAL POSITION

(In percent of GDP)

Citation: IMF Staff Country Reports 2005, 105; 10.5089/9781451831344.002.A001

14. Staff recommended that the NFPS deficit be reduced by about 2 percentage points of GDP in 2005. The proposed 2005 budget aims to reduce the national government deficit to 3.6 percent of GDP, primarily via spending restraint, again including no general wage increase.8 Combined with lower NPC losses, staff projected that the NFPS deficit would decline by about 1 percent of GDP to 4½ percent of GDP in 2005. Staff argued that, while desirable, this adjustment would not significantly reduce debt levels or vulnerabilities (Annex 1). The authorities agreed that there was a need to front load fiscal adjustment and hoped that revenue from the new tax measures, which are not included in the 2005 budget, might make this possible. Some of this revenue would be needed to cover new expenditure in priority areas such as infrastructure spending. Nonetheless, staff recommended that a sufficient portion be saved so as to lower the NFPS deficit to 3½ percent of GDP in 2005. An initial adjustment of this size would provide a powerful signal of the authorities’ commitment to fiscal consolidation.

15. However, with most of the tax measures still being debated by Congress, the prospects for front-loaded fiscal adjustment are uncertain. To date, only one tax measure with a clear revenue impact—higher alcohol, cigarette, and tobacco excises yielding about 0.2 percent of GDP—has been passed. Staff therefore looked forward to early action on other fronts. Petroleum excises are low by international standards, but the authorities noted the difficulty of raising them in the current environment of high oil prices.9 Staff have long advocated increasing the VAT rate, which is also relatively low, and the authorities seemed more open to this possibility than in earlier discussions. Indeed, they have since decided to seek an immediate increase in the VAT rate from 10 to 12 percent.

16. Rationalizing fiscal incentives could be a substantial revenue raiser. The authorities were proposing various initiatives in this regard, of which staff strongly supported the proposal to eliminate incentives from a large number of disparate economic laws, including those given to cooperatives (yielding a potentially substantial amount of revenue) and a proposal to remove nonstandard VAT exemptions such as for petroleum products (yielding 0.2–0.3 percent of GDP). Another proposal being considered aimed at consolidating many different investment incentives into a single law, but potentially could result in a net expansion of incentives. The authorities acknowledged that the draft bill for this proposal contained some new incentives, but noted that it would also place a 20-year limit on incentives that were currently open-ended.

17. Staff raised concerns about other tax measures under consideration. As in the past, staff opposed the proposed tax amnesty because of the likely adverse effects on compliance, and expressed doubts about whether the scheme to improve incentives for revenue collectors would yield significant revenue benefits. Staff also voiced concerns that the proposed franchise tax on telecom companies might be introduced in conjunction with a VAT exemption for the industry, thus preventing commercial users of telecom services from claiming VAT credits and breaking the VAT chain. However, this proposal has been set aside for the time being, as has the earlier proposal to introduce a Gross Income Tax.

18. The authorities are proceeding with civil service reform. An executive order issued in October 2004 ordered public agencies to prepare rationalization plans. Personnel in positions designated as redundant will have the option to either avail of severance payments or be re-assigned. Preliminary estimates indicated that perhaps 2–4 percent of public employees would be affected, with severance payments costing 0.1–0.3 percent of GDP. While supporting the authorities’ goal of improving public service delivery, staff argued that awarding generous severance payments to those already near retirement would reduce the possible gains to the budget. The authorities agreed that some additional limitations on severance benefits were needed and were working with the World Bank on the specifics.

19. Strengthening public pension funds was another priority. The pension funds are currently running small cash surpluses. However, weak asset management, high benefit replacement rates, and insufficient contribution rates could cause pension funds to be depleted as early as 2015. Reform of the pension funds was therefore essential to avoid aggravating the long-term outlook for public finances. The authorities agreed on the need to address this issue and have established a working group to consider reform options.

B. Power Sector

20. The Philippines has launched an ambitious program of power sector reform. The Electric Power Industry Reform Act (EPIRA) of 2001 aims at restructuring the electricity market and privatizing power sector assets so as to encourage greater competition and attract private investment. However, up until recent months, the reform program has been stalled, with pro-consumer tariff decisions undermining the financial viability of NPC, and privatization biddings for the transmission company, Transco, failing on two occasions.

21. Progress with strengthening NPC’s financial position has recently been more encouraging. NPC was granted a provisional P 0.98 per kWh average tariff increase by the Energy Regulatory Commission (ERC) in September.10 The tariff increase is estimated to yield about 0.7 percent of GDP in annual revenue. The government has also decided to absorb P 200 billion in NPC debts from the beginning of 2005. This measure will shift a share of the burden of NPC losses, which partly reflect sunk costs, to the general taxpayer rather than the electricity consumer. Lower interest costs, together with the tariff hike, will help NPC bring down its deficit from 1½ percent of GDP in 2004 to ¾ percent of GDP in 2005.

uA01fig05

POWER SECTOR’S FINANCIAL OPERATIONS

(In peso per kWh, unless stated)

Citation: IMF Staff Country Reports 2005, 105; 10.5089/9781451831344.002.A001

1/ Includes the September 2004 tariff hike.2/ Includes P200 billion NPC debt transfer.

22. Privatization of power sector assets, however, continues to proceed slowly. In October, the authorities terminated bilateral negotiations with potential investors for the Transco concession, and announced a reopening of competitive bidding. Staff expressed concern that this change in the privatization strategy might send the wrong signal to investors. The authorities explained that they remained firmly committed to privatizing Transco, but had recognized that competitive bidding, even though it had failed once before, would be more transparent. The authorities also aim to privatize 70 percent of generation assets by end-2005, which, together with the introduction of the wholesale spot market (expected in mid-2006), will pave the way for the launch of a competitive electricity market. To date, the privatization of one large and five small power plants (in total worth about $570 million) has been announced. The authorities indicated that under EPIRA, privatization proceeds would have to be used to retire power sector debt.

23. Strengthening the regulatory environment is also key to the success of power sector reform. Staff welcomed the transparent manner in which the ERC had conducted the process of awarding NPC a tariff increase. Other positive regulatory steps included the ERC’s review of the generation rate adjustment mechanism for distribution utilities to allow them more timely cost recovery. Cross subsidies among consumer classes are also being phased out to improve efficiency in electricity consumption. More generally, the authorities agreed that a rules-based regulatory framework would facilitate privatization and help to ensure adequate investment in new power supply capacity.

C. Monetary Policy

24. The BSP emphasized the role that supply factors had played in increasing inflation. The jump in inflation had been driven by supply side factors for which monetary policy was not the appropriate policy response. The BSP had instead called for administrative measures to ease supply bottlenecks in importation and distribution. The authorities also noted that the oil shock had had a relatively large effect in the Philippines because there was no attempt to use subsidies or other measures to reduce the pass through of international oil prices to domestic inflation.

25. The authorities’ view was that the stage for tightening policy had not yet been reached. To strengthen the transparency of the inflation targeting framework, the BSP had announced the criteria it would use to decide the need for a monetary policy response. These included inflation pressures over and above those generated by supply shocks; emerging demand side pressures on inflation; and the risk of prolonged exchange market pressure. The BSP’s judgment was that, as yet, none of these criteria had been clearly met. They considered the evidence for second round effects of supply side shocks to be weak. They also noted that the increase in core inflation was likely to be temporary. On the demand side, they noted that although consumption was growing rapidly, growth of private credit remained moderate. In any case, high unemployment and the absence of wage pressures were suggestive of continued slack in the economy.

26. Staff argued that the balance of risks suggested a need for policy tightening. In the staff’s assessment, the increase in several measures of core inflation was suggestive of initial price pressure spreading to other sectors. In addition, the level of core inflation remained well above the BSP’s target range and about a third of the increase in the headline inflation rate since end-2003 was due to factors other than identifiable supply side factors. Indicators of demand side pressure and slack also suggested that the situation might be turning. In this context, staff noted that capacity utilization was rising, and although this was a short time series (only recently having begun to be compiled), it had tended to co-move with inflation in the past. Also, while credit growth remained low, it had decoupled from GDP growth in recent years.

uA01fig06

CAPACITY UTILIZATION RATE AND INFLATION

(In percent, 3-month moving average)

Citation: IMF Staff Country Reports 2005, 105; 10.5089/9781451831344.002.A001

uA01fig07

REAL OUTPUT & REAL PRIVATE SECTOR CREDIT

(Dec 1999 = 100)

Citation: IMF Staff Country Reports 2005, 105; 10.5089/9781451831344.002.A001

27. Staff also noted that continued high inflation, even if entirely supply-driven, might affect inflationary expectations. Inflation promised to remain above the target at least until 2006 and the recent upward shift in the yield curve was suggestive of higher inflationary expectations for longer periods. Moreover, concerns about the macroeconomic framework remain paramount in the minds of market participants, given the overriding fiscal problem. In this light, a rate increase would send a positive signal about the BSP’s commitment to the inflation target. The authorities observed that bond markets were illiquid at longer tenors and downplayed the information content of the yield curve. Nonetheless, they were paying close attention to the risk of a deterioration in inflation expectations.

D. Financial Sector Policy

28. Staff welcomed the priority being given to financial sector reform. Revised frameworks for supervisory enforcement and corporate debt restructuring were being proposed that would do much to improve the resilience of the financial system. Clear rules regarding the trust funds business had been established that were expected to increase transparency and confidence in the system, while efforts had also been made to enhance the internal credit risk rating systems of banks. In addition, the authorities were appropriately emphasizing domestic capital market development to provide alternate forms of finance for the private and public sectors.

29. Concerns about banking system capitalization add urgency to these reforms. Previous staff analysis has indicated that deficiencies in accounting and loan classification practices cause capital adequacy to be overstated in the Philippines, and particularly so for certain banks. Financial markets share these concerns; a number of large banks were recently downgraded by an international rating agency because of the latent losses on their nonperforming assets (NPAs). In addition, the large assistance that continues to be provided by the Philippines Deposit Insurance Corporation (PDIC) to several banks raises further questions about the capacity of these banks to absorb losses.

30. While the SPV framework is gaining some traction, more pressure needs to be exerted on banks to raise fresh capital. A number of transactions have been concluded or are near conclusion, resulting in the likely disposal of P 30 billion in NPAs out of a total stock of roughly P 500 billion. The authorities expressed optimism about several other deals that were in the pipeline. Nonetheless, staff pointed out that the asset disposal process has moved slowly so far and that more pressure needed to be exerted on banks to recognize latent losses and inject fresh capital. The authorities concurred, but noted that major progress with the NPA resolution strategy would first require strengthening the powers of bank supervisors.

31. The proposed amendments to the BSP Charter are therefore fundamental to strengthening the banking system. Pressuring owners to inject fresh capital requires providing bank supervisors with adequate legal protection, and enhancing the prompt corrective action and bank resolution frameworks, so that the threat of intervention becomes credible. Staff were encouraged to see changes along these lines in the proposed amendments to the BSP Charter, and the authorities were hopeful the legislators would respond more positively to such amendments than they had done in the past.

32. Current macroeconomic uncertainties further underscore the need for adequate capital buffers. Both regular bank units and foreign currency deposit units (FCDUs) have large exposure to government securities. These exposures are long-term and fixed-rate, which creates a potential vulnerability should rates rise.11 Staff encouraged the BSP to strengthen its monitoring of interest-rate risks, which provide a further need for banks to increase their capital. The authorities considered interest rate risks to be manageable at this juncture, but acknowledged the need for further enhancing data collection efforts in this area.

E. Medium-Term Outlook

33. Over the medium term, economic reforms are necessary to invigorate growth. While agriculture and services have been buoyant in recent years, industry has shown less vigor with manufacturers facing fierce competition from within the region. In the staff’s view, however, competitiveness, as measured by the real effective exchange rate, is not the major obstacle to growth. Instead, a take-off in activity will likely require strong fiscal and structural reforms to improve the business climate (Box 2), thereby increasing investment, and hence productivity and GDP growth. The authorities’ Medium-term Philippine Development Plan, 2004–2010 (MTPDP) takes a similar position, recognizing that sustained and accelerated growth will require both addressing the fiscal problem and enhancing competitiveness through measures to boost productivity, improve infrastructure, reduce corruption, and simplify business procedures.

uA01fig08

NOMINAL AND REAL EFFECTIVE EXCHANGE RATES

Citation: IMF Staff Country Reports 2005, 105; 10.5089/9781451831344.002.A001

34. The level of growth attained will depend on how fast and thoroughly the government can implement reforms. While investor sentiment would be considerably boosted by comprehensive reforms, the authorities’ MTPDP projections that growth could rise to 7–8 percent appear optimistic. Staff, by contrast, project that under strong reforms, growth would trend up to 6 percent, while under a moderate reform scenario—where the reform momentum is not only slower, but dissipates by the middle of the administration’s term—growth of about 4 percent is more likely. Under the strong reform scenario, the authorities would achieve their balanced budget objectives by 2010, and nonfinancial public sector debt would fall to 73 percent of GDP, which while still relatively high is almost 30 percentage points lower than the present level (Table 6). By contrast, under a moderate reform scenario, the NFPS deficit would fall no lower than 4 percent of GDP, and while debt would edge down, vulnerabilities would remain high (Table 7 and Annex I).

Table 2.

Philippines: Selected Economic Indicators, 2000–2005

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Sources: Philippine authorities; and Fund staff estimates and projections.

Fund definition. Excludes privatization receipts of the national government, and includes net deficit from restructuring the central bank.

Includes the national government, Central Bank-Board of Liquidators, 14 monitored government-owned enterprises, social security institutions, and local governments.

The sum of all nonfinancial public sector revenue net of intra-public sector payments. It is assumed that 80 percent of Bureau of Treasury revenue represents interest and dividends from other parts of the nonfinancial public sector. Privatization receipts are excluded.

Defined as difference between nonfinancial public sector revenue and balance.

Debt is consolidated (net of intra-nonfinancial public sector holdings of debt). Data on local government debt are not available for 2001; it is assumed that these debts were the same as a share of GDP as in 2002.

Adjusted for the estimated effects of Y2K. For base money only, adjusted for changes in reserve requirements.

As of November, 2004.

Auction result on January 17.

Defined as external debt plus liabilities of foreign banks in the Philippines to their headquarters, branches and agencies, some external debt not registered with the central bank and private capital lease agreements.

Gross reserves less gold and securities pledged as collateral against short-term liabilities.

Reserves as a percent of short-term debt (including med- and long-term debt due in the following year). Both reserves and debt were adjusted for pledged assets.

As of end-January.

Table 3.

Philippines: National Government Cash Accounts, 2001–05

(In percent of GDP; unless otherwise noted)

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Sources: Philippine authorities; and Fund staff projections.

Unlike the proposed budget, this scenario incorporates the effects of higher alcohol and tobacco excises, the higher oil import tariff, and the assumption of P 200 billion in NPC’s debt. It is assumed that the latter will mainly reduce national government interest income rather than increase interest expense, since the vast majority of the assumed debt was owed to the national government.

Excludes purchase of NPC securities and other onlending.

Includes privatization receipts as revenue and excludes the operations of the Central Bank-Board of Liquidators (CB-BOL).

Excludes privatization receipts from revenue.

Consolidated (net of national government debt held by the sinking fund) and excludes contingent/guaranteed debt.

Nonfinancial public sector includes the national government, CB-BOL, 14 monitored government-owned enterprises, social security institutions, and local governments. Debt is consolidated (net of intra-nonfinancial public sector holdings of debt). Data on local government debt are not available for 2001; it is assumed that these debts were the same as a share of GDP as in 2002.

Defined as the deficit, plus amortization of medium- and long-term debt, plus the stock of short-term debt at the end of the last period, plus market financing on behalf of NPC.

Table 4.

Philippines: Balance of Payments, 2000-2005

(In billions of U.S. dollars)

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Sources: Philippine authorities and Fund staff projections

Gross reserves less gold and securities pledged as collateral against short term liabilities.

As a percent of short-term debt excluding pledged assets of the central bank.

Monitored external liabilities are defined as external debt plus liabilities of foreign banks in the Philippines to their agencies, headquarters, branches, and some external debt not registered with the central bank and private capital lease agreements.

In percent of goods and nonfactor services.

Defined as the current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at the end of the previous period.

Table 5.

Philippines: Monetary Survey, 2000-2004

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Source: Philippine authorities, CEIC, and Fund staff estimates.

The Central Bank-Board of Liquidators was established in 1993 to absorb the debts of the old central bank.

Adjusted for exchange rate valuation effects.

Table 6.

Philippines: Medium-Term Outlook, 2001-2010

(Strong reform scenario)

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Sources: Philippine authorities; and Fund staff estimates and projections.

Nonfinancial public sector includes the national government, CB-BOL, 14 monitored government-owned enterprises, social security institutions, and local governments.

The sum of all nonfinancial public sector revenue net of intra-public sector payments. It is assumed that 80 percent of Bureau of Treasury revenue represents interest and dividends from other parts of the nonfinancial public sector. Privatization receipts are excluded.

Defined as difference between nonfinancial public sector revenue and primary balance.

Fund definition. Excludes privatization receipts of the national government, and includes net deficit from restructuring the central bank.

Debt is consolidated (net of intra-nonfinancial public sector holdings of debt). Data on local government debt are not available for 2001; it is assumed that these debts were the same as a share of GDP as in 2002.

Gross reserves less gold and securities pledged as collateral against short-term liabilities.

Reserves as a percent of short-term debt (including medium and long-term debt due in the following year). Both reserves and debt were adjusted for gold-backed loans.

Defined as the current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at the end of the previous period.

Defined as external debt plus liabilities of foreign banks in the Philippines to their headquarters, branches and agencies, some external debt not registered with the central bank and private capital lease agreements.

Table 7.

Philippines: Medium-Term Outlook, 2001-2010

(Moderate reform scenario)

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Sources: Philippine authorities; and Fund staff estimates and projections.

Nonfinancial public sector includes the national government, CB-BOL, 14 monitored government-owned enterprises, social security institutions, and local governments.

The sum of all nonfinancial public sector revenue net of intra-public sector payments. It is assumed that 80 percent of Bureau of Treasury revenue represents interest and dividends from other parts of the nonfinancial public sector. Privatization receipts are excluded.

Defined as difference between nonfinancial public sector revenue and primary balance.

Fund definition. Excludes privatization receipts of the national government, and includes net deficit from restructuring the central bank.

Debt is consolidated (net of intra-nonfinancial public sector holdings of debt). Data on local government debt are not available for 2001; it is assumed that these debts were the same as a share of GDP as in 2002.

Gross reserves less gold and securities pledged as collateral against short-term liabilities.

Reserves as a percent of short-term debt (including medium and long-term debt due in the following year). Both reserves and debt were adjusted for gold-backed loans.

Defined as the current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at the end of the previous period.

Defined as external debt plus liabilities of foreign banks in the Philippines to their headquarters, branches and agencies, some external debt not registered with the central bank and private capital lease agreements.