Updates on the Philippine Development Plan and
Recent Economic Outlook
Secretary Arsenio M. Balisacan, PhD
National Economic and Development Authority
Agenda for Prosperity:
Fulfilling the Needs and Aspirations of the Filipino People
Plenary Hall, House of Representatives, Quezon City
August 5, 2024 | 10:00 AM
Honorable Speaker Martin Romualdez,
Honorable Chairperson Elizaldy Co,
Senior Vice-Chairperson Stella Quimbo of the Committee on Appropriations,
Other Honorable members of the House of Representatives,
Colleagues in government,
Ladies and gentlemen,
Good morning.
On behalf of the DBCC, please allow me to brief you on the updates on the Philippine Development Plan or PDP, the country’s recent economic performance outlook, and an overview of the country’s socioeconomic development priorities for next year.
This slide shows the flow of my presentation.
For context, I will start with a quick review of the PDP 2023-2028. This will be followed by a discussion of the country’s recent economic performance to assess our current situation. Then, I will proceed with the growth outlook over the medium term. Finally, I will end with an overview of our priorities for next year.
If you recall, the Marcos Administration launched the Philippine Development Plan (PDP) 2023-2028 in January 2023. This plan for deep economic and social transformation is the second medium-term development blueprint to be anchored on the national long-term vision, or AmBisyon Natin 2040.
The overall strategy framework of the PDP focuses on:
- The social sectors for human capital development (as shown in the red section on your screen);
- The production sectors for the generation of higher-quality jobs and competitive products (as shown in the green section);
- And an enabling physical, policy, and regulatory environment for socioeconomic development (as shown in the blue section).
The PDP’s socioeconomic transformation is a crucial step towards realizing the AmBisyon Natin 2040. This vision of a prosperous, inclusive, and resilient Philippines is our ultimate goal, promoting a matatag, maginhawa, at panatag na buhay for all Filipinos.
The PDP prioritizes these six items on the Transformation Agenda:
- We are accelerating the country’s digital transformation to enable the government to deliver services more efficiently and effectively while reducing corruption and improving transparency;
- We are building better connections between places through technology and infrastructure to link markets, cities, and rural areas, and leading and lagging regions to make it easier for people to access jobs, healthcare, and education;
- The government will intensify even further its partnership with the private sector, not only in terms of utilizing the public-private partnership or PPP mode of financing but also in improving overall economic governance;
- We aim to strengthen intersectoral linkages and harness the “outputs” from our vibrant services sector (e.g., marketing, advertising, creative design, e-commerce, among others) to create greater value for our products;
- We recognize that innovation is a crucial driver of long-term economic growth and improvements in the overall quality of life. Hence, we are laying the foundations and enabling mechanisms for a dynamic innovation ecosystem that will allow us to maximize the potential of all innovation actors;
- And last, given our experience during the COVID-19 pandemic, and with the Mandanas-Garcia ruling and the government’s devolution initiative, we recognize the importance of enhancing the capabilities and capacities of local government units (LGUs) as partners in development.
Now, allow me to discuss in detail our recent economic performance.
The Philippine economy expanded by 5.7 percent in the first quarter of 2024, coming from a high base of 6.4 percent GDP growth in Q1 2023 and picking up from 5.5 percent in Q4 2023.
Among major emerging economies in the region, the Philippines posted one of the fastest growth during the period, next to India (7.8 percent), equal to Vietnam (5.7 percent), but ahead of China (5.3 percent), Indonesia (5.1 percent), Malaysia (3.9 percent), and Thailand (1.3 percent).
We will release the second-quarter growth performance later this week. We expect the economy to have remained strong and maintain our regional growth standing.
On the demand side, export growth rebounded to 7.5 percent in Q1 2024 due to faster growth in electronics exports (15.6 percent). Meanwhile, domestic demand continued to expand, albeit moderating to 3.6 percent in Q1 2024. Household spending eased to 4.6 percent amid the sweltering heat indices and elevated food prices. Total investments marginally grew by 1.3 percent amid less favorable business sentiment due to the lagged effect of policy rate hikes. Similarly, government expenditure growth remained muted at 1.7 percent.
On the production side of the economy, the industry sector drove growth, expanding by 5.1 percent. The upbeat performance of manufacturing (4.5 percent) led the sector’s growth. Meanwhile, the growth in the services sector moderated to 6.9 percent due to a slowdown in transport & storage (5.6 percent from 9.4 percent), as growth in tourism-related sectors started to normalize. The agriculture sector (0.4 percent from 1.3 percent) posted weak growth mainly due to the impact of El Niño, as livestock (-3.5 percent in Q1 2024 from 2.7 percent in Q4 2023) and palay production (-2.0 percent from 0.2 percent) declined.
Nonetheless, on the demand side, total investments already surpassed its pre-pandemic levels in Q1 2024.
On the supply side, most sectors exceeded their pre-pandemic levels except for mining & quarrying and real estate. The total share to GDP of these sectors below pre-pandemic levels is 6.4%.
Real GDP per capita growth rose to 4.8 percent in Q1 2024 from 4.6 percent in Q4 2023. It is now over 10 percent higher than its pre-pandemic levels.
The May 2024 Labor Force Survey results show that the Philippine labor market continued to improve, with an additional 605,000 jobs created year over year, driven by employment expansion in the industry (+1.2 million) and services (+982,000) sectors.
The unemployment rate dropped to 4.1 percent from 4.3% in May 2023. Meanwhile, the underemployment rate reached a low of 9.9 percent, the lowest rate recorded since 2005. The decline is equivalent to 846,000 fewer underemployed individuals, mainly from the reduction in visibly (-728,000) underemployed individuals.
The June 2024 Labor Force Survey results will come out Wednesday this week. We expect the labor force to continue exhibiting robust performance.
Approved foreign investments (AFI) in Q1 2024 contracted by 63.6 percent to PHP148.4 billion from PHP408.2 billion in Q1 2023, mainly owing to base effects given a significant amount committed by Germany and the Netherlands in the first quarter of 2023. Over seventy percent of the total approved foreign investments was directed towards the energy sector.
Meanwhile, net foreign direct investment (FDI) inflows grew by 18.7 percent (from USD3.0 billion to USD3.5 billion) from January to April 2024. This growth reflects an improvement in investor confidence amid global uncertainties. In 2023, net FDI declined as concerns over subdued global outlook and geopolitical risks weighed on investors’ investment plans.
As of June 14, 2024, the Bangko Sentral ng Pilipinas anticipates net FDI to reach USD 9.5 billion, following first-quarter solid figures and support from the ongoing operationalization of the implementing rules and regulations of crucial investment reforms to provide a more conducive business environment in the country.
As reported by Governor Eli Remolona, the country’s overall inflation eased to 3.7 percent in June 2024 from 3.9 percent in May 2024, as non-food inflation declined, while food inflation accelerated.
Inflation of food and non-alcoholic beverages increased to 6.1 percent in June 2024 from 5.8 percent in May 2024. As noted, this was driven by faster inflation in other food products. Rice inflation eased for the third consecutive month but remained elevated.
Meanwhile, non-food inflation slowed to 2.3 percent in June 2024 from 2.6 percent in the preceding month, driven by the broad-based deceleration across most non-food commodity groups.
The Philippine Statistics Authority will release the inflation report for July 2024 tomorrow.
Since mid-2022, inflation has been mainly driven by food inflation, as again emphasized by Governor Eli earlier. The contribution of food inflation further increased in the third quarter of 2023 due to the increases in the price of rice. We zoom into the food inflation in the next slide, a similar graph that you have seen in the earlier presentation of BSP.
Since September 2023, rice has ranked as the top driver of food inflation.
In June 2024, food inflation remained driven mainly by rice. Other contributors include vegetables, meat, and ready-made food products.
The 2023 Full Year Official Poverty Statistics released by the Philippine Statistics Authority showed that the 2023 poverty incidence among the population significantly dropped to 15.5 percent from 18.1 percent in 2021.
This translates to a decrease of 2.45 million Filipinos living in poverty. With this, we surpass the PDP target of 16.0-16.4 percent for 2023.
Meanwhile, food-poor Filipinos saw a significant decline, dropping from 6.55 million in 2021 to 4.84 million in 2023, a decrease of 1.71 million individuals.
I note that this performance could have been even more impressive if not for the elevated prices or high inflation that the country faced in recent months, particularly in 2023.
Let me now discuss our growth outlook.
On June 27, 2024, the Development Budget Coordination Committee (DBCC) maintained the economic growth targets given the emerging domestic and global developments. We expect the Philippine economy to expand by 6.0 to 7.0 percent in 2024, 6.5 to 7.5 in 2025, and 6.5 to 8.0 percent in 2026 up to 2028.
Based on the latest data, the country is estimated to still surpass the Upper-Middle-Income (UMIC) threshold by 2025, provided of course that the economy grows by at least the low end of the country’s growth target and that the average foreign exchange during this period does not exceed PhP58 to USD 1. Otherwise, reaching the UMIC status could be delayed to 2026.
Easing inflation, sustained improvements in labor market conditions, and stable remittance growth will support household spending. The government will also continue implementing measures to address the elevated prices of rice and select food items and ensure food security to protect Filipinos’ purchasing power.
Despite its fiscal consolidation strategy, government spending will support growth by improving efficiency in delivering priority programs and projects. The Marcos administration will ensure the timely implementation of the programs and projects under the FY 2024 and FY 2025 National Budget.
We also hope for the timely passage of the FY 2025 National Budget. In addition, the full implementation of the New Government Procurement Act will improve efficiency in government procurement, ensure value for money, and enhance the quality of public services.
Capital formation will continue to expand in 2024, supported mainly by robust construction activities through the government’s Build-Better-More program and the Pambansang Pabahay Para sa Pilipino (4PH), the government’s national housing program. Implementing the PPP Code of the Philippines is also expected to strengthen and facilitate greater private-sector participation in the country’s infrastructure development.
The government will continue to implement pro-investment reforms fully and further improve the ease of doing business in the country to encourage business expansion and new investments in emerging and priority areas.
On the external front, the country will continue to forge strategic foreign trade agreements (FTAs) with other markets. For the current year, the Philippines is looking to advance bilateral FTAs with the European Union (EU), the United Arab Emirates (UAE), and India. Meanwhile, the country should also take advantage of the US CHIPS Act, which will assist in improving the country’s product assembly, testing, and packaging. Strengthening and tapping new tourism ties through bilateral agreements, such as with Japan and Qatar, is also a welcome development to spur growth in the country’s exports of tourism services.
Nevertheless, we need to be mindful of the domestic and external risks that could challenge our growth outlook.
Extreme natural disasters, worsened by climate change, may halt growth in the agriculture sector.
Risks related to inflation, such as potential adjustments in fare, wage, and service utility fees, have the potential to significantly curb spending. It is imperative that we carefully consider these factors in our economic planning and decision-making processes.
The possible spread of other highly infectious animal diseases similar to African Swine Fever (ASF) poses downside risks.
The passage of tax revenue-eroding measures could threaten the country’s fiscal stability. Delays in enacting critical reforms could also undermine the sustainability of long-term economic growth.
The weak absorptive capacity of implementing agencies and local government units may also delay the implementation of programs and projects outlined in the FY 2024 and FY 2025 National Budget. Prior experience in 2023 underscored the importance of addressing implementation issues to prevent underspending and minimize the adverse impact on growth.
The projected rapid economic growth, particularly with the implementation of the 4PH program, could lead to upward inflationary pressures and stall economic gains. It is essential that we complement this growth with corresponding improvements in the labor force and capital accumulation to ensure sustained economic progress.
On the external front, the global economic slowdown may weaken external demand, and growing geopolitical and trade tensions could lead to supply chain disruptions. General elections in major economies may also trigger political shifts that can disrupt trade and investment.
Given all of these, how do we intend to achieve the growth we have set for 2025?
To boost growth next year, the Marcos Administration will continue to implement the strategies we have set in the Philippine Development Plan, guided by the lessons we have identified in the Philippine Development Report 2023.
For FY 2025, the government will focus on promoting social development and transformation. We recognize the importance of addressing learning losses and will implement programs to boost health, establish livable communities, and strengthen social protection, supporting educators in their crucial role.
Recognizing the importance that agriculture plays in the supply side of the economy, the government will continue prioritizing programs that will help improve the sector’s productivity. Meanwhile, infrastructure development has been and will continue to be the top priority of the government.
Lastly, we will continue to ensure sound macroeconomic fundamentals through prudent fiscal management and enhanced bureaucratic efficiency.
Over the medium to long term, we need critical reforms to sustain the country’s economic growth and development. In this regard, we are optimistic about the passage of the following top-priority bills identified by the Legislative-Executive Development Advisory Council (LEDAC). These measures are critical in strengthening the country’s economic governance, accelerating the implementation of infrastructure flagship projects, and maintaining fiscal sustainability.
All these will contribute to our achievement of socioeconomic transformation under a Bagong Pilipinas as we work toward a matatag, maginhawa, and panatag na buhay para sa lahat.
That concludes my presentation, Madam Chair. Thank you very much!
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