MACROECONOMIC FRAMEWORK AND
DEVELOPMENT FINANCING
V. Targets
A. Output
The growth targets in the medium-term are based on the emerging domestic and
international scenario for the next six years, as well as the policy and institutional reforms to address existing
and emerging constraints towards sustained growth and poverty alleviation. Specifically, the
proposed growth targets are consistent with the objective of reducing poverty in the Philippines from
32.1 percent in 1997 to 25 to 28 percent by 2004.
The macroeconomic targets show an upward growth path
in the next six years with GNP averaging 5.2 to 5.8 percent. GDP, is
likewise targeted to move upwards averaging 4.7 to 5.3 percent in the
medium-term (Table
7.10).5
Consistent with expectations that the Philippines will show a stronger recovery than
its neighbors, GNP is targeted to grow by 3.0 to 3.7 percent in 1999 while GDP shall expand by
2.6 to 3.2 percent. The main factors underlying the recovery in 1999 are as follows:
-
Rebound of agriculture in the absence of El Niņo, which will help in the recovery of industry,
particularly manufacturing;
-
Sustained growth of exports as world output growth in 1999 is projected at 2.3 percent;
-
Buoyant personal consumption which will be supported by the recovery of rural incomes;
and
-
Continued expansion of services by 3.5 to 4.0 percent as rural trade improves
and international trade strengthens.
In the medium-term, the economy is expected to gain vigor, with GNP growth reaching
5.7 to 6.4 percent in 2004. The key assumptions are:
-
Growth of agriculture by 2.6 to 3.4 percent on average in 1999-2004. Investments arising
from the implementation of the AFMA, are expected to increase the resilience of
the sector against the ravages of the cyclical El Niņo phenomenon;
-
Strengthening of industry which will allow it to grow by an average of 5.1 to
5.7 percent in the medium-term. Manufacturing is expected to recover, backed by sustained demand
for manufactured exports. Construction will also bounce back as the sector tries to fill up
the backlog in housing in the lower and middle categories and as the government intensifies
its pursuit of rural-based infrastructure development; and
-
Further expansion of services arising from reforms in the sector, such as those from banking,
transportation and telecommunication, and retail trade.
Consistent with the broad-based development objectives of the
Plan, all regions are expected to contribute to the growth process
(Table 7.11). Sustaining its momentum in recent years, the CAR
is expected to lead the regions, expanding at a minimum average of 7.7
percent, followed by the Ilocos region. Central Luzon and Southern Tagalog
will grow significantly particularly with the expected increase in industrial
output. Central Visayas will lead the Visayas regions, while Northern
Mindanao will lead the Mindanao regions. The NCR, which has the largest
share to domestic output, will grow at an average of 5.4 percent.
B. Labor and Employment
In the medium-term, the GDP growth target translates to an
average growth in employment of at least 3.3 percent
(Table 7.12). Hence, the unemployment rate shall decrease from
10.1 percent in 1998 to 6.7 to 8.0 percent in 2004.
Employment will be generated mostly in the services sector which, aside from the
continuing increase in the labor force, will absorb the excess labor from agriculture. The service
sector's share to total employment shall reach an average of at least 45.4 percent in 1999-2004.
Full-time employment is projected to significantly improve from 66.3 percent in 1999 to
71.4 to 73.8 percent in 2004. By sector, industry and services are projected to provide
full-time employment to at least 80 percent of the workers in the sector. Full-time workers in
agriculture will increase from 45 percent in 1999 to 50 to 53.4 percent in 2004.
Labor productivity, in real
terms, shall increase at an average rate of 1.6 percent
between 1999-2004. The industrial sector shall continue to post the highest productivity level, growing
by 0.8 to 1.2 percent.
C. Poverty
Consistent with the GDP growth targets, poverty incidence will
improve from 32 percent in 1997 to around 25 to 28 percent by 2004
(Table 7.13) while the poverty gap is expected to decline from
14 percent in 1997 to 11 to 12 percent in 2004. This will generally
stem from the strong growth of the services sector and industry, which
will absorb most of the labor force, including those that will be released
by a modernizing agricultural sector.
Among the regions, poverty reduction will be greatest for the regions with higher incidence
as well as those where most of the poor have incomes near the threshold such that a small increase
in their incomes will enable them to cross the poverty threshold. These will include Ilocos,
Western Visayas, Bicol and Mindanao. NCR, having the lowest poverty incidence at present, will
experience the least improvement. These projected trends are also consistent with the pro-rural
development policies of the Plan.
D. Monetary, Financial and External Accounts
Inflation rate is targeted to decline in the medium-term from
8 to 9 percent in 1999 to 4 to 5 percent in 2004
(Table 7.14). This takes into account minimal pressure on prices
from shocks such as the El Niņo in view of a more efficient production
and distribution system for rice. The sustained implementation of the
tariff reduction program shall also diminish destabilizing inflationary
pressures.
A steady easing of domestic interest rates is projected as market conditions improve.
The 91-day T-bill rate will gradually decline from 10.5 to
11.5 percent in 1999 to 6.9 to 7.9 percent
in 2004.
The export sector is projected to grow by an average of 14.8 to 15.4 percent for the
next six years. Diversified export product lines and export markets will sustain the growth
of exports from $33.9 to $34.0 billion in 1999 to $67.6 to 69.7 billion in 2004. Imports, on
the other hand, will rise from $33.2 to $33.3 billion in 1999 to $71.5 to 74.8 billion in 2004 or
an average growth of 15.9-16.8 percent for the medium-term. This will turn the current account
from a surplus of 2.1 percent of GNP in 1999 to a deficit of 1.3 to 1.5 percent of GNP in 2004.
The foreign debt service burden as a ratio of goods and services exports will decline
from 13.5 percent in 1999 to 9.1 to 8.6 percent in 2004. Thus, official reserves will continuously
grow from 3.7 months' worth of imports of goods and services in 1999 to 3.9 months' worth by 2004.
E. Fiscal
Revenue effort or the ratio of total revenues to GNP will increase
from 16.6 percent in 1999 to 19.3 percent in 2004
(Table 7.15). Tax effort or the ratio of tax revenues to GNP
is also projected to increase from 15.1 percent in 1999 to 18.4 percent
in 2004. This will be due primarily to improvements in BIR's collections,
which are expected to increase from 12.3 percent of GNP in 1999 to 14.5
percent of GNP in 2004. Revenues from the Bureau of Customs will also
increase from 2.7 percent of GNP in 1999 to 3.6 percent of GNP in 2004.
Nontax revenues, however, are expected to decline from 1.5 percent to GNP in 1999
to 0.9 percent of GNP in 2004 as income from the Bureau of Treasury and proceeds
from privatization decrease over the medium-term. Total disbursements, on the other hand,
are expected to decline from 18.8 percent of GNP in 1999 to 18.6 percent of GNP in 2004.
The NG deficit of P68.4 billion (2.2% of GNP) in 1999 shall
decline to P15.5 billion (0.4 % of GNP) in 2001 and will balance the
following year. A surplus of P36.8 billion (0.7 % of GNP) will be realized
in 2004. The consolidated public sector financial position shall also
realize a surplus of P9.4 billion (0.2% of GNP) beginning 2003
(Table 7.16).
In 1999, the deficit will be financed mostly by foreign borrowings. However, starting
2000, the bulk of financing will be accounted for by domestic borrowings. By 2004, the NG shall
reduce further foreign borrowings by P8.5 billion. Beginning 1999, the NG shall embark into building
its cash deposits, which were greatly reduced during the
crisis.
In terms of sectoral allocation of the budget for the medium-term,
social services will continue to form the bulk of government spending.
Its share will be maintained for the next six years at about 42.1 percent
(Table 7.17).
Economic services will also have an increased share to the total budget
and will be largely dominated by expenditures on agriculture and infrastructure.