Philippine Economic Update October 2015

7/24/2019 Philippine Economic Update October 2015

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Report No. 99648-PH

PHILIPPINE ECONOMIC UPDATE

MAKING GROWTH WORK BETTER

FOR SMALL BUSINESSES

October 2015

M F M G P

P C O

E A P R


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PREFACE

The Philippine Economic Update (PEU) provides an update on key economic and social

, . I World Bank studies on the Philippines. It places them in a longer term and global context, and

P.

I

. I , ,

, ,

engaged on the Philippines.

T PEU W B M F M (MFM) G

P (GP), T C (T&C) GP. I

J L L (R A T T L), K Cz (R A),

J C (R A), MFM GP, G S (O O) F M GP, R G (O O), B Tj

(R A), J F A (S T E), T L (L

A), G ML (L S), M P (S F E),

D T (S T E), G A, C B, C H,

J K, M P ( C), T&C GP.

T K K C (S C E)

R B (L E P L). M V M H

P M MFM T&C, . L

M C S (P A), A A, R A R ( T

A) . T M E C T,

D L (C O), J L (O C

O), G R (P A), , ,

.

T , ,

World Bank, the government, business, labor, academe, and civil society. The team is very

. T , ,

this Update W B

, , .

T PEU ,

M C S ([email protected]). F q

, K K C ([email protected]). Q

media can be addressed to David Llorito ([email protected]).

F W B P,

www.worldbank.org/ph.

Making Growth Work Beer for Small Businesses

I


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TABLE OF CONTENTS

PREFACE I

EXECUTIVE SUMMARY III

RECENT ECONOMIC AND POLICY DEVELOPMENTS 1

Output and demand 1

Employment and poverty 5

Financial markets 7

Prices and monetary policy 9

Fiscal policy 11

PROSPECTS, RISKS, AND POLICIES 14

Prospects and risks 14

Policies 22

MEDIUMTERM REFORM AGENDA 29

Simplifying business regulations to enhance inclusive growth 29SPECIAL FOCUS 1 45

The real cost of starting and maintaining a business 45

SPECIAL FOCUS 2 60

Export transaction costs in the Philippines 60

DATA APPENDIX 75

PHILIPPINE EcONOMIc UPDATE OcTOBER 2015

II


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EXECUTIVE SUMMARY

The Philippines is among the strongest performers in the region, buking the trend. I

(H1) 2015, j ,

q P, 5 5.6 , V. I

, q , P 5.3

2011. On the demand side, the strong

8.1 ,

, GDP . H,

GDP . O , E N

to stagnant agriculture growth. Meanwhile, growth in industry and services was respectable,

5.8 . I Q3, q , , .

connued job gains in the servies and industry setors ould not ompensate for the

substanal job losses in agriulture aused by El Nio.1B L

F S (LFS) J 2015, j ,

j , . I ,

, , j . H, j

j ,

877,000 j q E N. I ,

96,000 j J 2014 J 2015.2

In reent years, strong eonomi growth and eeve government programs are improving

poverty reduon, but, in 2014, natural disasters and delays in state-managed rie

importaon harmed the poor.B 2012 2013,

(),

q . T

(CCT) - . H,

2014, A P I S3 suggests that poverty increased. The

T Y ( , )

( ). N,

2012 2014.

1 This paragraph is based on government press release. Further breakdowns are not available as the July 2015

L F S (LFS) L 2014 LFS L

T Y.2T j .3 T , FIES (F I E S)

APIS 2013. T APIS -FIES , -

.


III


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Like the rest of the region, the domes nanial market experiened large volalies in

reent months, but underlying fundamentals remain sound. A

, q . B A, --

. H, , US

C . T ,

- , q ,

. L,

. T , ,

, .

Gains from higher revenues and unpreedented inreases in the budget have yet to translate

into ommensurate inreases in government spending to support an investment-led growth.

I H1 2015, 14.1 GDP 13.7 H1 2014

. H, , Q1,

Q2. S 2010, 15

, . E

. F , H1

2014 H1 2015, 18.5 ,

8.5 . A

budget could have yielded higher economic growth. For example, had the government

2010 2014 -- 79.7 85 , GDP

6.9 ,

6.2 .

In the medium-term, growth prospets remain posive. In 2016, growth is expected to

6.4 6.2 2017. H, 2015,

j 5.8 . T

, ,

E N. I , j

. I , -

j, 0.6 GDP 2015,

. O , E

N .

Poverty reduon is expeted to onnue if the ountry is able to maintain the relavely high

eonomi growth and beer job trends in reent years. U -

F I E S, j 8.2

2017 ( USD 1.90/ PPP, 2011 PPP

, ), 10.5 2014. G

j . H,

. E


IV


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,

, .

Simplifying business regulaons an unleash the full potenal of the private setor, inparular, small and miro businesses, as they are important ontributors to inlusive

growth. I H1 2015, 8.1 -

5.3 . H,

P. T

, ,

j . T ,

. P j

:

, , . T -

.

The total osts, both diret and opportunity, of starng and maintaining a business, espeially

for MSMEs, need to be brought down (Speial Fous 1) . R

. Overall, the cost imposed on

MSME . T

q 17 36 (PHP 21,000 45,000),

, . I

,

. A ,

requirements are needed to maintain the business, which can take many days every year.

M, q

. T

PHP 100 . M, PHP 40

F . T

60,000, q

.

Reognizing the adverse impat on the eonomy of ostly business start-up, the government

has begun to address a number of doing business onstraints. For instance, the government

G N A 2014,

- , , (MSME), - Qz C. H,

MSME. T : )

, ) P

, )

, ) q

, , , ) -

, )

.


V


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Finally, Philippine export proedures and osts are very high for small exporters (Speial

Fous 2). E , . N j

, -

. F , . T

, : ) -

N S W B

C , )

,

, ) - .

T - ,

, .

The remaining eight months of the Aquino Administraon present an opportunity to learly

and praally dene the unnished business in the strutural reform agenda. These are ,

j.T :

Iz ,

,

C , q,

- , , z

-, j

(.., ),4

F

,

S ,

R- .

W , , j ,

eliminate extreme poverty.

4T j

real income.


VI


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1

RECENT ECONOMIC AND POLICY DEVELOPMENTS5

Output and demand

1. The Philippines is among the strongest performers in the region, buking the trend,

beause of strong fundamentals. I (H1) 2015, j

the region, the only countries to accelerate their quarterly growth rates were the Philippines,

5 5.6 , V. I , q

, P 5.3

since 2011. O , 8.1

, , . H,

. O

, E N 0.3 . M,

, 5.8. I Q3, q , ,

.

Table 1. GDP growth by setor

H1

2014

H1

2015

H1

2014

H1

2015

Supply side Demand side

Agriulture, shery, & forestry 1.9 0.3 Household nal onsumpon 5.9 6.1

A & 2.8 0.8 Government onsumpon 0.9 2.9

Forestry -2.3 -2.2 capital formaon 10.6 14.3

Industry 7.3 5.8 Fixed capital 4.2 9.5M & q 4.9 0.1 C 5.0 10.2

M 9.0 5.3 Durable equipment 3.9 10.4

C 4.3 10.5 B & -3.3 0.4

E, , & 1.7 4.0 Intellectual property products 20.0 2.6

Servies 6.3 5.8 Changes in stocks 48.2 75.5

T, , & 7.5 7.1 Exports 10.2 5.0

Trade 6.3 5.8 Merchandise exports 13.2 0.4

Finance 5.9 5.1 N- 0.1 22.4

R , 9.3 6.6 Imports 10.4 10.6

Government services 3.5 -1.8 Merchandise imports 9.9 9.8

Other services 3.7 7.8 N- 12.4 14.0

Gross domes produt 6.2 5.3 Gross domes produt 6.2 5.3S: P S A

2. On the supply side, the onset of El Nio exerted a further drag on a perennially

underperforming agriulture setor (Figure 2).In the last six years, the agriculture sector grew

1.2 , q

5 T K Cz (R A) K K C (S

C E) J L L (R A), M F

M G P.


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PHILIPPINE EcoNomIc uPdatE - octoBER 2015

2

. T E N M

2015 ( B 3 ) ,

0.3 . T - 0.5 ,6 led by

, , , - . T - 2.2 E N . L

E N.

3. Meanwhile, growth in servies and industry was respetable, although manufaturing

deelerated signiantly. T 5.8 7.3

2014,

9 5.3 . S , ,

,7 j 2.1 ,

. S -

J (-7.5 ) C (-32 ) .8On the other hand, the services

5.8 , , 3.3 (), z.

E -

. G , 1.8 .

Figure 1. The Philippines remained among the stronger

performers in the region.

Regional GDP growth

Sources: CEIC, Reuters

-2

0

2

4

6

8

10

Q1 Q2 Q3 Q4 Q1 Q2

2014 2015

Percent

Thailand Indonesia Malaysia

Philippines Vietnam China

-2

0

2

4

6

8

10

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2012 2013 2014 2015

Percentage

point

Agricu lture Manu facturing

Other industries Services

GDP growth

Figure 2. On the supply side, services and industry

connued to drive growth while agriculture stagnated.

Supply side: Contribuon to GDP growth

Source: Philippine Stascs Authority

6 A P S A, -

, 2.8 15.7 , , Q2. H, q

pineapple, mango, abaca, monggo ( ), ,

.7 F - 40

. T , 1.9 , j .8J P , C .


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3

Figure 3. On the demand side, strong private

consumpon, in the midst of weak government

spending and falling net exports, connued to drive

growth.

Demand side: Contribuon to GDP growth

Source: Philippine Stascs Authority

-8

-6

-4

-2

0

2

4

6

8

10

12

14

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2013 2013 2014 2015

Percentage

point

Pri vate co nsum po n Govt co nsum pon I nvestment

Discrepancy Net exports GDP growth

Figure 4. Although rising, the Philippines sll

aracts much less FDI compared to its ASEAN

neighbors.

Net foreign direct investment

Source: World Development Indicators;

Country stascs offices

0

5

10

15

20

25

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

USDb

illions

Indo nesia Mal aysia

P hi lipp ines T ha iland

Vietnam

4. On the demand side, the strong performane of private domes demand at 8.1

perent onnued to drive growth. S 6.1

(F 3), , ,

. S

F T Y. I

, (11.2 )

q . S q 10.4

EU Gz S P P (GSP+)9

D 2014 - .10

5. Government spending, whih had a slow start, began to reover in Q2.S

Q1 2015, ,

. T ,

24 Q1. G

Q2 6.9 20.4 . T

H1 0.4 GDP

9T GSP+ P . T (),

, , , , , . T

200,000 j EU 11 (:

D T I).10 D H1 2015, . T

M R P (MRP),

30 GDP 15 2025.


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4

. T

detail.

6. In addion, a weaker global eonomy reversed the performane of merhandiseexports, while imports onnued to grow.S 0.4

H1 , J C. I ,

(-31 ) (-14 )

. H, ,

16 US . I ,

, 9.8 . A ,

2.6 GDP . G

driven by a 56 percent increase in electronic parts imports. Within this product group,

82 . T

H2

. I , , , q .

7. Despite a growing trade deit, the ountrys urrent aount balane remained in

strong surplus, as exports of servies and remianes remained resilient. I H1 2015,

USD 4.7 (3.3 GDP)

USD 3.9 (2.9 GDP) H1 2014. T

( 9.7 ), -

(BPO) . I H1 2015, USD 8.5

170,000 j . D

, 5.6

. H, ,

. R E,

, . D ,

M E , 6.8

F .

8. Aer reahing a reord high last year, net foreign diret investment (FDI) slowed in H1

2015. T FDI

.11T J 2015, P FDI USD 2

billion, which was 40 percent lower than the same period in 2014. Despite the sharp decline,

FDI H1 2015 FDI 2010.12

H, E A , FDI (F

4),

( ). F , z

11F P , A 2014 PEU.

T : ://../////---

-------.12H1 FDI PHP 1.9 2010 2014.


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5

P 2014 USD 1.3 FDI

j USD 35 2005. O ,

, Q2,

S -- USD 64 ( ).

9. With a strong urrent aount and stable nanial aount, the balane of payments,

whih was in deit in 2014, returned to a surplus in H1 2015.A ,

(GIR) USD 80.6 J

A USD 80.3 . T

GIR , , IMF

q. R 10.3 4.5

- .13

10. In Q3, available high frequeny data suggest an improving eonomy. T Q3 2015. I ,

J, (

), J A

. I ,

, 16 14

J. M, . I J,

25 , , 93

. T

, E N . 14 In July, merchandise

. H, ,

semiconductors, grew strongly by 55 percent.

Employment and poverty

11. connued job gains in the industry and servies setors ould not ompensate for the

substanal job losses in agriulture aused by El Nio.15 B

L F S (LFS) J 2015, j ,

j , . I ,

, , j . H, j

13 S- , ,

, -

private sectors due in one year or less.14T P S A 14 Q3 2015,

Q3 2014.15 This paragraph is based on government press release. Further breakdowns are not available as the July 2015

L F S (LFS) L P 2014 LFS L

T Y.


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6

j

, 877,000 j q E N.

I , 96,00016 j J 2014 J

2015. (Figure 5).

12. Moreover, underemployment inreased signiantly while the labor fore

paripaon rate fell. A 6.5 J 2015,

2.5 20.8 , q

j . H , , ,

75 ( -

). T j . A ,

1.4 . T

. F, .17S,

, , . A

, . A . O ,

j j

. O ,

, , . I

,

, .

13. Sine 2012, poverty is trending downwards, although reent data shows a slight

upk. A H1 2012 H1 2013,

H1 2013 H1 2014.18 T T

Y ,

.19 Even though poverty increased slightly, the overall

. A

, (CCT) 2014

. I , APIS,

(F 6).20

16T j .17D j

. D j

LFS .18T 2014 A P I S (APIS).19T H1 2014 12.2 ,

.20 I 2013, 30 ,

CCT . T 2014,

. T

that the CCT program is reaching more poor Filipinos, as the CCT program expands.


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7

Figure 6. The large increase in domesc transfers in

the first three income deciles suggests that the

governments CCT program is reaching more poor

Filipinos.

Real percent changein domesc transfers

Source: PSA, World Bank staff computaons

0

5

10

15

20

25

30

35

1std

ecile

2ndde

cile

3rdde

cile

To

p70p

ercent

Percent

2 01 2- 13 2 01 3- 14

Finanial markets

14. Like the rest of the region, the domes nanial market experiened large volalies

in reent months but underlying fundamentals remain sound. T P S E

(PSE) 8,127

A 2015 12.4 (F 7). H,

US F R

q . M , C

,

, - ,

-- . O A 24 B M PSE, 6.7

. T 2008.21

15. However, the bond market saw pries rise. D

C,

. F ,

ROP 2032 2034 (.., ) 146 156 156 163, , (F 8).

21PHP 764 ( GDP) .


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8

16. Inreased volality in global nanial markets have led to a sharp reversal in net

foreign porolio investments (FPI), leading to a net oulow in the rst eight months of the

year. A USD 1.8 2015,

M -- USD 64 S2015. C C

US

S, . H, ,

(F 9),

the strongest currencies in the region in real terms. This has naturally led to concerns about the

P .22

Figure 7. The PSEi was not immune to volality in

global financial markets as year-to-date gains were

wiped out.

Philippine stock market performance

Source: Philippine Stock Exchange

-15

-10

-5

0

5

10

15

20

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

Jan2

014

Feb2

014

Mar201

4

Apr201

4

May201

4

Jun2

014

Ju

l2014

Aug2014

Sep2

014

Oct201

4

Nov201

4

Dec201

4

Jan2

015

Feb2

015

Mar201

5

Apr2015

May2015

Jun2

015

Jul20

15

Aug2015

PHP

billion

Index

Net Foreign Buy (RHS)

PSEi

Figure 8. Recently, bond prices have increased given

benign inflaon outlook and as investors

reposioned their asset holdings in the market.

Bond prices: ROP 32 and 34

Source: Bloomberg

100

110

120

130

140

150

160

170

180

190

200

Janu

ary-13

March

-13

May

-13

July-

13

Septem

ber-1

3

Novembe

r-13

Janu

ary-1

4

March

-14

May

-14

July-

14

Septem

ber-1

4

Novembe

r-14

Janu

ary-15

March

-15

May

-15

July-

15

Bond

price

index

ROP 32

ROP 34

17. The domes nanial market remains strong with a number of prudenal measures

in plae to migate risks. However, areful monitoring is sll needed given the possibility of

more global volality and ertain data gaps. N- 2.4

(TLP) z

B BSP 10 ,

capital to absorb any possible shock on their credit exposures.23A -

. I ,

22F , A 2014 PEU.23 U BSP C 839, q 10

q q . T q q

q .


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9

20 TLP .24 H,

- . 25Finally,

,

.

Figure 9. Following significant real appreciaon in

the last decade, the peso has been relavely stable

in the past few months, while it generally

depreciated in nominal terms.

Nominal andreal effecve exchange rates(REER) (2010=100)

Note: Nominal exchange rate expressed in USD/PHP. An increase in the REER index,

and the exchange rate in USD/PHP represents an appreciaon.

Source: Bank for Internaonal Selements, BSP

0.020

0.021

0.021

0.022

0.022

0.023

0.023

0.024

100

105

110

115

120

125

U

SD/PHP

REER

index

Real effectve exchange rate ( lhs) Nominal exchange rate (rhs)

Pries and monetary poliy

18. cPI inaon onnued to deelerate, averaging 1.7 perent in the rst eight months

of 2015, below the entral banks target of two to four perent for 2015. S

, 0.6 A (F 10).

L 1.2 A

8.3 26

(T 2). I , q

.27 I , , 54 A

24U BSP M N. M-2012-036, BSP C 600, BSP

. T 20

percent cap on real estate exposure.25F , IMF A IV 2015, P

. T : ://../////2015/15246.26F , 31 .27 T 1.8 () S 2015. T

500,000 F, 250,000 J, 250,000 S, --

. I , 787,000

(MAV) .


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10

2015 compared to the same period in 2014,28

, , . O ,

,

, 2.2 --. T ,

economy.

Table 2. Breakdown of food inaon by ommodity; total rie stoks

19. Monetary poliy remains supporve with room to respond to higher global interest

rates. G , M B ,

. S

-S 2014, ,

. T (SDA) 2.5

q 20

. T

(M3) , J 2015,

33 2014 (F 11).

28 O , ,

.


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11

Figure 10. Inflaon reached its lowest level in 20

years as a result of deceleraon in food prices and

the connued decline in oil prices, bringing inflaon

down to 1.7 percent as of August (year to date).

Contribuon toy-o-y CPI inflaon

Source: Bangko Sentral ng Pilipinas (BSP)

-1

0

1

2

3

4

5

6

Percentagep

oint

Food and beverage Fue l, light, & water

Transport Others

Inflaton rate

Figure 11. Money supply growth remained low and

stable given appropriate monetary policy and

prudental measures.

Money supply growth breakdown

Source: BSP

-10

-5

0

5

10

15

20

25

30

35

40

45

Percentagep

oint

Net domestc assets - Private

Net domestc assets - Public

Net foreign assets - Other Depository Corp

Net foreign assets - BSP

Liquidity aggregates growth

M3 growth

Fisal poliy

20. connuous improvement in tax eort is helping build adequate sal spae for the

government to ramp up investment to aelerate growth. T 14.1

GDP H1 2015 13.7 GDP H1 2014. T B I R (BIR),

80 , 10

2014. I , BIR

. I , B C (BOC)

H1 2015, .29

21. However, gains from higher revenues and unpreedented inreases in the budget

have yet to translate into ommensurate inreases in government spending. S 2010,

15 ,

. E

. F H1 2014 H1 2015,

18.5 , 8.5 . T T Y ,30 which indicates that

29T BOC PHP 40 (0.3 GDP) VAT

oil prices.30 A J 30, 2015, 53 PHP 167 Y

, .


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12

.

A ,

within key departments and agencies, which includes i) poor planning, ii) weak program and

j , ) q , , ---, , . T

, A O (AO) N. 46

M 2015

j 2015 .31 Procurement units are also being

, . I

, q

.

22. In parular, publi infrastruture spending ontrated in Q1 2015 before rebounding

in Q2.In Q1, 11

Q2 37 , . W ,

j -

(PPP) . A , M-C , PPP

j, J 2015. A j, ,

,

. F

, PPP j 2016 (T

3). H, , -- ,

, PPP j

schedule.

23. The ountrys sal posion is sustainable. I H1 2015,

0.2 GDP -- PHP 18.5

J. P

. T

. B ,

, , - , ,

- . F ,

PHP 2.4 . I H1 2015, GDP

44.9 GDP, 40

-. T 20 - 25.7 GDP H1 2015.

31 U AO 46, q j

q -A. T q

D B M O C S

j 2015 G A A.


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13

24. Going forward, the government needs to review and improve budget planning and

exeuon so that improved revenues an translate into beer spending and improved publi

investment.T ,

( ).

Table 3. Status of PPP projets


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14

PROSPECTS, RISKS, AND POLICIES32

Prospets and risks

25. The Philippines strong maroeonomi fundamentals provide the neessary

ondions for rapid, sustained, and inlusive growth. T z

, , , -

-q , (F 12)

. G, z

j

. W

,

,

j, .

26. Near term eonomi growth will remain robust and is projeted to improve from 5.8

percent in 2015 to 6.4 percent in 2016 (Table 4). Lower 2015 growth takes into account the ,

, E N. S j

. I , -

32 T J L L (R A), K Cz (R

A), K K C (S C E), M

F M G P.


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15

(PPP) j, 0.6 GDP 2015,

( B 1

). L . H, E N

exports can pull down growth considerably.33 In 2016, growth is expected to accelerate to

6.4 2015

government spending34 6.2 2017.

Table 4. Philippine, East Asia, and global growth projeons

2015 2016 2017

Philippines

R 5.8 6.4 6.2

Previous 6.5 6.5 6.3

East Asia

R 5.7 5.8 5.8

Previous 6.7 6.7 6.6

Global

R 2.5 3.0 3.1Previous 2.8 3.3 3.2

27. Poverty reduon is expeted to onnue if the ountry is able to maintain relavely

high eonomi growth and beer job trends in reent years, despite reent shoks to

agriulture. U - 2012 F I E S, 11.2 2012 10.5 2014

j 8.2 2017 (

USD 1.90/ [PPP], 2011 PPP ,

). A 2015,

-. H,

. E

,

, , .

33T E N j . T E N

1982-83 1997-98 , .34 T M 2013 P (PEU) H1 GDP

() ,

. T :

://..///W//EAP/P/P_E_U_

M2013..

S: W B

N: P j J 2015 G E P


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16

Box 1. Lower oil and rie pries: potenal impat on growth and poverty

Over the past year and a half, oil pries have fallen signiantly, and are likely to stay below USD 60

per barrel over the medium-term. P j 35were more transitory (.., 1991 G , 1997 A , 2001 S 11 -

, 2008 ). I ,

: ) -OPEC

, ) OPEC , )

economic slowdown, led by China.

Given that the ountry is a major net importer of oil, the Philippine eonomy stands to benet

signiantly. L . U 2006 -

, . I

, 11 . T 2014

, . A , ,

- GDP 2015.36

Lower oil pries and low food inaon also aet households posively, and more so among poor37

households given that food aounts for 40 perent of their onsumpon basket. H

,

. E

, , .

While the preise impat of lower food and oil pries is diult to measure, the household survey

suggests that it an be signiant.F , 2012 F I E S,

PHP 6,000 (q 32 ) , , .38C

2014, PHP 4,400 -- . I

j ,

, PHP 1,600 .39This is money that can be

.

35A j 30

six month period.36 S E A P U A 2015 . T :

://../////----37I , 30 ,

poverty incidence.38 T, 32 ,

22 .39T 2014 j 2012 FIES

2009 FIES. T j 2014

2014 q . T q ()

, 2014 2015,

.


27/88


17

Finally, the poor an benet even further if exise taxes on petroleum produts are inreased and the

revenue is redistributed in the form of beer soial servies, inluding soial proteon. R

q

(.., 10 60 ).40

B 3 J 2015 P

PHP 20 .

Box table 1.1. Impat of lower oil and rie pries on the poor

PHP

Projected consumpton

at 2014 average prices

Consumpton at 2015

current prices

(September)

Consumpton if oil

prices fall further as

projected and rice

prices stay the same

Oil and oil related expenditure 10,430 6,929 6,234

Rice 21,441 19,106 19,106

Total 31,871 26,035 25,340

Freed up money* 4,377 1,633

Source: PSA, WB staffestmates

*Freed up money is pro-rated from the start of the year up to the current month (September), while the potental

gains if prices fall further are pro-rated from October up to the end of the year.

Seleted referenes

K, M. A., F. O, & M. S. 2015. T : C, q,

policy responses. World Bank Group, Development Economics.

W B. 2015. E A P U (A 2015). A :

://../////----

28. With private domes demand growing by an average of 6.9 perent sine 2010, 41

realizing the administraons end-term growth target of seven to eight perent will primarily

hinge on its ability to signiantly inrease publi spending to oset weak external demand.

T q 95 79.7

( B 2 ). I -, 95

q . I -

,

(

).

40 F ,

PEU J 2015 .41 S 2010, 6.9

GDP 6.2 .


28/88


18

Box 2. What if the government spent the budget as planned?

A simple sta analysis (without mulplier eets) shows that if the government spent loser to the

budget, growth would be higher, even reahing the administraons end-term target of seven to eightpercent.42 D , 4.5

2010 . W --

43 79.7 , GDP 6.2 2010 2014,

- 2016. I

() 85 , GDP 6.9 . W 15

95 , 8.2 . H,

.

Box table 2.1. Summary of senariosCases 2010 2011 2012 2013 2014 Average

Actual spending rato* 83.7 73.6 80.7 82.7 78.0 79.7

Actual government spending growth 4.0 -6.2 15.7 6.7 2.4 4.5

Actual private domestc demand growth 8.9 6.2 3.9 10.1 5.4 6.9

Actual overall GDP growth 7.6 3.7 6.7 7.1 6.1 6.2

Spending rato scenarios

85 percent 7.6 4.5 7.5 7.8 6.9 6.9

90 percent 7.6 5.3 8.3 8.6 7.7 7.5

95 percent 7.6 6.1 9.1 9.4 8.5 8.2

Source: WB staffesmates

*Defined as the rao between government spending, as measured in the naonal income accounts, and primary appropriaons, as calculated using DBM data.

29. The government has idened a number of exeuve and legislave measures to

speed up publi spending, espeially on infrastruture.These measuresreducing lump sums,

( AO 46),

, -- q --

, -

2015 2016 .

30. Eorts are also needed to fast-trak bidding and implementaon of the PPP program.

C, 15 j PHP 503.1 ( 2014 GDP)

, 10 j ,

, . W q

j , PPP j 0.6 GDP 2015 0.8 GDP 2016. I , 18 PPP

J 2016, PPP , N-S ,

42G 1970.43 G

. P q , ,

, . I

GDP.


29/88


19

PHP 171 (1.4 GDP). F-

.

31. Higher spending that is in line with budget targets will not inrease the ountrys debtburden. N 75 GDP

j 45 GDP 2014. D ,

85 2006 j 27 2014,

- , . W

, q GDP

-

(F 14 15). R q

( ).

Figure 14. Naonal government debt will connue

to fall over the medium-term even with an interest

rate shock

Interest rate shock (in percent)

Source: World Bank staff esmates

Note: The doed line represents d ebt projecons with a one standard deviaon

shock to interest rates.

Interest rate

shock

Baseline

30

40

50

60

70

80

PercentofGDP

Figure 15. or an exchange rate shock.

Interest rate shock (in percent)

Source: World Bank staff esmates

Note: The doed line represents a one-me, real exhange rate depreciaon of 30

percent, with real depreciaon defined as nominal dep reciaon minus inflaon.

Real

depreciaton

shock

30

40

50

60

70

80

Percentof

GDP

Baseline

32. Near-term growth projeons are lted towards the downside. Philippine external

demand hinges primarily on the strength of reovery of the US, Euro, and Japanese

eonomies. T P ,

C- P- . H, P

-

-. T

, P ,

. I , -

, .

33. The upoming inrease in US poliy rates may yet again disrupt the loal nanial

market. T US Q4 2015.

H, 2013, z

, ,


30/88


20

. C ,

. M,

.

34. But the greater onern lies in its impat on the ost of naning, both for the publi

and private setors. T P

. L

. I

. A

US , -

- . R -

z ( )

- .

35. closer to home, while the chinese stok market volality poses lile risk for thePhilippine nanial setor, the eet of a chinese slowdown ould be more pronouned.44

F C P ,

C . H, P

C 13 .

O , C ( USD 400 )

.45 O , C

, C

- , C

. M, C

, P . C

, C j

P. T C

j 15,000 2000 2014. T

C

.

36. On the domes side, El Nio is the main threat, not so muh on GDP growth per se

but on the quality of growth, as tens of millions of farmers lives may be aeted. Current

j 2015

E N. H, E N j ,

GDP , .S , 1983 E N, GDP

2015 5.4 , . I

44F , J 2015 PEU. T

: ://../////-- j-

2015.45 F , 2012, C -

sanitary concerns.


31/88


21

, 1998 E N, GDP 5.1

percent.46 W , ,

q . T

( B 3 E N). T E N -

q , . I

-, ( J 2015

P ).

Box 3. The likely onsequenes of El Nio and the governments response

Latest foreasts indiate that the urrent El Nio episode may rival the 1997-98 episode, whih

resulted in a large ontraon in the ountrys agriulture setor. T E N

1997-1998, J 1997 A 1998.47A ,

1998,

. T

j , , . T

, 8.3 1998 2.9

1997. H - 1998,

higher.

As a onsequene, the impat of El Nio on poverty was pronouned. D H (2000)

1998 A P I S (APIS)

1997 1997-98 E N

29.1 31.7 1998. T E N 46

in the poverty incidence.

The urrent episode of El Nio has begun to take its toll on the ountrys agriulture setor, albeit not

yet as pronouned as the 1997-98 episode. I H1 2015, 0.3

, 70

81 .48 T D A (DA)

PHP 3.3 E N

A. D , ,

q ,

prices.

46 T GDP

- j 11 -.47A , 1982-83 E N

8.6 .48 B P A, G, A S

A (PAGASA) j-- , j

E N : A N, A S, S N, S S, C V,

D N, D O, M; B, I, M P,

Lz ; Sqj V.


32/88


22

For the rest of 2015 to early 2016, the eets of El Nio on farm output may pose an upside risk to

inaon and poverty as the urrent bout of El Nio is expeted to intensify in the last quarter of the

year and persist unl early 2016.49 I 8.3

1998 , 0.8 2016

compared to 2014.50A ,

q. I S 2015,

750,000 E N

. F, DA q PHP 1.9

billion,51 N E D A

E N. T

.

Seleted referenes

D, G. H. H. 2000. E N E P? C, P, I D

P. W B E A P R. W, DC.

D, R.T. 2015. W 2015-2016 . B W. A :

://../.?=O&=-----2015-

2016-&=114871

Poliies

37. The remaining eight months of the Aquino Administraon present an opportunity to

learly and praally dene the unnished business in the strutural reform agenda. These ,

j.T ) z

, ) ,

q, - , )

, )

, )

49T E N N 2015 M A2016.50 T 2014 APIS . T 2016,

: ) 2016 j 2014

2012 2013 3.5 50 ( 2013

2014 ), ) j 2016

j 2014 2015, 8.3

2016, - 2016, )

2016.51T ) , , - ,

(PHP 804 ), ) (PHP 989 ), ) (PHP

73 ), ) j (PHP 65 ).


33/88


23

, , , -

. W ,

, j , .

38. The Aquino Administraon made substanal progress on improving the

maroeonomy and governane, in parular, with respet to ghng orrupon and

inreasing transpareny. T -

. I 2010, - Aq A

. T z . A ,

S W S, 41 F

with the government52

achieved.53 G, T I C P

I 49 134 2010 85 2014. I , ,

j .

39. The administraons fous on improving sal revenues and publi nanial

management allowed a onsiderable ramping up of spending, inluding on programs whih

benet the poor diretly. T 2016 2010,

12 . T

. O

. I , -

- . T

53 2011 27 2014.

40. The growing sal spae was rightly targeted towards priority areas, led by soial

servies. T , ,

2010 2016. A ,

(CCT) . T

13 . U

. A - -

.

I , , -,

GDP 2016. T

,

52T SWS

president.53I q ,

40 (.., C. Aq: 10 , R: 35 , E: , A:

38 !).


34/88


24

1.9 GDP,

spending.

41. On the strutural reform agenda, the Aquino Administraon has begun to addressdeades-long onstraints that have held bak the potenal of the private setor. These

:

Passing an overarhing ompeon poliy law: U ,

. T

, .

Allowing foreign transshipment of goods: C z -

, j

.

T - , - .

T z,

, . I ,

.

Fully liberalizing the banking industry: T z

. M, z 2014 USD 1.3 FDI

j USD 35 2005.

Simplifying business registraon: F,

SME, . H,

SME

investment climate.

M, z

, ,

.

42. Taken together, the administraons governane and strutural reforms led to asigniant aeleraon of eonomi growth sine 2010. H,

, ,

, . A


35/88


25

IMF54

important contributor to growth. As it is unlikely that a sudden improvement in technology

, .

43. The reforms are also beginning to translate into more and beer job reaon and

faster poverty reduon.A , , 2013 A P

I S (APIS) 2012 2013. T 2013

20

, 30

q

CCT - . M,

. H, 2014, APIS

, T Y ( , ) ( ),

. N,

q .

44. The reforms undertaken by the Aquino Administraon signal a break from the past.

W z

,

j. T , , , ,

, P

C j,55 P E

Update.56

45. This losing disussion highlights the key reommendaons that the administraon

an onsider as it ends its term:

Instuonalize urrent publi setor reforms to inrease budget transpareny and

aountability, and spending eieny: T

z F

I B. T z ,

- z

54 F , IMF IV 2015 . P:

.55 T 2013 P C j :

://..///W//EAP/P/PDRFR..56 T PEU :

://../////--


36/88


26

(.., E PDF ). 57B

z -

. T z ,

z .58

cra a simpler, more equitable, and more eient tax system to sustainably nane

an investment-led growth:59 F ,

: ) z

, , -, ,

,

, )

, .R j

q. O

reduce tax rates be considered. These could include i) lowering the top marginal income

tax rate to 25 percent, ii) reducing the gap between regular and special corporate

, ) . F

, . R

.

Further open up the eonomy to more ompeon by reduing the investment

negave list:60F ,

. M,

. T

, , : ,61shipping

57C , FOI

, , ,

, j , (.., ).

58 U 2014 , ,

, j , , q

; ---, ,

.59F , A 2014 PEU T

.60F , J 2015 PEU.61For instance, in its latest household download index, internet metrics provider Ookla (which owns the popular

website speedtest.net), ranked the Philippines as 21st 22 A

3.64 (), L M, A. C

P , T 20 ,


37/88


27

, . T j,

income, and improve quality while lowering prices.

Seure property rights through land governane reforms: Following the near ,62 ,

: ) j

, , ) z

, )

- z , )

L A R A N

Land Use Act.

Overhaul business regulaons to make them simpler and far less ostly: The private

. I H1 2015, 8.1 - 5.3

. T , , ,

z -

. W , j

. B j ,

-

- ,

j

.

46. A number of these reommendaons are urrently being addressed. I -

-- (SONA) J 2015, P Aq 2016

G A A , , )

j , )

. I ,

z , -

,63 and the

V 18 . A , - S H K

100 . M , ,

P , USD 18 USD 5

per mbps, as measured by Ookla.62I 2015, D E N R

. T 30 1,634 .

H, 118 A R M M

.63 R A I M P C P

.


38/88


28

Bangsamoro Basic Law, which is expected to help sustain peace in Mindanao. Outside the

SONA, P

.

47. To onlude, ahieving inlusive growth is within reah, now more than in any

previous period. T z

,

,

z, , , ,

.


39/88


29

MEDIUM-TERM REFORM AGENDA

Simplifying business regulaons to enhane inlusive growth64

1. complex Philippine business regulaons are major hindranes to inlusive growth.

T , ,

j. T

,

. P j

: , , .

A omplex set of business regulaons

2. Philippine business regulaons are omplex and among the ostliest in East Asia,

undermining rms, espeially miro and small rms ability to reate jobs. V

. T D B 2015

P 95 189 .65 A j

ASEAN , I . F ,

P (T MT1). F

, 161. P

, 127 104, . A

, 100 (..,

worse). In contrast, Malaysia and Thailand are among the easiest places to do business, with 18 26, . I, P

D B , j ( 49

P 128). E 72nd

2007 to the 50th 2015, .

Starng and maintaining a business

3. cumbersome regulaons and proedures in starng and operang a business deter

new rm entry and business expansion, espeially among miro and small rms. For example,

, q

64T P R C J (W B 2013).

I K K C (S C E, M F M

[MFM] G P) J L L (R A, MFM), H S (S

P M, T C G P) G S (O O, F

M G P).65 R () 189 ().


40/88


30

P, 16, .66T

34 q PHP 21,156

(q 16.6 )

. F P , (F MT1). U 18 , ,

. I ,

(F MT2).

Table MT1. Rank (and perenle rank)1in Doing Business 2015 and seleted sub-indiators

4. The proess for individuals seeking government lienses, permits, or learanes for

employment purposes is also umbersome. F ,

N B I

, ,67

, S S S (SSS) (..,

processing),68 P O E

A (POEA) F . T

66 I A 2015, . T

being validated by the Doing Business team and will be released in the upcoming Doing Business report 2016.67I ,

. A , .68 I SSS , SSS

. F .


41/88


31

,

, , q .

Figure MT1. Firms in the Philippines need to applyfor licenses more oen.

Applied for operang license in the past 2 years(percent of firms in operaon for more than 2 years)

Source: Enterprise Survey 2009

0 20 40 60 80 100

Indonesia

Vietnam

Mongolia

Philippines

Lao PDR

Percent

Figure MT2. Firms report the need to pay bribes orgive gifs to obtain permits.

Expected to make informal payment/gi inorder to obtain license/connecon


Note: In this figure, firm sizes are based on definions used by the Enterprise

Survey. Large firms have 100 or more workers. Medium firms have 20 to 99

workers. Small firms have 5 to 19 workers.

0 20 40 60

Phone connection

Operating license

Import permit

Water connection

Electricity connection

Tax inspection

Construction permit

Percent

Large Medium Small

5. Finally, a weak bankrupty resoluon regime makes it parularly diult for

ineient or unprotable rms to exit the market. A new insolvency law was recently passed,

21

. H, q 42 T 80

M, .

Paying taxes

6. Paying taxes is also umbersome in the Philippines. According to the Doing Business

2015 , P ,

, ASEAN

127 189 . T

,69q 42.5

36,

M, T,

payments more than that in Myanmar, the lowest overall ranked East Asian country. The

69 T

, . T D B 2015

2013. T

. T (

) ( ,

) (: D B 2015).


42/88


32

P q 70at

193 , 264 T 254 I. I M,

133 . H, q

F , .

Accessing nance

7. Another key onstraint to rm entry and expansion in the Philippines is limited aess

to nane. T , , -z (MSME),71

j . I

. A

-

q q

. O

, , , - . B ,

.

8. A 2007 study by the Internaonal Finane corporaon (IFc)72suggests that the annual

unmet demand for SME loans ranged from PHP 67 billion to PHP 180 billion. The government

SME.

H, SME , q -

-z , q

SME SME . T

banks in the Philippines.73

9. Limitaons in bank regulaon and supervision framework have also aeted redit

growth for SMEs. L q

. A

70T , , j

: , - , , (S: D B 2015 ).71Updated Bangko Sentral ng Pilipinas 2008 2013,

MSME PHP 311 PHP 386 , j 12

P , 4 . M,

U P S, I. (UPS) A B M R (2009),

P SME ( 67 ),

74 .72S V (2007) .73 E - ,

. M,

SME SME .


43/88


33

-

.

10. Aess to redit is also hampered by a relavely high redit repayment risk. SME

,

. I SME ( 10

percent74) is so low, considering that the bankruptcy process is extremely slow (i.e., it takes around

6 ), (38

), ,

. M,

use it.75T SME P.

11. The previous lak of aessible informaon on payment histories added further to

reditor risks. T -

. T , , q

P . T R A 9510, C

I S A, z , C I C,

2015 . H, ,

.

12. Moreover, the land registraon and tling system is fragmented into dierent

registries, making debtor searhes and naning diult, and property rights inseure. The

q. T

. T

. U

.

13. Finally, signiant deienies also abound in the registraon of moveable ollateral

(i.e., hael). T -z

. I R D z,

- ,

.

74W B E S D (2011 S ).75 A -- , R A 10142 F R I A,

q

2010. I, , 2013 A.M. N.

12-12-11-SC F R R P (2013)

R A N. 10142.


44/88


34

Informality and weak entrepreneurship as onsequene

Large-scale informality

14. Informality is one of the major onsequenes of ostly business regulaons. The

j

F . W

q j,

j

j . M -

, , j.

15. The Philippine labor market is haraterized by high levels of informality. Around 75

F .76 I

- ( ), , , ,

2008 I S S (ISS)77 P S A (PSA). T PSA

D T I (DTI) 90 F

, , -z (MSME)78 -, 60

.79 A ISS, 70 -

. A j

.

16. In the past 15 years, the share of vulnerable workers, whih inlude own-aount and

unpaid family workers an indiator of informality have dereased but their magnitude is

sll high. W 57

2012, 6 1997 (F MT3). T -

: BPO, , . T 43

- (32 ) - (11 ).

76 T E C P,

77 (Oz-L 2008).

77 T ISS I L Oz (ILO) 15th and 17thI C L S (ICLS). T

: ) - , ) z, ) -

. O , : )

) .78 F , 10 ,

10 99 , 100 199 , 200

more employees.79 T

. O, . T

: ) , )

, , (TCS).


45/88


35

17. Vulnerable workers are susepble to job or inome losses. W -

j,

, ,

j . I ,

the agriculture and services sectors (Table MT2), and is highly correlated with poverty incidence

(Figure MT4).

Figure MT4. Vulnerable employment is highly

correlated with poverty incidence at the regional

level in 2009.

Employment by class of worker

Source: LFS 2009, PSA

NCR

1

23

4A

4B

5

6

7

8

910

11

12

CAR

ARMMCARAGA

0

10

20

30

40

50

60

0 20 40 60 80 100

Povertyincidence

rate

Vulnerable emplo yment rate

Table MT2. Agriculture and the informal services

sectors have the highest rates of vulnerability.

Composion of employment by sector

Source: LFS 2011

Industry

Wage

and

salary

Own

accountUnpaid Total

Agriculture 29.1 46.0 24.9 100

Industry 81.8 14.6 3.6 100

Manufacturing 73.6 20.3 6.1 100

Others 92.2 7.4 0.4 100

Services 63.6 30.4 5.9 100

Formal 90.1 7.9 2.1 100

Informal 50.7 41.5 7.8 100

18. Even among wage workers, many are informal workers. Many wage workers do not

q L C. T L C de factoprotects only about


46/88


36

. T j

(T MT3). D ISS 63

2008 62 . S

j . T j. P

. A 60

, (70

) . A

, 90

. T

(64 52 , ).

Table MT3. Measures of informality for wage workers

Wrien Verbal NoneType of ontrat 36.7 40.1 23.2

Yes No

Soial Insurane

(Soial Seurity System or

Government Servie Insurane System) 38.1 61.9

Proteon from dismissal 41.4 58.6

compensaon in ase of dismissal 29.8 70.2

Leave benets

Paid leave 28.0 72.0

S 28.9 71.1

Maternity/paternity leave 27.3 72.7S: ISS 2008

Weak entrepreneurship

19. Apart from large-sale informality of workers, the other major onsequene of ostly

business regulaon is the slow growth of entrepreneurship, whih has resulted in limited job

reaon for the poor. T z ,

, , ,

.

20. A huge majority of Philippine rms are small and remain small over the years . Micro,

, -z (MSME) 99 Philippines,80 j -.81The 2009 Enterprise

S ( ),82 , ,

80S: M, S, M E D C (2011)81S: WB DTI, NSO, WB 82T 2009 E S 5 .

T , z E S j

accordingly.


47/88


37

91 -z

. T -z , 17

-z . H, -z

(21 ) (T MT4). T P.

Table MT4. Transion between rm size (in perent of total rms)

21. The number of registered MSMEs is very low. A comparison between the Global

Entrepreneurship Monitor (GEM) survey83 W D I (WDI)

W B

P MSME . F , 2014, 18.4 GEM

P / ,84

(F MT5). H,

WDI, 2012,

10,000 (F MT6).85

83GEM . I 85

2,000 . T GEM P 2014 (

://../).84I GEM ,

- .85 T

. B , 2 . I C,

,

75 10,000 . I , I T,

.


48/88


38

Figure MT5. The share of Filipinos involved in

starng a business is one of the highest.

Adults involved in new businesses

Source: Global Entrepreneurship Monitor (GEM)

0 5 10 15 20 25

Russia

Malaysia

South Africa

Turkey

Singapore

Canada

Indonesia

Argentna

Brazil

Philippines

Colombia

Mexico

Thailand

Percent

Figure MT6. But few businesses are formally

registered.

Number of new registered companies

per 1000 adults

Source: WDI

0 2 4 6 8 10

Philippines

Indonesia

Argentna

Thailand

Mexico

Canada

Turkey

Colombia

Italy

Malaysia

Brazil

Russia

South Africa

Singapore

22. The share of Filipinos involved in starng a business is one of the highest in the world,

but new businesses are oen started out of neessity, and while many introdue innovaons,

few intend to grow. A GEM , 18.4 F

,

, (F MT7). T F

(F MT7), j

(F MT7). W F

, j

, j .

Figure MT7. About a third of new firms cite necessity as the main reason for starng a business and

very few introduce innovaon or plan to add five or more jobs over five years.

a b c

Source: GEM Source: GEM Source: GEM

Necessity as the main reasonto start a business

New business with newproduct or market

Expect to add 5+ employeesin 5 years

0 10 20 30 40 50

Singapore

United States

Malaysia

Chile

Thailand

Indonesia

Mexico

Germany

Philippines

TurkeyChina

Colombia

Percent0 20 40 60 80 100

Malaysia

Germany

Mexico

Indonesia

United States

Singapore

Thailand

Colombia

China

PhilippinesTurkey

Chile

Percent

0 10 20 30 40 50

Indonesia

Philippines

Malaysia

Thailand

Mexico

Germany

China

United States

Chile

SingaporeColombia

Turkey

Percent


49/88


39

23. The average produvity of MSMEs in the Philippines is very low. The labor

MSME P - M -

- (F MT8).86A, P MSME GDP

. T 60 36 - (F MT9).

Figure MT8. Labor producvity of smaller firms in

Philippines is much lower than in other countries.

Average MSME labor producvity

Sources: European Commission, US SME Characteriscs and Performance, Singapore

Department of Stascs, Singapore, SME Corp. Malaysia, Micro, Small, and

Medium Enterprise Development Council (2011)

0

20

40

60

80

100

120

USD

thousand

Figure MT9. MSME contribuon to GDP is small

relave to its employment share.

Share of value-added of MSMEs

Sources: OECD Structural and Demographic Business Stascs (SDBS) Database, NSO (2008 ), Micro,

Small, and Medium Enterprise Development Council (2011)

0 20 40 60 80

PhilippinesSouth Korea

JapanUK

PolandMexico

GermanyAustralia

SpainPortugal

Italy

Greece

Percent of GDP

Figure MT10. The retail trade sector accounts for

majority of new job creaon.

Net job creaon by sector as a shareto total job creaon


-38%

-23%

-18%

-4%

-4%

-4%

-2%

-1%

0%

4%

4%

8%

41%

Electronics

Wood and furniture

Food

Other manufacturing

Plastic materials

Chemicals and pharmaceuticals

Auto and components

Garments

Textiles

Hotels and restaurants

Construction

Metals and machinery

Other services

Retail and wholesale trade 138%

24. More than 50 perent of new businesses luster in retail trade, given few opons

elsewhere(Figure MT10). This share is much larger than in other countries. Countries such as

86N F MT9 z. F ,

USA 500 US- .


50/88


40

C, I, M .

Cq, j j sari-sari

(.., ), , - j,

insurance or real estate.

Reforms to simplify business regulaons

25. Simplifying business regulaons are needed to enourage the rapid growth of

businesses of all sizes and enourage movement of small rms to the formal setor, and in

the proess reate more and beer jobs. T

,

- , z. P

D B R

: ) , ) , ) . T

.

Simplify and automate key business registraon and licensing processes to reduce

transacon costs

26. Starng a business an be simplied by harmonizing and streamlining proedures

through a proess re-engineering. T P

q 16 . A ,

q 18 . T

P EAP ,

16 7. T ) z

LGU (.., z

and barangay ), )

( q S

S S (SSS) 87), and iii)

q j. T )

- q, )

, )

, ) q B

I R (BIR) . S q ,

.

87U J M C N. 1 2012 (D 2012) SSS D

I L G, SSS

. I, SSS LGU q . B

.


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41

27. Automang and ompletely implemenng the Philippine Business Registry (PBR) and

the Business Permit and Liensing System (BPLS) thorough the RS4LGU program (disussed in

speial fous 1) are also needed. A PBR

BPLS ,

. C PBR

q

. T -

, B P L O,

BIR. I PBR

, BPLS, LGU. T LGU

BPLS, LGU P C F

BPLS .

28. Greater transpareny of business regulaons an help improve understanding of theregistraon, liensing, and taxaon proesses (espeially among inipient rms) and help

redue transaon osts. T --

. T

-- , q

, , ,

, . A

A-R T A 2007 (R A 9485), Cz

C . T

, , . D

,

. M ,

z --

.

29. The proess for individuals seeking government lienses, permits, and learanes for

employment purposes also needs to be simplied. T

z SSS, L T O 88, N

B I, P O E A,

, q

, . T -

88 F , q : PHP 350 , PHP 67

, PHP 100 , PHP 100 , PHP 50

, PHP 667. R

j (.., )

, .


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42

. F ,

, .

Simplify tax regime for micro and small taxpayers

30. Moving toward a simplied tax regime for miro and small businesses is warranted to

redue ompliane osts and enourage movement of rms to the formal setor. The

MSME q . A

) , q, ,

) q , )

, ) - (VAT), ,

.

R . R

LGUs, and then expanding it when public support has increased. By reducing compliance

,

, j

.

Facilitate greater access to nance, especially for micro and small enterprises

31. The publi repository of redit informaon is now underway. Currently, there is no

z P

. F

have set up their own private credit bureaus. These credit bureaus are, however, mutually

. T

. I 2008, C I S A (R A

9510) . T C I C (CIC),

z . T z

. D

. A approach to be launched by June 2016.

32. The mandated system of lending to small and medium enterprises (SMEs) needs to be

replaed by a system of redit guarantees. M SME

SME ,

P SME -


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43

. A

SME

.

33. Strengthening the Philippine ollateral system an improve aess to nane. The

. T ,

, z, . T , ,

. I

across registries.

34. Inreasing lending seured by non-real property or movable assets an further

improve aess to nane. T )

, ) , z

, ) . W , SME

j.

35. The role of ooperaves in aessing nane needs to be enhaned. C

provide savings and credit services to over seven million members in the Philippines and can

,

, . L q

. C

z

. Y q , , ,

. P

) C

D A (CDA), )

, ) F R

I A . R

. I

q , , ,

.

Ensure a coherent strategy for MSME development and measure impact of programs

36. Internaonal experiene shows that eeve implementaon is the key to ensuring

the suess of strategies, plans, and programs for MSME development.89The Philippines, like

89T MSME z MSME D P 2011-2016. T

SME - GDP 40 ( 35 2008)

SME j . T

: ) , ) , ) , ) . I

, , ,

, .


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44

, MSME

various departments and agencies.90 I

SME . T

- .

Seleted referenes

M, S, M E D C. 2011. M, ,

2011-2016. M C: B M, S, M

E D, D T I.

Oz-L, S. 2008. T j. M: E

C P.

V, L. 2007. IFC S SME F. ..:..

W B. 2013. P D R: C j. M

W, DC: W B.

W B. 2015. D P. A :

://..////

90T M, S, M E D (MSMED) C MSME .

I S T I

.


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45

SPECIAL FOCUS 1

The real ost of starng and maintaining a business91

Introduon

1. Miro, small, and medium enterprises (MSMEs)92 are important ontributors and

beneiaries of eonomi growth.In 2012,93MSME 99.6

P, 90 , 36

- (DTI 2014). F, 89 MSME

. G , MSME

.

2. However, business regulaons have long been a umbersome proess in the

Philippines, posing obstales to the development of MSMEs and hene job reaon.While the

P 2015 D B R

(95th 189 , 50th ),

(T 1.1). B , E A , S

M , 6

13, . S, MSME P

. T ) , )

, ) , ) , )

q ( - discussion).

3. Of parular onern is the high overall ost imposed on MSMEs in starng and

maintaining a business. T q 17 36

91 T J C (R A), J L L (R

A), K K C (S C E), M F M

(MFM) G P (GP), R G (O O), B Tj (R A),

T L (L A), J K (C) M P (C), T C (T&C) GP. T H S (S O O)

M A (R M S), T&C, ,

D T I, N C C, Qz C B

P L O C C C .92R A 9501 MSME PHP 100

199 . T : )

PHP , 10 , ) PHP

15 , 10 99 , ) PHP 15 100

million, or employs 100 to 199 workers. The employment criteria takes precedence over the asset criteria in case

.932012 is the year with latest available data.


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46

(PHP 21,000 45,00094), they also spend a considerable amount

,

. I ,

. S P

j ,

the government.

4. To omplement the disussion in the medium-term seon, this speial fous analyzes

the diret and opportunity osts of starng and maintaining a business, and argues that

reforms to redue overall ost would free up substanal resoures to make growth more

inlusive. I

, ,

-

maintenance.

Table 1.1. Progress in starng a business indiator

Philippines 2005 2010 2015

S 102 145 162 183 161 189

N 17 18 16

N 49 42 34

C ( )95 24.1 21.6 16.6

Cost (in current pesos) 14,587 18,918 21,156

S: W B D B P (://..///)

Diret osts

5. In the Philippines, the omplexity of starng a business reets the deentralized

manner of seuring various permits and lienses. An entrepreneur needs to visit the local

( ), ,

(.., , , , ) , ,

. T , q -, z . T

q (..,

sole proprietor) and the local government unit.

94A , PHP 19,000 9 thincome decile and

M M PHP 12,000.95 T : PHP 60,528 2005, PHP 87,582 2010,

PHP 127,438 2015.


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47

6. For a orporaon registering in Quezon city,96 it takes 16 steps and 34 days to

omplete all government requirements and osts around PHP 19,638.Table 1.2 outlines the

steps and the corresponding direct cost involved.

Table 1.2. Proedures for starng a orporaon with average ost and me onsumed

Steps Days cost

(PHP)

1. V S EC (SEC).

1 40

2. D - . 1 0

3. Nz . 1 500

4. R SEC - (TIN).

2 3,065*

5. Obtain a barangay(village) clearance. 1 500

6. P

(CTC) C T O (CTO).971 500

7. O B PL O (BPLO).98

6 5,353*99

8. B . 1 400

9. A C R (COR) TIN B IR (BIR).

1 115

10. P (DST) z (AAB).

1 5,665*

11. O BIR. 1 0

12. Print receipts and invoices at the print shop. 7 3,500

13. H P C D (PCD) BIR.

1 0

14. R S S S (SSS). 7 0

15. R P H I C (PH). 1 0

16. R H D M F (P-). 1 0

Total 34 19,638

96 Qz C q D

B R.97A Qz C B P L O,

2012. F , q CTC

. T PHP 500 - .98B , , ,

. U ( B 1.2),

LGU- q -.99A Qz C B P L O, z

. T PHP 2,400.

S: D B 2015

*S D B 2015 , ://..////--


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48

7. Sole proprietors follow a slightly dierent trak, whih has been simplied in reent

years.100T Qz C T 1.3.In 2010,the

D T I (DTI) P B R (PBR) Qz

City.

101

T PBR , TIN, SSS, PH, P-IBIG. B

, 1 , , j . I , ,

delays, can lead to more days. At the local level, step three has become easier with the Business

O S S (BOSS)

within the day.

Table 1.3. Proedures for starng a sole proprietor

in Quezon city with average ost and me onsumed

Steps Days cost (PHP)

1. R DTI

P B R (PBR).

1 PHP 15

PHP 200

to 2,000 depending on

scope.

2. Obtain a barangay clearance. 1 PHP 300 1000

on barangay

3. G B O S S (BOSS)

) PBR ( DTI), )

, ) (

) (

), ) / .

1(

steps

3 5)

*D z, ,

4. P C T

O.

5. P BOSS

BOSS

and business license plate.

6. Comply with other necessary requirements102

90 ( ).

Total 3 PHP 515 to 3,015

S: Qz C C C, B P L O, B O S S B.

100T C C B P

L O Qz C.101T Qz C G PBR 2009 2010, PBR II 2012.102T ) , ) ,) , )

, ) q, .


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49

8. Aer a business ommenes, numerous annual regulatory requirements are needed

to maintain the business, whih an take several days to fulll.103 The primary step is the

. R

q . P ,

B F P,

C H D, L

B O.104T q

. A q,

VAT

be presented and assessed. While these requirements may serve important purposes, they

, P

( , F MT1 -

).

9. Moreover, there are tax and ontribuon payments that have to be paid frequently

within the year. F , , 36

( q q), 193

(T 1.4). A ,

be made in person in some cases.

Table 1.4. Number of regular tax and ontribuon payments by a medium-sized ompany

Steps Number of

Payments

Hours

1. Local tax payment. 1 ..

2. R . 1 ..

3. SSS, P-, PH, . 25 38

4. N ( VAT) 2 155

5. Other tax payments 7 ..

Total 36 193

S: D B 2015

N: .. .

10. These tax and ontribuon requirements make no onession to business size. Micro

tax regime is applied to them

103T LGU. Qz C

D B R.104F , , carinderia(small eatery) will also

, / D

H.


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50

z (..,

q ). T

. I ,

j . M,

.

Opportunity osts

11. Apart from legally-mandated diret ost, orrupon adds to the ost of starng and

maintaining a business. W

,

. F ,

2009 E S, 11, 8, 25 , , ,, ( F

MT2 - ). T

. A S

W S (SWS) 2015 . I 25

bribes in order to obtain a local license, while 21 percent paid bribes in order to obtain a

.

12. More importantly, onsiderable opportunity ost arises from missing produve days

of work, and thus lost inome, in order to omply with government requirements.For most

,

.105 These lost

. I z,

z. E

j ,

, .

13. Using parameters from the previous seon, total opportunity ost from produve

days lost an easily reah more than PHP 100 billion annually.106 T

: F , ( PHP 11.9 ). F

, (

PHP 9.7 ). F, , ( PHP133.8 ). T 1.5 z B 1.1

() .

105 T ,

, .106U, , q

( q). H,

, .


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51

14. Moreover, opportunity ost an also arise from disouraged Filipinos who ould have

started a business if only the ost was reasonable. W

, . F ,

PHP 200,000 (.., )

a business,107 . T 2012 F I E S (FIES)

117,782 , PHP 374,000.

H, , PHP

602,140.108 I F (OFW) ,

, 6.5

, 42 . T 35.5 109

, -

. A

amount,110 PHP 12.6 . A

15 , PHP 1.9 PHP 1.5 . F, -

1.8, PHP 21.2 . A j

, j 62,179,

. T j .

15. These indiave esmates suggest that high ost of doing business is learly a toll on

the ountrys inlusive growth agenda. When taking all other Doing Business indicators into

(.., , , ),

, , .

107T - . I , . T

, (..,

will not start a business because they are simply risk averse).108FIES , , ,

j. A j FIES BOP FIES

. S BOP PHP 903.7 FIES PHP 560.2,

is around 1.61.109 T ,

, .110T

0.68, 0.83.


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52

Table 1.5. Annual opportunity osts in billions of PHP

Forgone

investment

Forgone

business net

inome

Forgone

tax and

ontribuonrevenues

Forgone

aggregate

spending

Forgone

employment

Loss to orrupon Signicant but very dicult to measure

Starng a business 0.13111 0.11112 1.50113

Maintaining a business 11.77114 9.57115 132.28116

Total diret opportunity

ost

11.90 9.68 133.78

Indiret opportunity ost

from forgone investment

12.59117

F

year only

1.89118 1.54119 21.23120 62,179

Grand total 12.59 13.79 11.22 155.01 62,179

S: WB .

Box 1.1. Methodology for esmang the opportunity ost of lost

produve days and disouraged potenal investors

T ,

q

. T , N C

R . T

D T I MSME 2008

2012. I 2008 2012, , DTI 758,436 940,802 MSME. T

45,592 MSME . T

111T (34 PHP 481 4,559 ) + (3 PHP 481 41,033

). T PHP 74.6 PHP 59.2 .112T (PHP 133.8 42.5 _ + (PHP 969.34 5.36 ) [ VAT

50 ]. R :

13.8 86.2. T PHP 56.87 PHP 51.96 .113T PHP 835.57 1.8 ( - ).

114T 26 PHP 481 940,802 MSME. 26 193 q .115T (PHP 11.77 42.5 ) + (PHP 85.26 5.36 ). T PHP

5 PHP 4.57 .116T PHP 73.49 1.8.117 T 117,782 j PHP 602,140 35.5

percent OFW households who are risk neutral and could have invested.118T PHP 12.59 15 .119T (PHP 1.89 42.5 ) + (PHP 13.68 5.36 ). T PHP

0.81 PHP 0.73 .120T PHP 11.79 1.8.


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53

4,559 (10 ) 41,033 (90 ) . T

, DTI MSME 2012

. T

cost.

T ,

42.5 , D B R. I

, VAT 12 . T ,

50 -VAT. F, 13.8 86.2,

, - C P B

Industry.

T ( GDP),

- 1.8, 2006 - .

F, . O

. S

BSP OFW , .

Details are discussed in the main text.

Reforms to redue the ost of starng and maintaining a business

16. Reognizing the adverse impat on the eonomy of ostly business start-up, the

government has begun to address a number of doing business onstraints. A , (MOA)

government agencies and a local government unit on April 14, 2015.121T j

z . I ,

Qz C 34 8

16 6. S - .

17. The new proess in registering a orporaon involves a re-engineering of exisng

proesses and the reaon of an integrated business registraon system. M

(F 1.1). A ,securing a barangay, B P

L O (BPLO). S ) , )

121 T : N C C (NCC), D F (DOF), D

T I (DTI), D I L G (DILG), S E

C (SEC), B I R (BIR), S S S (SSS), H D M

F (P-IBIG), P H I C (PH), Qz C.


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54

, ) ) SSS, ) PH,

) P-I. T q SEC

PBR, SEC, SSS,

PH, P-IBIG TIN BIR. F, LGU

,

. BIR

. L, q /

.

Figure 1.1. Newly simplied approah to orporate business registraon.


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55

18. If fully implemented, this reform an also result in me and ost savings. For each day

, PHP 2 . M, PHP 68

2015-2016 N C C (NCC)

- . W , . F, PHP 9

13

36 . I ,

(.., 24

M, Qz, M, M) , ,

.

19. At the loal level, 25 ies122 have also taken iniaves to redue business start-up

osts. I P, , , barangays (villages) play a big role in

. I , -

. T , D I L G (DILG) RS4LGU

(R S LGU)

( B 1.2). S 2010, 25 (EO)

. C

EO 45 3

30 1. M DILG

other LGUs.

Box 1.2. Regulatory simpliaon program for business permit renewal in the Philippines

Iniated in 2008, the regulatory simpliaon program targeted and removed system ineienies,

and regulatory redundanies to make starng a business easier.123 T

) (LGU) , )

, , . T

- LGU . A I

F C (IFC) z

. A

. I z

-,

. T - - LGU-

possible.

122 T - : Lz: U,

K, S F, S, C, L T, Lz, T, B, L, T, V, I,

K; V: B, C, C, T, O, D, L-; M: S,

T, S, T.123T I F C W B G.


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Philippine Economic Update October 2015