PHILIPPINES ECONOMIC UPDATE BRAVING THE NEW NORMAL JUNE 2020 EDITION ii PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION © 2020 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org iii PREFACE The Philippines Economic Update summarizes key economic and social developments, important policy changes, and the evolution of external conditions over the past six months. It also presents findings from recent World Bank analysis, situating them in the context of the country’s long-term development trends and assessing their implications for the country’s medium-term economic outlook. The update covers issues ranging from macroeconomic management and financial-market dynamics to the complex challenges of poverty reduction and social development. It is intended to serve the needs of a wide audience, including policymakers, business leaders, private firms and investors, and analysts and professionals engaged in the social and economic development of the Philippines. The Philippines Economic Update is a biannual publication of the World Bank’s Macroeconomics, Trade, and Investment Global Practice (MTI), prepared in partnership with the Finance, Competitiveness, & Innovation Global Practice, the Poverty & Equity, Finance, Competitiveness & Innovation, and Social Protection & Labor Global Practices (GPs). Ndiame Diop (Practice Manager for the MTI GP) and Souleymane Coulibaly (Lead Economist and Program Leader) guided the preparation of this edition. The team consisted of Rong Qian (Senior Economist), Kevin Chua (Economist), Kevin Cruz (Research Analyst), and Karen Lazaro (Consultant) from the MTI GP, Isaku Endo (Senior Financial Sector Specialist) from the Finance, Competitiveness and Innovation GP, Gabriel Demombynes (Program Leader), and Sharon Faye Alariao Piza (Economist) from the Poverty & Equity GP, and Yoonyoung Cho (Senior Economist), Ruth Rodriguez (Social Protection Specialist), and Arianna Zapanta (Consultant) from the Social Protection GP, Natasha Beschorner (Senior Digital Development Specialist) from the Digital Development Department prepared the Special Focus Note on the digital economy. The report was edited by Oscar Parlback (Сonsultant), and the graphic designer was Christopher Carlos (Сonsultant). Peer reviewers were Shakira Binti The Sharifuddin (Senior Economist) and Pedro Miguel Gaspar Martins (Senior Economist). Logistics and publication support were provided by Elysse Dominguez Miranda (Team Assistant) and Kristiana Gizelle Torres Rosario (Team Assistant). The Manila External Communications Team, consisting of Clarissa David (Senior Communications Officer) and David Llorito (Communications Officer) prepared the media release and web-based multimedia presentation, Stephanie Margallo provided team assistance. Moira Enerva (Consultant) prepared the dissemination plan for this edition of the PEU. The team would like to thank Achim Fock (Acting Country Director for Brunei, Malaysia, Philippines and Thailand) for his advice and support. The report benefited from the recommendations and feedback of various stakeholders in the World Bank as well as from the government, the business community, labor associations, academic institutions, and civil society. The team is very grateful for their contributions and perspectives. The findings, interpretations, and conclusions expressed in the Philippines Economic Update are those of the World Bank and do not necessarily reflect the views of the World Bank’s executive board or any national government. If you wish to be included in the email distribution list for the Philippines Economic Update and related publications, please contact Elysse Miranda (emiranda2@worldbank.org). For questions and comments regarding the content of this publication, please contact Ms. Rong Qian (rqian@worldbank.org). Questions from the media should be addressed to David Llorito (dllorito@worldbank.org). For more information about the World Bank and its activities in the Philippines, please visit www.worldbank.org/ph. iv PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION TABLE OF CONTENTS PREFACE iii ABBREVIATIONS AND ACRONYMS v EXECUTIVE SUMMARY 1 1 RECENT DEVELOPMENTS 4 1.1. Economic Growth: COVID-19 hit the Philippine and Global Economy 5 1.2. Fiscal Policy: Accelerating Spending amid an Erosion of Fiscal Space 12 1.3 Monetary and Macro-prudential Policies: Geared Toward Mitigating the Impact of the COVID-19 Pandemic 17 1.4. The Exchange Rate and the External Sector: Resilience Driven by Strong Initial Conditions 19 1.5. Poverty and Employment: Protecting Gains amid the COVID-19 Pandemic 22 2 OUTLOOK AND RISKS 26 2.1. Growth Outlook 27 2.2. Poverty and Shared Prosperity 32 2.3. Risks and Policy Challenges 33 SPECIAL FOCUS NOTE: ACHIEVING FASTER AND MORE AFFORDABLE 3 INTERNET SERVICES FOR ALL 38 3.1. Introduction 39 3.2. Market failures in the provision of digital infrastructure 41 3.3. Government Initiatives to Improve Internet Services 47 3.4. Legal and Regulatory Challenges 49 3.5. Conclusions and Recommendations 56 REFERENCES 59 v ABBREVIATIONS AND ACRONYMS 4Ps Pantawid Pamilyang Pilipino Program DSWD Department of Social Welfare and Development A4AI Alliance for Affordable Internet DTI Department of Trade and Industry AFP Armed Forces of the Philippines ECQ Enhanced Community Quarantine ASEAN Association of Southeast Asian Nations EIU Economist Intelligence Unit BASS Bandwidth and Signal Statistics EMBI Emerging markets bond index Bbl Barrel EMDEs Emerging market and developing economies BCDA Bases Conversion and Development Authority EO Executive Order BFAR Bureau of Fisheries and Aquatic Resources ERC Energy Regulatory Commission BI Bank Indonesia FDI Foreign direct investment BIR Bureau of Internal Revenue FPI Foreign portfolio investments BOC Bureau of Customs FRAND Fair, reasonable and non-discriminatory Bps basis points GAA General Appropriations Act BSP Bangko Sentral ng Pilipinas GDP Gross domestic product BTr Bureau of the Treasury Ghz Gigahertz BWA Broadband Wireless Access GNI Gross national income CA Commonwealth Act GOCC Government-Owned and Controlled Corporations CAB Civil Aeronautics Board GRM Grievance Redressal Mechanism CAMP COVID-19 Adjustment Measures Program GSIS Government Service Insurance System CBOE Chicago Board Options Exchange HEAL Help via Emergency Loan Assistance to LGUs CDN Content delivery network HLURB Housing and Land Use Regulatory Board COVID-19 Coronavirus Disease 2019 HTS High through-put satellites CPCN Certificate of public convenience and necessity IATF-EID Inter-Agency Task Force for the Management of Emerging Infectious Diseases DA Department of Agriculture ICT Information and communication technologies DAI Digital Adoption Index IDN Indonesia DBM Department of Budget and Management IDR Indonesian Rupiah DENR Department of Environment and Natural Resources IMT International Mobile Telecommunications DepEd Department of Education ISP Internet service providers DICT Department of Information and IT-BPO Information technology-business Communications Technology process outsourcing DILG Department of the Interior and ITC Independent tower companies Local Government ITU International Telecommunication Union DO Department Order IXP Internet exchange point DOH Department of Health JMC Joint Memorandum Circular DOLE Department of Labor and Employment KYC Know-your-customer DPWH Department of Public Works and Highways LBP Land Bank of the Philippines DROMIC Disaster Response Operations Monitoring and Information Center vi PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION ABBREVIATIONS AND ACRONYMS LCU Local currency unit PHIVOLCS Philippine Institute of Volcanology and Seismology LFPR Labor force participation rate Php Philippine peso LFS Labor force survey PLCN Pacific Light Cable Network LGU Local Government Unit PMI Purchasing Managers’ Index LLDA Laguna Lake Development Authority PNP Philippine National Police Mbps Megabits per second POEA Philippine Overseas Employment Administration MC Memorandum Circular PPE Personal protective equipment Mhz Megahertz PSA Philippine Statistics Authority MO Memorandum Order PSE Philippine Stock Exchange MOOE Maintenance and other operating expenses PTE Public telecommunications entity MRT Metro Rail Transit RA Republic Act MSME Micro, small, and medium enterprise RHS Right-hand side MYS Malaysia RRR Reserve requirement ratio NBP National Broadband Plan SAC Social Amelioration Card NBQB Non-bank financial institutions with quasi-banking function SAP Social Amelioration Program NCIP National Commission on Indigenous Peoples SARS Severe acute respiratory syndrome NCR National Capital Region SDG Sustainable Development Goals NDRRMC National Disaster Risk and Reduction and SME Small and medium enterprise Management Council SOTI State of the Internet NEA National Electrification Authority SSS Social Security System NEDA National Economic and Development Authority SUF Spectrum User Fee NGA National government agency Tbps TeraBytes Per Second NGCP National Grid Corporation of the Philippines THA Thailand NPL Non-performing loans U.S. United States NTC National Telecommunications Commission UCT Unconditional cash transfer OFW Overseas Filipino Worker UP University of the Philippines OPEC Organization of the Petroleum USD United States Dollar Exporting Countries VND Vietnamese Dong PA Provisional authority VNM Vietnam PAP Programs, activities, or projects WB World Bank PCC Philippine Competition Commission WBG World Bank Group PCSD Philippine Council for Sustainable Development WHO World Health Organization PFOCN Philippine Fiber Optic Cable Network Ltd Inc. WSJ Wall Street Journal PGH Philippine General Hospital PhilHealth Philippine Health Insurance Corporation PHILRECA Philippine Rural Electric Cooperatives Association, Inc. vii LIST OF FIGURES Figure 1 GDP contracted for the first time in 22 years in the first quarter of 2020. 5 Figure 2 The economic impact of COVID-19 was broad, although services continued to fuel growth. 5 Figure 3 Since the start of the enhanced community quarantine, air travel has dropped by 95 percent… 8 Figure 4 …visits to retail locations have dropped by over 80 percent… 8 Figure 5 …Manila is experiencing 80 percent less traffic… 8 Figure 6 …and people’s interests and desires have changed. 8 Figure 7 As a result of the COVID-19 pandemic, economic activity has fallen sharply… 9 Figure 8 …while volatility has increased dramatically. 9 Figure 9 Real GDP Growth, 2016-19 10 Figure 10 Global Trade Growth, Jan 2016-Jan 2020 10 Figure 11 National Government Fiscal Balance (% of GDP) 15 Figure 12 National Government Expenditure by Component (% of GDP) 15 Figure 13 The government continues to finance its deficit mainly through domestic borrowing. 15 Figure 14 The overall debt-to-GDP ratio moderated slightly in 2019. 15 Figure 15 Inflation eased in 2019 and was within the BSP’s target range in the first four months of 2020… 18 Figure 16 …due to slower food and non-food inflation… 18 Figure 17 …as rice inflation remained negative, utilities prices rose only marginally, and transport prices deflated between January and April 2020. 18 Figure 18 There was a sustained overall decline in rice prices in the beginning of 2020, except in the early weeks of April. 18 Figure 19 Composition of the Overall Balance-of-Payments Position 20 Figure 20 Portfolio equity outflows from the Philippines have been the lowest among the region. 20 Figure 21 The Philippine peso appreciated at a time when many regional currencies depreciated 20 Figure 22 Unemployment and Underemployment Rates (%) 22 Figure 23 Quarterly Labor Force Participation Rates 22 Figure 24 Share of Job Creation by Subsector 23 Figure 25 Top 10 Subsectors with the Most New Jobs 23 Figure 26 The Philippine economy is projected to contract in 2020. 28 Figure 27 Business sentiment weakened during the first quarter of 2020. 28 Figure 28 Actual and projected $3.2-a-day poverty rates. 32 Figure 29 Strengthening social assistance delivery through digital payments. 37 Figure 30 Digital adoption index and sub-indices relative to world average 39 Figure 31 How the Philippines Connects to the Internet 42 Figure 32 The Philippines’ Fiber Optic Network and Submarine Cables 43 Figure 33 Market Shares in Fixed and Mobile Broadband 44 Figure 34 Number of Unique Cell Site IDs Detected as of February 2020 44 Figure 35 4G Network Coverage (% of Population) 44 Figure 36 Mobile and Fixed Internet Download Speeds (August 2019) 46 Figure 37 Price of mobile broadband (1GB, prepaid) as % of GNI per capita 46 Figure 38 Economist Intelligence Unit (EIU) Affordability Score, 2017-2019* 46 viii PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION LIST OF TABLES Table 1 Balance of Payments, 2015 to 2019 21 Table 2 Real Growth Projections 30 Table 3 Economic Indicators for Baseline Projections 30 Table 4 Broadband Penetration and Speeds, Philippines vs. ASEAN 40 Table 5 Licensing of ISPs Across Select Countries in Asia Pacific 50 Table 6 Reasons for the 8-month Long Process to Construct a Cell Site in the Philippines 52 Table 7 DICT and NTC Policy and Regulatory Issuances Affecting Broadband Access, Quality and Affordability (2016-present) 57 LIST OF BOXES Box 1 Tracking the Impact of COVID-19 in Real Time 8 Box 2 Recent Global Developments 9 Box 3 The Bayanihan to Heal as One Act 13 Box 4 ASEAN-5 Policy Response to COVID-19 16 Box 5 Social Protection Measures to Support Poor and Vulnerable Households 24 Box 6 Global Economic Outlook 29 Box 7 Digital Delivery of Large Scale Cash Transfers for COVID-19 Pandemic Response 36 Box 8 Digital Infrastructure Components 41 EXECUTIVE SUMMARY 1 EXECUTIVE SUMMARY A series of unforeseen events caused an abrupt halt to the affecting Philippine exports of agriculture, fisheries Philippines’ strong growth momentum in early 2020. The products and manufacturing goods. Similarly, service Philippine economy carried its strong growth momentum exports contracted by 4.3 percent year-on-year in the first from the second half of 2019 into early 2020 thanks to quarter of 2020 reflecting travel restrictions imposed in positive consumer confidence, robust macroeconomic the Philippines and globally that resulted in a 40 percent fundamentals, and an improvement in the external sector. decline in international tourist arrivals. Meanwhile, imports However, the eruption of Taal Volcano in early January, the also contracted given weaker growth in capital goods spread of the Coronavirus Disease 2019 (COVID-19) outbreak imports due to weaker domestic investment activities, in the region, and the rise of COVID-19 infection cases in and in raw and intermediate goods imports reflecting the Philippines in March, forced the economy to a near disruptions in global value chains. halt in the latter part of March due to severe disruptions in manufacturing, agriculture, tourism and hospitality, While the government accelerated spending in March, construction, and trade. The economy contracted by 0.2 partly in response to the COVID-19 pandemic, the overall percent year-on-year in the first quarter of 2020, the first fiscal deficit narrowed in the first quarter of 2020. The contraction in over two decades, and was a sharp reversal fiscal deficit shrunk to 1.7 percent of GDP in the first from the 5.7 percent growth over the same period in 2019. quarter, 80 percent lower than target, owing to government Leading indicators that track economic activity in real time underspending. This underspending partly reflects delays in suggest that the contraction would be even more severe in the implementation of public infrastructure projects caused the second quarter as most regions of the country entered by the Taal Volcano eruption, and the disruption of budget an enhanced community quarantine (ECQ) in mid-March. execution at onset of the COVID-19 pandemic. Subsequently, public spending accelerated in March with the passage The impact of COVID-19 on private consumption growth of the “Bayanihan to Heal as One Act” to support the has been steep and swift resulting in its lowest growth government’s COVID-19 response, including the provision of rate since 1985 recession. In an effort to flatten the cash assistance to affected households. Non-tax revenues infection curve, the Philippine government imposed increased more than three-fold in the first quarter thanks the ECQ on March 16 mandating the closure of all non- to the early dividend remittances of the Bangko Sentral ng essential businesses which caused millions of workers to Pilipinas (BSP) and Government Owned and/or Controlled lose jobs and income. As a result of the lockdown and of a Corporations (GOCCs) to compensate for the tax revenue likely decline in remittances inflows, private consumption shortfall, as tax collections contracted by around 10 percent growth fell to 0.2 percent in the first quarter of 2020 from in nominal terms in March alone. Overall, government 6.2 percent last year. The slowdown in consumption underspending and higher non-tax revenue collections led growth was broad-based across all major categories of to a smaller fiscal deficit in the first quarter of 2020. consumption except health products. As expected, the consumption of non-essential goods and services such as The benign inflation environment has provided the from the hotel and restaurant industry was impacted the monetary authority ample space to act quickly and most, contracting double digits, while consumption of food thoroughly to mitigate the impact of the COVID-19 outbreak grew by 4.7 percent in the first quarter of 2020. on the financial sector. Headline inflation averaged 2.6 percent in the first four months of 2020 due to easing Export activities weakened substantially due to the price pressure from food, rice in particular, and energy disruptions in tourism and global value chains. Philippine consuming categories such as transport and utilities, as export growth started to weaken in 2019 due to trade global commodity prices plunged. The stable inflation tensions and slower global growth. The COVID-19 outbreak environment created room for the BSP to step up its further weakened merchandises exports amid disruptions accommodative monetary policies to help cushion the in global value chains and as global trade slowed down adverse impact of the COVID-19 outbreak and the ECQ. 2 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION The BSP reduced its key policy rates by a total of 125 basis Labor market conditions remained favorable in early 2020 points (bps) between February and April bringing the but has worsened rapidly with the COVID-19 outbreak and benchmark rate to 2.75 percent. In addition, the reserve imposition of the ECQ. Unemployment remained at 5.3 requirement ratio was reduced by 200 basis points in April percent in January 2020 while the underemployment rate to further support domestic liquidity. Furthermore, the reached its lowest level in a decade at 14.8 percent. These BSP has also adopted numerous regulatory measures to were a result of job creation in the agriculture and services facilitate digitalization of its operations, encourage banks to sectors while employment in industry contracted in January lend to micro, small, and medium enterprises (MSMEs), and 2020, consistent with the slower growth in construction and facilitate delivery of social assistance programs, manufacturing. The imposition of the ECQ in Luzon, which among others. accounts for seventy percent of the country’s economic activity, has led to loss of income and livelihood for millions Despite capital outflows caused by heightened global of Filipinos. This is particularly the case for the 7.4 million uncertainty, lower export growth, and likely lower daily wage workers who were employed in construction, remittances inflows, the Philippine peso has appreciated in manufacturing, retail, and hospitality sectors. the first quarter of 2020. Amid increased global uncertainty, net foreign direct investment (FDI) inflow is expected to be The expected broad-based economic contraction in 2020 is negative for developing countries including the Philippines. likely to cause an increase in poverty despite government Similarly, portfolio inflows were volatile in the first quarter effort to mitigate the impact of COVID-19 outbreak. of 2020, with outflows peaking in March when community Containment measures have cut off income streams from transmission of COVID-19 was confirmed in the country. seasonal wage earners and entrepreneurial activities in Remittance inflows are expected to decline as many non-agricultural and low-end service jobs, which were the overseas Filipino workers (OFWs) returned to the country driver of poverty reduction and shared prosperity in recent and are unable to go back to their hosting countries. Yet, years. To mitigate the negative economic impact of COVID-19 given the relatively small size of the Philippines’ reliance and the ECQ, the government has launched a social on FDI and portfolio inflows, the import contraction has protection program for 18 million informal and vulnerable resulted in peso appreciating 3.0 percent, year-on-year in families and 3.4 million formal workers of small businesses the first three months of 2020, leading to foreign reserve affected by ECQ. While the emergency subsidy program is reaching US$87.6 billion in February (7.7 months of imports expected to partially offset income losses, implementation and payment of services). challenges and delays to reach to vulnerable households in a timely manner could result in failure to prevent The Philippines faces a looming contraction in 2020 driven more households to fall into poverty. Based on simulated by the severity of COVID-19 pandemic and associated estimates, the poverty incidence could increase by at least containment measures imposed globally. The Philippine 3.3 percentage points assuming a loss of two months’ worth economy is expected to contract by 1.9 percent in 2020, the of income if there are no mitigation measures in place. first contraction since the Asian Financial Crisis, as COVID-19 continues to disrupt global and domestic economic The full extent and duration of the COVID-19 outbreak activities. This projection assumes that the containment is still uncertain and the adverse socioeconomic measures will be gradually relaxed in the second half of the repercussions of a deeper and prolonged COVID-19 year, and economic activities return in some sectors of the outbreak constitutes a significant downside risk to the economy. Given income loss and heightened uncertainty, outlook. With most of the countries in the world yet to household consumption and private investment are succeed in flattening the infection curve, and the risks of a expected to remain weak in 2020. However, economic second wave of infections for those that appeared to have growth prospects are expected to improve in succeeding momentarily flattened it remain present, the likelihood of a years driven by a rebound in consumption, a stronger push deeper global recession in 2020 has escalated. Furthermore, in public investment, and the recovery of global growth. The travel restrictions and depressed global demand implies Philippine growth is projected to return to above 6 percent that demand for Philippine goods and services are likely in 2021 and above 7 percent in 2022, aided by the increased to further contract. Domestically, while the government economic activity surrounding national elections. continues to take decisive actions to contain the spread EXECUTIVE SUMMARY 3 of the virus, the risks of continued transmission that force The COVID-19 context has underscored the importance return to strict lockdown in at least parts of the country of digitalization to support resilience. Indeed, firms and could push the economy to a deeper contraction in 2020 households with good digital connectivity have been able with echo effects into 2021. For instance, a protracted ECQ to maintain some activities online during the outbreak. could transform firms’ temporary liquidity problems into Going forward, innovative solutions could support the re- solvency issues. Clearly, the overall economic damage of opening of the economy while minimizing resurgence of the COVID-19 is still uncertain and will largely be dependent on virus. Virtual meetings and remote working are expected how the pandemic will be contained locally and globally. to continue under the new normal for some sectors of the economy, therefore widely reliable and affordable access In the short term, the government effort needs to focus to internet will be critical to ensure business continuity. on strengthening the capacity of the healthcare system Furthermore, the shift to e-commerce, digital financial while protecting vulnerable households. Despite effort to services, digital public service and social protection delivery ramp up testing capacity in the country, more resources started during ECQ is likely to continue even after the and effort need to be placed in expanding health system lockdown. Finally, digital solutions will remain useful for capacity to rapidly flatten the infection curve and to prevent contact tracing, to effectively contain new cases spreading a second wave. Meanwhile, effective social protection rapidly in the communities. measures are crucial to help households during periods of lockdown and social distancing, especially the most To successfully embrace the new normal, Philippine digital economically vulnerable households to provide for their infrastructure needs to be urgently and substantially basic needs. Similarly, financial support to affected firms to improved to ensure resilient and affordable internet prevent massive job destruction and bankruptcy are critical service. Due to insufficient competition and an outdated to ensure temporary shocks do not turn into permanent legal, policy and regulatory framework, the Philippines damage in country’s productive capacity and human capital. suffers from under-investment in broadband internet network. As a result, the country’s broadband (high-speed) In the medium term, supportive policies under the internet penetration is below the level of countries with new normal will be crucial to accelerate the return to comparable per capita income. Limited infrastructure and the strong growth momentum. As economic activities weak competition led to poor quality and high cost. For gradually resume, the lack of an effective vaccine implies instance, the country’s internet speeds are among the that the economy will operate under a new normal with slowest in the region and its price is higher than the ASEAN continuous social distancing, strengthened through rules; average. While the private sector should continue to lead some sectors allowed to operate partially and demand investment efforts in the Philippines’ digital infrastructure, for some good and services remain suppressed. In this the government plays an important role in creating an context, fiscal and monetary policies will be critical to re- enabling policy environment. This can be achieved through start the economy, build confidence, and help the country (i) lowering barrier to market entry; (ii) streamlining permit return to its high growth path pre-COVID. Given the rapidly requirements; (iii) enabling a fair and level playfield changing environment and expected revenue shortfall for operators; (iv) fast-tracking and lowering the cost of in the short term, the economic policy mix needs to be deploying broadband infrastructure; (v) encouraging more strong but measured, adaptable and based on evidence private sector infrastructure sharing; and (vi) making to ensure policy effectiveness, and to attain the highest spectrum more available for internet connectivity. Moreover, socioeconomic impact. Moreover, given the Philippines’ high digitalization of government itself lags behind and strong risk to natural disasters, fiscal stimulus, public investments investments into the digitalization of public administration in particular, need to support resilience to natural disasters and public service functions can lead to significant efficient and climate change to ensure the country’s sustainable gains and boost the digitalization of the country. long term growth. 4 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION PART 1 RECENT DEVELOPMENTS A series of unforeseen events caused an abrupt impact of these events on the economy has been halt to the Philippines’ strong growth momentum broad-based, steep, and deep, halting investment in early 2020. As a result, the Philippine economy activity, and leading to the lowest consumption contracted by 0.2 percent year-on-year in the first growth in three decades. In response, the Philippine quarter of 2020, a sharp reversal from the 5.7 percent government implemented a set of fiscal and growth over the same period a year ago. The growth monetary measures to contain the health, economic, contraction – the first in over two decades – was and social impact of COVID-19. On the monetary side, driven by a series of unexpected events, beginning the low and stable inflation rate provided room for with the Taal volcano eruption in early January which the BSP to step up its accommodative monetary caused severe disruptions in tourism, agriculture, policies and provide ample liquidity to the banking construction, and manufacturing activities, the initial sector. On the fiscal side, modest debt levels coupled outbreak of COVID-19 in China and in the region with recent tax policy and tax administration reforms which impacted the Philippine’s tourism and trade; have provided the Philippines the fiscal space to and the deepening of the outbreak into a global implement a wide range of policy measures to help pandemic and local community transmission which strengthen the country’s health system and support led to the implementation of stringent containment affected households and firms. The outbreak clearly measures globally and in the Philippines. These poses the risk of unraveling some of Philippines’ events have sharply reduced economic activity and gains in poverty reduction in recent years. induced losses of jobs and income. The cumulative PART 1 RECENT DEVELOPMENTS 5 1.1 ECONOMIC GROWTH: COVID-19 HIT THE PHILIPPINE AND GLOBAL ECONOMY Prior to the outbreak of the COVID-19 pandemic, leading indicators for early 2020 suggested a strong rebound for the Philippine economy as a result of positive consumer confidence, robust macroeconomic fundamentals, and an improvement in the external sector. However, the COVID-19 shock has put an abrupt stop to the Philippines’ growth momentum, causing growth to contract for the first time in twenty-two years. Prior to the outbreak of the COVID-19 pandemic, Philippine investment activity in the first half of the year; and (ii) economic growth accelerated in the latter half of 2019. weakening private investment amid heightened policy After a relatively sluggish start to 2019, economic growth uncertainty in the external environment and the uncertainty rebounded strongly in the second half of the year, surrounding the corporate income tax and fiscal incentive increasing by 6.5 percent, year-on-year, up from 5.6 percent reform program. In addition, increased trade tensions and in the first half of 2019, driven by increased public spending protection and slower growth in advanced economies and robust consumption growth. Full year growth reached resulted in sluggish external demand, contributing to 6.0 percent, the lower end of the government’s growth tepid export growth in 2019. Overall, private consumption target in 2019, slightly down from 6.3 percent in 2018 (Figure remained the main growth driver in 2019, benefitting from 1). This represented an eight-year low for the Philippine low inflation, a high level of remittances, a recovery in economy, driven by (i) a significant deceleration in public consumer confidence, and an improving labor market. Figure 1. GDP growth slowed to an eight-year low in 2019, as investment Figure 2. …while services continued to fuel growth on the growth weakened… production side. 12 10 10 8 8 6 6 PERCENTAGE POINT PERCENTAGE POINT 4 4 2 0 2 -2 0 -4 -6 -2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2017 2018 2019 2020 2017 2018 2019 2020 Investments GDP Growth Services GDP Growth Government Consumption Other industries Household Final Consumption Expenditure Manufacturing Net Exports Agriculture Source: Philippine Statistics Authority (PSA). Note: Other industries are mining and quarrying, construction, electricity, gas, and water. Source: PSA. 6 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION However, a series of unexpected events in early 2020 fell from 6.2 percent, year-on-year, in the first quarter of caused an abrupt stop to economic activity, resulting 2019 to 0.2 percent in the same period in 2020. The growth in the Philippine economy’s first contraction in over deceleration was in large part driven by a combination of two decades. In early January 2020, the eruption of Taal sluggish demand (due to the spread of COVID-19), a likely Volcano caused severe disruptions in tourism, agriculture, decline in remittances as the impact of COVID-19 deepens and manufacturing activities. In early March, as COVID-19 globally,6 and the implementation of strict containment cases increased rapidly in the Philippines, the government measures to flatten the COVID-19 infection curve. The imposed an ECQ in Luzon1 on March 16th in an effort to slowdown in consumption growth was broad-based across flatten the infection curve. The necessary containment all major categories of consumption, as traditional modes measures led to losses in income for both firms and of consumption activity were disrupted.7 The consumption workers as temporary job losses mounted2. As a result, of non-essential goods was impacted the most, with the the Philippine economy contracted by 0.2 percent, year- hospitality and recreation industries among the hardest on-year, in the first quarter of 2020, the lowest growth rate hit by the COVID-19 pandemic.8 The consumption of health since the Asian Financial Crisis.3 The economic impact was products was the only exception, which saw its growth rate broad-based, driven mainly by a decline in investment double in the first quarter of 2020, as demand for health while private consumption growth fell to its lowest level in products soared amid the COVID-19 pandemic.9 thirty-five years. Fixed investment growth contracted by 4.3 percent, year- Leading indicators that track economic activity in real on-year, in the first quarter of 2020, as lingering weakness time suggest that the Philippines has yet to experience from the prior year was exacerbated by the increased level the worst effects of COVID-19. An analysis of big data of uncertainty brought by the global pandemic.10 Private (Box 1) that provide a frequent and updated snapshot of investment spending, which had weakened over the past the economy reveals that the abrupt decline in economic year as firms delayed investments due to the uncertainty activity due to COVID-19 continued to deepen in the second surrounding the corporate tax and fiscal incentive reform, quarter of 2020. For instance, it is expected that activities in persisted into 2020 as investments in durable equipment the tourism sector, which accounted for 12.1 percent of GDP continued to contract in the first quarter of 2020. This in 2018 and employs over 5 million Filipinos,4 will come to a drop in investment activity was driven by a sharp fall in complete halt in the first half of 2020 and travel bans could business confidence, which fell to its lowest level since the result in a loss of up to 1.4 million international tourists.5 2007-08 global financial crisis.11 Meanwhile, investments in construction declined for the first time since 2014, as the eruption of Taal Volcano in early January caused disruptions The impact of COVID-19 on private consumption growth has in construction activities in Calabarzon, and as construction been steep and swift. Private consumption growth, which activities stopped in line with the implementation of has been the country’s main growth engine in recent years, 1 Luzon is the country’s main economic growth engine, accounting for around 70 percent of GDP and 56 percent of the population. 2 The Department of Labor and Employment estimated a total of 1.1 million unemployed Filipinos since mid-March, during the implementation of the ECQ. In addition, over 20,000 overseas Filipino workers have been repatriated to the Philippines as of April 25, 2020 according to the Department of Foreign Affairs. 3 The Asian Financial Crisis caused the Philippine economy to contract by 0.4 percent, year-on-year, in 1998. 4 2019 data for the Tourism Satellite Accounts, forthcoming. 5 Source: National Economic Development Authority (NEDA). 6 Thus far, over 20,000 overseas Filipino workers have been repatriated as a result of the COVID-19 pandemic (Department of Foreign Affairs). 7 Even the consumption of food and non-alcoholic beverages, which continue to benefit from relatively low and stable inflation, registered weaker growth in the first quarter of 2020, as growth decelerated to 4.7 percent, year-on-year, down from 5.9 percent a year ago. 8 The hotel and restaurant industry as well as alcoholic beverages and tobacco consumption experienced substantial double-digit contractions, as these are heavily linked to the tourism sector, which experienced a significant drop in activity in the first quarter of 2020. Moreover, the consumption of alcoholic beverages was also impacted by various local governments’ liquor bans during the ECQ period. 9 Consumption growth related to health products accelerated to 11.5 percent, year-on-year, in the first quarter of 2020, up from 5.0 percent in the same period in 2019. 10 Fixed investment growth contracted in 2011, as government underspending, particularly on infrastructure projects, worsened throughout the year. 11 Business confidence fell to 22.3 percent in the first quarter of 2020, based on the BSP’s business expectations survey, the lowest level since 2009. The decline in business confidence stemmed in large part from the uncertainty caused by the COVID-19 pandemic, in addition to existing concerns regarding the government’s reforms of corporate income taxes and fiscal incentives. PART 1 RECENT DEVELOPMENTS 7 materials and imports of intermediate goods, reflecting disruptions in global value chains caused by the COVID-19 pandemic. Mobility restrictions and personal avoidance behavior curbed not just demand, but also the production of goods and services, with, for instance, the services sector growing at its slowest pace in nearly three decades in the first quarter of 2020. Growth in the services sector slowed from 7.1 percent, year-on-year, in the first quarter of 2019 to 1.4 percent in the same period in 2020, despite the ECQ period only covering two weeks in March. The impact on services was broad-based, with the exception of areas related to human health and social work. In particular, the transport and accommodation and food services industries the ECQ in Luzon. Moreover, the slump in construction were impacted the most, contracting by 10.7 percent and investments was also driven by the slow start of the 15.3 percent, year-on-year, respectively. Meanwhile, the government’s infrastructure program for 2020, prior to the agriculture sector posted a slight contraction in the first implementation of the ECQ.12 quarter of 2020, as output declined by 0.4 percent, year-on- year (compared to 0.5 percent growth in the same period in 2019),15 due in large part to the eruption of Taal Volcano, External demand weakened substantially as the spread which resulted in damages worth Php3 billion in the of COVID-19 crippled tourism and disrupted global value agriculture sector.16 chains. Philippine export growth, which had already been weakening since 2019, further weakened as both merchandise and services export growth shrunk in the first The industry sector contracted for the first time in nearly quarter of 2020, with transport and travel export services a decade. The manufacturing sector contracted by 3.6 hit the most as travel restrictions were implemented in the percent, year-on-year, in the first quarter of 2020. The Philippines and globally.13,14 However, exports of electronics weakness in manufacturing output was broad-based, products, which account for half of total merchandise impacted by the initial COVID-19 outbreak in China, which exports, showed some resilience in the first quarter, growing caused large disruptions in global value chains. Moreover, at 5.7 percent, year-on-year, similar to the 6.0 percent in the eruption of Taal Volcano caused significant disruptions the same period in 2019 possibly suggesting that importers in manufacturing activity in the Calabarzon region, which have turned to alternative sources to China. Yet, electronics accounts for nearly 40 percent of manufacturing output in product export growth was not enough to compensate the Philippines. The construction sector contracted by 1.8 for the 8.3 percent contraction of other exports, resulting percent, a reversal from the 5.0 percent growth recorded in a 1.8 percent contraction in total merchandise exports. a year ago. This was partly due to the failure of the public Meanwhile, imports contracted by 9.0 percent, year-on- infrastructure program to gain steam in the first quarter year, in the first quarter of 2020, a reversal from 8.9 percent of the year, exacerbated by Taal Volcano eruption and the growth registered a year ago driven by weaker domestic implementation of the ECQ in March. Overall, the industry demand. The fall in imports reflected weaker consumption sector contracted by 3.0 percent, year-on-year, in the first activity during the quarter, the fall in capital-goods imports quarter of 2020, a reversal from the 4.9 percent growth as investment activity shrunk, and a contraction in raw recorded in the same period a year ago. 12 The government’s public infrastructure spending contracted in the first two months of 2020. 13 Transport services exports contracted by 34.4 percent, year-on-year, in the first quarter of 2020, while travel-services exports contracted by 15.2 percent over the same period. Cumulatively, both sectors account for roughly one-fourth of the country’s total services exports. 14 Revenue from international tourism fell by 35 percent year-on-year in the first quarter of 2020 due to imposed travel restrictions as a result of the COVID-19 pandemic. 15 The contraction was driven by reductions in output in both the crops sub-sector (-1.7 percent) and the fisheries sub-sector (-5.2 percent). 16 Source: National Disaster Risk Reduction and Management Council. 8 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION Box 1. Tracking the Impact of COVID-19 in Real Time Tracking the impact of COVID-19 in real time is dropped by 95 percent between the week of March 9th challenging given the significant lag of official data. and the week of April 6th (Figure 3). Similarly, visits to As of mid-April, PSA has data on GDP and GNI from malls, restaurants, and movie theaters dropped by the Q4 2019, the March inflation rate, the February trade 80 percent, year-on-year, in the same period dropped balance, the January employment rate, and the underscoring the hit taken by retail activity (Figure 4). February integrated survey of selected industries. None of these official data sources can capture the Big data can also help authorities monitor the impact decline in economic activity after ECQ measures were of the lockdown on public mobility and sentiment. implemented. Moreover, future data may become Using Apple’s driving mobility data, traffic in Manila more challenging to obtain, as the PSA has already began to slowdown during the second week of March announced that preparations for surveys such as the (Figure 5). During the ECQ, traffic in Manila was around Census are being postponed to ensure the safety of 20 percent of the volume in mid-January. Moreover, its employees. Google Trends reveals that since the lockdown the desire to travel has dropped to a yearly low and the The short-term impact of the ECQ on travel and retail interest in movie streaming and food delivery is at an can be measured using freely available big data. annual high (Figure 6). Flight data show that departures from Manila airport Figure 3. Since the start of the enhanced community quarantine, Figure 4. …visits to retail locations have dropped by over air travel has dropped by 95 percent… 80 percent… DEPARTURES OUT OF MANILA AIRPORT 20 0 400 -20 NUMBER OF FLIGHTS 300 -40 200 -60 100 -80 0 -100 9-MAR 16-MAR 23-MAR 30-MAR 6-APR 15-FEB 22-FEB 29-FEB 7-MAR 14-MAR 21-MAR 28-MAR 4-APR 11-APR Source: FlightRadar24 (April 13, 2020) Source: Google Covid-19 Community Mobility (April 9, 2020) Figure 5. …Manila is experiencing 80 percent less traffic… Figure 6. …and people’s interests and desires have changed. MANILA: CHANGE IN ROUTING REQUEST ON APPLE MAPS SINCE JANUARY 13, 2020 INTEREST OVER TIME 60 120 40 20 100 0 80 -20 -40 60 -60 40 -80 20 -100 13-JAN 20-JAN 27-JAN 3-FEB 10-FEB 17-FEB 24-FEB 2-MAR 9-MAR 16-MAR 23-MAR 30-MAR 6-APR 13-APR 0 1-JAN 8-JAN 15-JAN 22-JAN 29-JAN 5-FEB 12-FEB 19-FEB 26-FEB 4-MAR 11-MAR 18-MAR 15-MAR 1-APR 8-APR Travel Netflix Delivery Source: Apple Maps Mobility Trends Reports (April 13, 2020) Source: Google Trends (April 15, 2020) PART 1 RECENT DEVELOPMENTS 9 Box 2 . Recent Global Developments The COVID-19 pandemic has caused massive Advanced economies are faced with an unprecedented disruptions in global economic activity. The global slump in economic activity as they grapple with the composite Purchasing Managers’ Index (PMI) fell to 39.4 far-reaching consequences of the COVID-19 pandemic. in March, as a bounce-back in the China composite PMI As the number of COVID-19 cases soared in advanced failed to offset a record plunge in that of the euro area, economies, governments implemented mitigation and it is fast approaching its 2009 low of 36.8 (Figure measures, such as lockdowns and other restrictions, 7). Moreover, the Chicago Board Options Exchange to slow the spread of the outbreak and ease the (CBOE) volatility index—a measure of market risk and burden on healthcare systems. In the United States, investor sentiment—increased sharply in the beginning high-frequency service-sector indicators point to of 2020 (Figure 8). Incoming data suggest that the sharp an unprecedented economic collapse, especially for slowdown in global economic activity likely deepened services and travel. Compared to the global financial in April 2020, as many governments, particularly in crisis, weekly unemployment claims have risen much emerging market and developing economies (EMDEs), faster, while industrial production and retail sales imposed new or broadened existing mitigation have fallen much more sharply. In the euro area, measures. Capital flows to emerging markets have many countries are heavily reliant on tourism, a retreated sharply, with 4-week average non-resident sector virtually shut down by government policies and equity and debt flows to emerging markets falling to a particularly prone to slow recoveries, which means that level lower than that during the global financial crisis the pandemic has had a significant impact on economic of 2007–08. Most commodity prices plunged further in activity. In contrast to the United States, the rise in March and into April as concerns about the impact of unemployment has been modest so far in the European the pandemic on commodity demand intensified.17 Figure 7. As a result of the COVID-19 pandemic, economic activity Figure 8. …while volatility has increased dramatically. has fallen sharply… 90 55 80 50 70 60 45 50 40 40 30 20 35 2018 2018 2018 2018 2018 2018 2019 2019 2019 2019 2019 2019 2020 2020 10 JAN MAR MAY JUL SEP NOV JAN MAR MAY JUL SEP NOV JAN MAR Global PMI: Composite Ouput 0 1/2/2018 3/2/2018 5/2/2018 7/2/2018 9/2/2018 11/2/2018 1/2/2019 3/2/2019 5/2/2019 7/2/2019 9/2/2019 11/2/2019 1/2/2020 3/2/2020 Global Manufacturing PMI Global PMI: Services Volatility Index (VIX) Close Note: An expansion is represented by 50+. Source: Chicago Board Options Exchange. Source: Haver Analytics 17 The International Energy Agency is expecting demand to decline by 23 percent in the second quarter of 2020, before gradually recovering through the rest of the year. While Brent crude oil prices fell 40 percent in March, with the fall in prices exacerbated by the breakdown of the production agreement by Organization of the Petroleum Exporting Countries (OPEC) and its partners, including Russia, in early March. 10 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION Figure 9. Real GDP Growth, 2016-19 Figure 10. Global Trade Growth, Jan 2016-Jan 2020 (Regional Aggregates, %, Year-on-Year) (%, Year-on-Year) 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 -1 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 -2 -3 World Emerging markets JAN 2020 JAN 2016 APR 2016 JUL 2016 OCT 2016 JAN 2017 APR 2017 JUL 2017 OCT 2017 JAN 2018 APR 2018 JUL 2018 OCT 2018 JAN 2019 APR 2019 JUL 2019 OCT 2019 Asia and Pacific Advanced economies Asia and Pacific (excl China) Source: Haver Analytics Source: Haver Analytics Union, in large part due to the widespread use of capacity of their healthcare systems. EMDEs have also shorter work-time policies. Policymakers have promptly faced unprecedented external headwinds from much provided an unprecedented degree of fiscal and weaker activity in major economies, sharp declines in monetary support to households, firms, and financial commodity prices, disruptions to global supply chains markets, but conditions in advanced economies remain and tourism, markedly lower remittances, and financial at considerable risk. market turmoil. Manufacturing activity and new export orders have sharply contracted, particularly in EMDEs The pandemic has also dealt a massive blow to EMDEs. with a large presence of manufacturing or export- Many have adopted mitigation measures, including oriented firms. economy-wide lockdowns, international border and school closures, and restrictions on domestic travel. In China has seen a precipitous decline in economic many EMDEs, efforts to avoid the virus have weighed activity, but there are signs of a fragile recovery. In heavily on private consumption, generated widespread the first quarter of 2020, the Chinese economy shrank unemployment, and led to a sharp decline in retail for the first time since 1976, as GDP growth contracted sales. Uncertainty over the spread of COVID-19 and by 6.8 percent, year-on-year, due to the COVID-19 the lifting of mitigation measures have coincided with pandemic. The impact of the pandemic on China the erosion of business confidence and a decline in was broad-based, steep, and deep, as consumption, investment. Businesses have also had to contend with export, and investment growth, the three main engines delivery delays in intermediate inputs, severe drops of Chinese GDP growth, all experienced substantial in receipts, and limited access to financing. Moreover, double-digit contractions. But coal consumption, which domestic outbreaks are beginning to overwhelm is a widely followed indicator of electricity generation, healthcare systems in a rising number of EMDEs— and hence economic activity, is gradually increasing. including low-income countries and countries in Sub- Similarly, prices of manufactures of construction Saharan Africa—because of the small size and limited machinery increased in March 2020, as sales hit a PART 1 RECENT DEVELOPMENTS 11 record high, potentially hinting at a recovery for chains. Trade is typically more volatile than output China’s construction sector. In addition, a majority of and tends to fall more sharply in times of crisis. The firms in China have started to resume operations, fall in trade activity has been concentrated in usually as 98 percent of industrial enterprises above more stable services sectors. Travel restrictions and designated size18 and about 80 percent of small and concerns about COVID-19 have led to a precipitous medium-sized enterprises (SMEs) have reportedly fall in tourism—a sector that in recent years has resumed operations as of April 10th, according to accounted for about 6.5 percent of global exports of the Ministry of Industry and Information Technology. goods and services—with sharp declines in economies Moreover, leading macroeconomic data suggest a with the most severe outbreaks. As the pandemic continued recovery for China, as growth in total credit has spread, stringent border controls and production to the non-financial sector accelerated in April,19 while delays have weighed on trade. Measures to slow the export and import growth rebounded in March, despite outbreak have limited or delayed the supply of critical continued contraction.20 inputs, particularly in the automotive and electronics industries. The collapse of air transport has resulted in Recent indicators suggest that global trade will suffer a steep rise in air freight costs, putting further strain on one of the worst contractions in post-war history industries that rely on just-in-time delivery of foreign- in 2020, partly owing to the impact of the COVID-19 sourced intermediate goods. pandemic on international travel and global value Source: World Bank. 2020. Global Economic Prospects June 2020. Washington, DC: World Bank; Haren, and Simchi-Levi 2020; and Baldwin and Tomiura 2020. 18 Refers to industrial enterprises with annual main business revenues of 20 million yuan or more. 19 Growth in total credit to the non-financial sector was 11.7 percent, year-on-year, in April, up from 10.9 percent in March. 20 Goods exports fell 6.6 percent year-on-year in March, following a decline of 17.2 percent year-on-year in January-February. 12 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION 1.2 FISCAL POLICY: ACCELERATING SPENDING AMID AN EROSION OF FISCAL SPACE The government’s fiscal balances have showed signs of deterioration with the implementation of strict containment measures to prevent the spread of COVID-19 as its tax revenue base weakened amid both supply and demand shocks due to the COVID-19 pandemic. However, the fiscal deficit has remained well within target in the first quarter of 2020, as a result of government underspending and a substantial boost in non-tax revenues. The government’s fiscal deficit fell within its programmed percent in Q1 2019) in Q1 2020 driven by the increase in target for the first quarter of 2020, primarily as a result of personnel services expenditures, with the implementation an early remittance of non-tax revenues and as spending of the first tranche of the Salary Standardization Law V, and fell short of the target (Figure 11). The fiscal deficit shrunk maintenance spending by various line agencies (Figure to 1.7 percent of GDP in the first quarter of 2020, nearly 12). Yet, government spending fell short of its programmed 80 percent lower than the programmed target. This was target for the first quarter of 2020 as infrastructure primarily a result of a combination of underspending by spending contracted22 and as the enforcement of the ECQ the government, while revenue collections exceeded the caused delays in program implementation.23 programmed target. The higher-than-programmed revenue collections were primarily driven by a three-fold increase in Tax revenue collections experienced a sharp contraction non-tax revenues as a result of early dividend remittances amid the implementation of the ECQ in March. The to the Bureau of the Treasury (BTr) from GOCCs given implementation of ECQ in Luzon and other affected regions shortfall in tax revenues amid the impact of COVID-19 and resulted in a nearly flat growth in tax revenues generated the corresponding containment measures. by the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) in the first quarter of 2020. Tax collection Public spending accelerated in March 2020 in response in March by the BIR fell by 10.7 percent, year-on-year, in to the COVID-19 pandemic. After a slow start in the first nominal terms, when ECQ started.24 In addition, revenue two months of 2020, government spending accelerated from the BOC fell by 9.4 percent, year-on-year, in nominal in March21. In particular, the government released around terms in March as a result of lower import volumes due Php350 billion to various national government agencies to the impact of COVID-19 related containment policies on (NGAs) and local government units (LGUs) to support global supply chains and business activity. To offset the their respective COVID-19 response measures since the anticipated shortfall in tax collections, non-tax revenues passage of the “Bayanihan to Heal as One Act” (Box 3). increased more than three-fold,25 due to early dividend Government spending reached 19.0 percent of GDP (17.6 remittances of the BSP and GOCCs to the BTr. As a result, 21 Public spending growth decelerated in the first two months of 2020, as disbursements expanded by 5.2 percent year-on-year in nominal terms compared to 6.9 percent over the same period in 2019, driven by a significant contraction in public infrastructure spending by 20.7 percent year-on-year. However, national government disbursement growth accelerated to 16.0 percent year-on-year in March 2020, after growing by 5.2 percent in the first two months of 2020. 22 In the first two months of 2020, public infrastructure spending contracted by 20.7 percent year-on-year, mainly attributed to the base effect of high public infrastructure spending in the first quarter of 2019 due to the payment of prior years’ accounts payable for completed projects under the DPWH. In addition, the implementation of the ECQ in March likely caused delays to the construction sector. 23 The national government fell short of its programmed target by Php143.8 billion in the first quarter of 2020. 24 Income tax return deadlines for individuals and corporations as well as for withholding tax have been extended by up to one and a half months under Revenue Regulation (RR) 10-2020 which was issued on April 14. Other taxes postponed by at least one month under the issuance include, value-added tax (VAT), excise tax, and documentary stamp tax, among others. Moreover, the Philippines’ two state-run pension funds – the Government Service Insurance System (GSIS, for government employees) and the SSS (for private sector employees) have both deferred contribution payments to June 1. The extension of tax compliance deadlines is expected to cause a shortfall of Php470 million in tax revenue in the first half of 2020. 25 In the first quarter of 2020, non-tax revenues increased to Php154.4 billion from Php49.9 billion in the first quarter of 2019. PART 1 RECENT DEVELOPMENTS 13 total public revenues increased by 17.4 percent, year-on- percent of GDP in 2019 from 39.9 percent in 2018. Publicly year, in nominal terms in the first quarter of 2020 to reach guaranteed debt also remains small at 2.5 percent of GDP. 17.3 percent of GDP (15.5 percent of GDP in Q1 2019). These trends continued into the first quarter of 2020, as national government debt fell slightly to 41.8 percent of Nevertheless, the country’s overall fiscal health remains GDP in the first quarter from 42.0 percent over the same sound, providing the government enough fiscal space to period a year ago. Moreover, debt metrics continue to respond to the ongoing COVID-19 pandemic (Figure 13 and remain favorable, composed largely of long-term debt (72.7 Figure 14). Despite a larger than expected increase in the percent) while around two-thirds of the country’s total debt country’s deficit in 2019, the national government’s public is composed of peso-denominated debt. debt ratio continued to improve, declining slightly to 39.6 Box 3. The Bayanihan to Heal as One Act The President of the Philippines signed Republic Act COVID-19 response. In particular, the law authorizes the No. 11469, known as the “Bayanihan to Heal as One discontinuance of appropriated programs, activities, Act”, on March 25, 2020, providing the legal framework or projects (PAP) of the Executive Department, for the government’s comprehensive response to including GOCCs, in both the 2019 and 2020 General the COVID-19 pandemic. The law, valid for three Appropriations Act (GAA). The discontinued PAPs may months should Congress not terminate or extend be revived within the next two years after the national the coverage, issues a formal declaration of State of emergency has ended. In addition, all unutilized or National Emergency26 and provides the President with unreleased balances in the special purpose fund the authority to exercise additional powers to mitigate would be considered abandoned and considered as and contain the spread of COVID-19 while providing the savings, to be automatically appropriated for measures government with the resources to address the impact of to support the COVID-19 emergency operations and the pandemic on the Philippine economy. In particular, response measures of priority budget items. In terms of the law grants the president additional powers to local government financing, LGUs are allowed to exceed adopt temporary emergency measures in the health, the mandatory 5 percent budget for their respective economic, and social-protection sectors. The President calamity funds, with additional support coming is also allowed to realign items in the 2019 and 2020 from the national government. In order to ensure budgets to ensure that the proposed measures receive transparency and effective use of public resources, the adequate funding. The law was passed against the government is mandated to submit a report to Congress backdrop of a continued acceleration in the number that includes the details of the realignment of the of COVID-19 cases,27 and as disruptions in the economy budget as well as the utilization of funds. caused losses of income, unemployment, interruptions in local supply chains, and sharp declines in both In the health sector, additional authorized powers are consumer and business confidence. centered on mitigation and containment measures while improving the capacity of the country’s RA No. 11469 provides additional powers to the healthcare system. Primarily, RA No. 11469 prioritizes government to mobilize existing resources to fund its the implementation of measures to prevent and 26 The declaration came after earlier presidential declarations of state of public health emergency (Proclamation No. 922, March 8, 2020) and state of national calamity (Proclamation No. 929, March 16, 2020) that placed the whole of Luzon in an ECQ. Other cities and provinces across the country have also enforced travel restrictions, strict home confinement, heightened presence of uniformed personnel to enforce isolation procedures, and suspension of transportation lines, as well as work in both public and private sectors, except for those engaged in frontline, basic and essential services. 27 By March 23, 2020, the total number of confirmed cases rose to 462, a sharp increase from 5 confirmed cases on March 5, 2020. 14 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION contain the spread of COVID-19 in the Philippines and will include the implementation of an expanded through effective education, detection, protection, and and enhanced conditional cash-transfer program that treatment. In terms of detection, the law mandates the will cover workers in the informal sector and non- reduction of bureaucratic red tape in the accreditation beneficiaries of the current program. In addition to of testing kits to facilitate the prompt testing by both cash and in-kind assistance, the law provides relief public and private medical institutions. The law reduces to all individuals affected by the ECQ by extending bureaucratic hurdles by ensuring clearance and no the deadlines for filing and submitting documents delays in the donation, acceptance, and distribution and paying taxes, fees, and other charges, as well of health products and by expediting procurement as implementing a thirty-day grace period on loan of relevant goods and services28 for health and social payments and residential rents. service delivery. In addition, the law takes additional steps to ensure that the country’s front-line health The law creates the necessary legal framework to workers are provided additional compensation and ensure that the Philippine economy continues to protection for their services while hiring additional function in the midst of the ECQ. Additional powers temporary health workers to augment the existing granted to the president include the implementation health workforce. Moreover, the Department of Health of measures to protect consumers from hoarding, (DOH) and the Philippine General Hospital (PGH) product deception, and price manipulation in relation will receive priority budgetary support to improve to essential goods. In addition, the law ensures the the capacity of the health sector to respond to availability of credit to productive sectors by lowering the pandemic. effective lending rates and reserve requirement ratios for lending institutions. The law also authorizes the RA No. 11469 includes a strong social-protection continued use of alternative work arrangements pillar, focusing largely on financial support to the during the ECQ period for both the private and public poor and vulnerable, which anchors the government’s sector. Moreover, the law authorizes the government to broader social-protection response. The law includes take the necessary steps to ensure the availability of emergency cash transfers worth Php5,000-Php8,000 per essential goods through the facilitation of local supply month for two months to around 18 million households chains and the conservation and distribution of power, who are either poor or in the informal sector. The cash- fuel, energy, and water to ensure adequate supply for transfer program will cost a total of Php200 billion the public. 28 This includes personal protective equipment (PPE), medical equipment, and items purchased for social-service delivery and support, the lease of real property for health workers, and the construction and operation of temporary medical facilities (e.g., telecommunications facilities and utilities). PART 1 RECENT DEVELOPMENTS 15 Figure 11. National Government Fiscal Balance (% of GDP) Figure 12. National Government Expenditure by Component (% of GDP) 25 3.5 25 2.5 FISCAL BALANCE (PERCENT OF GDP) 20 20 1.5 5.5 5.4 4.4 PERCENTAGE POINT 4.4 PERCENT OF GDP 15 4.2 4.8 15 0.5 -0.5 10 -1.7 14.0 14.0 14.8 10 -1.5 13.3 13.4 12.7 -2.1 -2.0 5 -3.1 -2.5 5 -3.4 -3.7 0 -3.5 2016 2017 2018 2019 2019 2020 0 -4.5 Q1 Q1 2017 2018 2019 Q1 Q1 Q1 Net lending 2018 2019 2020 Capital outlays Revenues Expenditures Current operating expenditures Fiscal Balance (RHS) Source: DBM, PSA. Source: DBM, PSA. Figure 13. The government continues to finance its deficit mainly Figure 14. The overall debt-to-GDP ratio moderated slightly in 2019. through domestic borrowing. 400 45 4.0 300 40 3.4 3.5 35 2.9 200 3.0 IN PERCENT OF GDP 2.7 2.7 30 2.5 2.5 100 2.5 IN BILLION PESOS 25 - 2.0 20 (100) 1.5 15 (200) 10 1.0 (300) 5 0.5 JAN JUL JAN JUL JAN 0 0.0 2018 2019 2020 2016 2017 2018 2019 Q1 Q1 2019 2020 Net Foreign Financing Net Domestic Financing External debt Domestic debt Budget Surplus/Deficit NG Guaranteed Debt (RHS) Source: BTr. Source: BTr, PSA. 16 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION Box 4. ASEAN-5 Policy Response to COVID-19 The ASEAN-5 countries have taken extraordinary Governments have also ramped up fiscal measures that measures to address the impact of the COVID-19 include tax reliefs and public spending on health and pandemic.29 Among these countries, the COVID-19 social-protection programs. Fiscal packages have been infection rate has varied, with Singapore recording prominent among the ASEAN-5 economies, and the they the highest number of cases at over 30,000 cases as have generally included tax relief and deferments as of the fourth week of May, followed by Indonesia, the well as tax breaks to both households and businesses. Philippines, and Malaysia with over 20,000, 14,000, Indonesia has gone further than any of the ASEAN-5 and 7,000 cases, respectively. Vietnam seemed to have economies by permanently reducing the corporate managed the outbreak with only 327 cases. Despite income tax rate from 25 percent to 22 percent in different infection rates, all the ASEAN-5 countries have 2020−21 and to 20 percent starting in 2022. To mitigate adopted strong policy responses to address the health, the social impact, cash transfers and wage subsidies social, and economic impact of the pandemic. In their have been provided to targeted groups, including policy toolkit, the authorities have used monetary and low-income households, unemployed and displaced financial, fiscal, and real-sector policy measures. workers, pensioners and retirees, and individuals in the informal sector. MSMEs are supported with tax cuts, deductions, and deferments (Indonesia, Thailand, Monetary and financial policy measures have focused and Vietnam), on top of mandates for commercial rent on maintaining domestic liquidity and providing deferment and loan and grant programs (Philippines, support to the banking sector. The ASEAN-5 countries Malaysia, and Thailand). have all reduced their key policy rates, with countries like Indonesia, Malaysia, and the Philippines also reducing their reserve requirements. These measures Besides monetary and fiscal measures, governments were taken to maintain the level of domestic liquidity have also taken stringent health and travel measures and cash in the economy at a time when business to arrest the spread of the virus locally. Governments disruptions have resulted in extremely weak market in Indonesia, the Philippines, Thailand, and Vietnam activities. To support both businesses and households, have all declared a state of national emergency in central banks have mandated financial credit measures their respective countries. Authorities in the ASEAN-5 such as loan repayment moratoriums, payment countries have implemented travel restrictions and deadline extensions, and loan restructuring. There have lockdown, quarantine, and movement control orders to also been extraordinary measures, including the central contain the spread of the virus, despite the disruptions bank of the Philippines’ (BSP) reverse repurchase in business operations and market activities. In the agreement with the BTr worth Php300 billion, and health sector, governments have provided incentives, the creation of a liquidity stabilization fund to buy set up contingency funds, and streamlined processes corporate and government bonds in Thailand. for the procurement of PPE, medical kits, and other health equipment. Some countries have also directly supported select sectors such as agriculture, tourism, and the airline industry, among others. Source: For updates on the COVID-19 policy responses, visit the IMF Policy Responses to COVID-19, accessible at https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19. 29 The ASEAN-5 countries are Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. PART 1 RECENT DEVELOPMENTS 17 1.3 MONETARY AND MACRO-PRUDENTIAL POLICIES: GEARED TOWARD MITIGATING THE IMPACT OF THE COVID-19 PANDEMIC Thanks to muted inflationary pressures in the first four months of 2020, monetary policy focused on injecting liquidity into the financial market to help mitigate the impact of the COVID-19 pandemic on the economy. Inflation remained comfortably within BSP’s target range impact of the COVID-19 outbreak. The BSP reduced its key in the first four months of 2020. The headline inflation policy rate in February and March by a total of 75 bps to rate dropped significantly from an average of 5.2 percent 3.25 percent, followed by a 50 bps off-cycle rate cut in April, in 2018 to 2.5 percent in 2019, before stabilizing at 2.6 bringing the benchmark rate to 2.75 percent. The reserve percent in the first four months of 2020—within the BSP’s requirement ratio (RRR) faced by universal and commercial 2-4 percent target range (Figure 15). In the first four months banks was reduced by 200 bps in April to further support of 2020, both food and non-food inflation slowed (Figure domestic liquidity.31 The BSP has also adopted other 16), primarily driven by cheaper local rice and global crude regulatory measures and taken preemptive actions to oil30, the latter of which led to slower or negative inflation minimize the economic fallout of the COVID-19 pandemic.32 for energy-related commodities (Figure 17). Rice prices The liquidity injection benefited households more than remained lower in the first four months of 2020 than in the firms, since credit to households accelerated while credit to same period in 2019 due to the rice tariffication scheme firms moderated.33 adopted in 2019 (Figure 18). Excluding volatile food and energy items, the core inflation rate averaged 3.3 percent The Philippines’ financial system remains resilient based in 2019, down from 4.1 percent in 2018. A similar downtrend on available data.34 Philippine banks are well capitalized, was observed in the first four months of 2020, as the core with a total capital adequacy ratio of 15.6 percent in inflation rate averaged 3.1 percent, year-on-year, down from December 2019, an improvement compared to 15.0 3.8 percent in same period in 2019. percent in December 2018 and well above the 10.0 percent regulatory minimum. The share of non-performing loans The benign inflation environment in the first four months (NPL) slightly increased to an average of 2.1 percent from of 2020 provided monetary policy space to mitigate the January to December 2019, up from an average of 1.9 percent 30 In the first four months of 2020, the price of Brent crude oil averaged US$43.73/bbl, a 33 percent decline from an average of US$65.25/bbl in the same period in 2019, as the world oil market suffered from oversupply and weakening demand amid travel restrictions imposed by several countries. 31 The RRR for universal and commercial banks was reduced incrementally by a total of 400 bps, from 18 percent in 2018 to 14 percent in 2019. Likewise, the RRR imposed on thrift banks and non-bank financial institutions with quasi-banking functions (NBQBs) was reduced by a total of 400 bps, from 8 percent and 18 percent, respectively, in 2018 to 4 percent and 14 percent, respectively, by end-2019. Meanwhile, a cumulative total of 200 bps was deducted from rural banks’ RRR, which stood at 3 percent by end-2019. 32 The BSP relaxed know-your-customer (KYC) requirements to facilitate the delivery of welfare funds to identified beneficiaries who have no available valid IDs or transactional account with any financial institution. The BSP also digitized some operations and waived some types of penalties and fees for foreign exchange transactions. Furthermore, the BSP purchased government securities from the BTr under a repurchase agreement in the amount of Php 300 billion, with a maximum repayment period of 6 months, and remitted Php20 billion in dividends to help boost government resources. To incentivize physical distancing and prevent the spread of COVID-19, charges on electronic payment and financial services filing, processing, and licensing/registration fees relative to applications have been suspended effective for a period of six months, starting on March 8, 2020. The BSP has also provided some relief measures to micro, small, and medium enterprises by (i) temporary reducing the credit risks assigned to their loans; and (ii) assigning a 0 percent risk weight for their guaranteed loans. 33 Credit to firms reached Php8.8 trillion and grew by 10.7 percent, year-on-year, in March 2020, lower than 12.3 percent in March 2019. By contrast, household loans grew by 12.5 percent, year-on-year, in March 2020, up from 10.8 percent in the same period in the previous year. 34 Based on data up to and including March 2020. 18 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION in the same period in 2018. Preliminary data for March 2020 assets at 1.3 percent in 2019 (up from 1.2 percent in 2018). shows a slight increase in NPLs to 2.2 percent. Nevertheless, The share of net interest income to total operating income the country’s banking sector was highly profitable pre- increased from an average of 76.0 percent in 2018 to 76.8 COVID, with an average return on equity at 10.0 percent in percent in 2019. 2019 (up from 9.6 percent in 2018) and an average return on Figure 15. Inflation eased in 2019 and was within the BSP’s target range Figure 16. …due to slower food and non-food inflation… in the first four months of 2020… JANUARY-APRIL AVERAGE INFLATION AND COMMODITY GROUP CONTRIBUTIONS (PERCENT) 4.0 10 3.6 8 43% 50% 2.6 6 7% 50% PERCENT 4 5% 2 50% 11% 44% 0 39% -2 2018 2019 2020 JAN-18 APR-18 JUL-18 OCT-18 JAN-19 APR-19 JUL-19 OCT-19 JAN-20 APR-20 Non-food Alcoholic beverages and tobacco Core Inflation Headline inflation Food & Non-alcoholic beverage BSP Key policy rate Food and non-alcoholic beverages Source: PSA and BSP Source: PSA Figure 17. ...as rice inflation remained negative, utilities prices rose only Figure 18. There was a sustained overall decline in rice prices in the marginally, and transport prices deflated between January and April 2020. beginning of 2020, except in the early weeks of April. 8 50 7 6 40 PHP PER KILOGRAM 5 4 30 3 PERCENT 2 20 1 0 10 MAR-17 MAY-17 JUL-17 SEP-17 NOV-17 JAN-18 MAR-18 MAY-18 JUL-18 SEP-18 NOV-18 JAN-19 MAR-19 MAY-19 JUL-19 SEP-19 NOV-19 JAN-20 MAR-20 APR WK2 -1 -2 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR 2018 2019 2020 Palay (Dry) Well Milled Rice (WMR) - Retail Rice Utilities Well Milled Rice (WMR) - Wholesale Transport Others Regular Milled Rice (WMR) - Retail Food (except rice) Headline inflation Regular Milled Rice (WMR) - Wholesale Source: PSA Source: PSA PART 1 RECENT DEVELOPMENTS 19 1.4 THE EXCHANGE RATE AND THE EXTERNAL SECTOR: RESILIENCE DRIVEN BY STRONG INITIAL CONDITIONS 2019 was a strong year, capped with a balance of payments (BOP) surplus in the Philippines. This may explain the country’s resilience in the external sector despite the COVID-19, with a peso that appreciated while regional currencies depreciated, and capital flows that were among the lowest in the region. The Philippines entered 2020 with strong external was mainly driven by net outflows in the Philippine Stock balances, thanks to a narrower current account deficit Exchange market which was battered in mid-March with and a BOP surplus in 2019. The current account deficit the onset of the COVID-19 outbreak and the subsequent fell by nearly 95.0 percent in 2019, from US$8.8 billion (2.5 imposition of the ECQ in the country. Transactions in percent of GDP) in 2018 to US$0.5 billion (0.1 percent of government securities have also contributed to the GDP) (Figure 19). Goods imports contracted by 3.0 percent, net outflows. Nonetheless, using comparable data, the while goods exports expanded by 2.7 percent, supported by Philippines has performed remarkably better than regional exports of electronics, agro-based and mineral products. peers with portfolio capital outflows among the lowest in Net services exports grew double-digits with reports of the region (Figure 20). higher tourist arrivals and better IT-BPO earnings receipts,35 while foreign remittances increased due to higher inflows The Philippine peso appreciated in early 2020. The from the United States and Japan. Meanwhile the capital Philippine peso steadily appreciated in nominal terms and financial accounts registered a lower surplus of US$6.3 against the U.S. dollar throughout most of 2019 due to billion (1.7 percent of GDP) in 2019 from US$9.4 billion slower import growth and capital inflows. In the first (2.7 percent of GDP) in 2018. Long-term investments were four months of 2020, the Philippine peso appreciated impacted by uncertainties in the global environment and by an average of 3.0 percent, year-on-year, driven by the the proposed corporate tax reform package. With lower contraction in imports, resulting in weaker demand for current-account deficit and net capital inflows, the balance U.S. dollars. In real terms, the peso has appreciated by as of payments registered a US$7.8 billion (2.1 percent of GDP) much as 5.4 percent in the first four months of 2020. The surplus in 2019, an improvement from a US$2.3 billion (0.7 peso appreciation comes at a time when the currencies of percent of GDP) deficit in 2018 (Table 1). regional peers have depreciated (Figure 21). The currency appreciation was accompanied by a re-accumulation of The strong initial conditions have likely contributed to foreign reserves throughout 2019 and early 2020, reaching tempering the capital outflows from the country. BSP- US$87.6 billion in February 2020, which represents 7.7 registered foreign portfolio investments (FPIs) recorded at months’ worth of imports and payment of services and least US$1.4 billion-worth of foreign portfolio investments primary income. flowing out of the country in the first quarter of 2020. This 35 Based on its latest assessment, the BSP estimates 5.0 percent growth in BPO sector earnings in 2019, a rebound from the 2.9 percent growth in 2018. While data tourism receipts are not yet available, tourist arrivals rose by 15.2 percent year-on-year in 2019 from 8.3 percent in 2018. See https://www. philstar.com/business/2019/12/16/1977247/bpo-revenues-unlikely-overtake-remittances-soon-says-bsp. 20 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION Figure 19. Composition of the Overall Balance-of-Payments Position 4.0 3.0 2.0 1.0 PERCENTAGE OF GDP - (1.0) (2.0) (3.0) (4.0) 2015 2016 2017 2018 2019 Current account Capital and Financial accounts Net unclassified items Overall BOP position Source: BSP Figure 20. Portfolio equity outflows from the Philippines have been Figure 21. The Philippine peso appreciated at a time when many the lowest among the region. regional currencies depreciated 4,000 110 3,000 105 Index of USD / LCU (May 1, 2019=100) 2,000 100 1,000 IN MILLIONS USD 95 - 90 (1,000) 85 (2,000) 80 01/05/2019 01/06/2019 01/07/2019 01/08/2019 01/09/2019 01/10/2019 01/11/2019 01/12/2019 01/01/2020 01/02/2020 01/03/2020 01/04/2020 01/05/2020 (3,000) JAN 2019 FEB 2019 MAR 2019 APR 2019 MAY 2019 JUN 2019 JUL 2019 AUG 2019 SEP 2019 OCT 2019 NOV 2019 DEC 2019 JAN 2020 FEB 2020 MAR 2020 APR 2020 PHL Peso IDN Rupiah THA Baht VNM Dong MYS Ringgit Philippines Indonesia Thailand Vietnam Malaysia Note: Decrease denotes depreciation. Source: Institute of International Finance Source: BSP and Wall Street Journal (WSJ) Markets. PART 1 RECENT DEVELOPMENTS 21 Table 1. Balance of payments, 2015 to 2019 In million US$ / In percentage of GDP 2015 2016 2017 2018 2019 Current account 2.4 (0.4) (0.7) (2.5) (0.1) Goods (7.6) (11.2) (12.2) (14.7) (12.3) Exports 14.1 13.4 15.8 15.0 14.2 Imports 21.7 24.6 28.0 29.7 26.5 Services 1.8 2.2 2.6 3.3 3.5 Primary Income 0.6 0.8 1.0 1.1 1.4 Secondary Income 7.6 7.8 8.0 7.7 7.3 Capital and Financial accounts (0.7) (0.0) 0.9 2.7 1.7 Capital account 0.0 0.0 0.0 0.0 0.0 Financial account 0.8 0.1 (0.9) (2.7) (1.7) Net Direct Investment (0.0) (1.8) (2.1) (1.7) (1.2) Net acquisition of financial assets 1.8 0.8 1.0 1.2 0.9 Net incurrence of liabilities 1/ 1.8 2.6 3.1 2.9 2.0 Portfolio investment 1.8 0.5 0.7 0.4 (0.5) Financial derivatives 0.0 (0.0) (0.0) (0.0) (0.0) Other investments (1.0) 1.4 0.5 (1.4) (0.0) Net unclassified items2/ (0.8) 0.1 (0.5) (0.8) 0.5 Overall BOP position 0.9 (0.3) (0.3) (0.7) 2.1 Memo: Basic Balance 2.4 1.5 1.5 (0.8) 1.0 Gross International Reserves (in billions USD) 80.7 80.7 81.6 79.2 87.8 Import Coverage (in months) 9.9 8.8 7.8 6.9 7.7 1/ Net incurrence of liabilities refers to net foreign direct investment to the Philippines. 2/ The term “Net unclassified items” is a balancing figure. There are two methods of computing the BOP position: the first approach uses the change in net international reserves due to transactions, while the second approach computes the sum balances of the current account, capital account less financial account. The two measures do not necessarily tally. The BSP uses the first approach to determine the overall BOP position. Note: Following the BSP presentation, BOP balance = Current Account balance + Capital Account balance - Financial Account balance + Net Unclassified Items 22 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION 1.5 POVERTY AND EMPLOYMENT: PROTECTING GAINS AMID THE COVID-19 PANDEMIC While the Philippines continued to make gains in poverty reduction prior to the outbreak of COVID-19, the outbreak has resulted in an unprecedented shock to the country’s economy and health system, threatening to undo these gains. While labor market conditions continued to improve in automotive, and consumer products industries are likely to early 2020, recent measures taken to contain the COVID-19 be affected especially hard by the pandemic. pandemic will likely result in higher unemployment and underemployment. In January 2020, the country’s The disruption in household income due to the COVID-19 unemployment rate remained at 5.3 percent and pandemic could lead to an increase in poverty if no social underemployment reached its lowest level in a decade protection measures are in place. Based on simulated at 14.8 percent (Figure 22). Most the jobs were created in estimates from the Family Income and Expenditure Survey, the agriculture and services sectors. The imposed ECQ in the poverty incidence could have increased by at least 3.3 Luzon in March led to disruption to economic activity that percentage points if there would have been no mitigation affects the 7.4 million daily wage earners in particular. measures in place. This assumes the disruption of work due These workers are concentrated in the construction and to ECQ lead to household incomes from seasonal wage and manufacturing sectors that were already shedding labor entrepreneurial activities to decline by 16.7 percent in 2020, as early as January 2020. While all economic sectors are which is equivalent to a loss of 2 months’ worth of income. impacted by the crisis, the tourism and hospitality, aviation, Figure 22. Unemployment and Underemployment Rates (%) Figure 23. Quarterly Labor Force Participation Rates 25 66 65 Underemployment rate 20 64 63 15 62 61 10 Unemployment rate 60 59 5 58 0 57 JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN 2012 2013 2014 2015 2016 2017 2018 2019 2020 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: PSA-Labor Force Survey (LFS) (various rounds). Source: PSA-LFS Labor Force Survey (various rounds). PART 1 RECENT DEVELOPMENTS 23 Figure 24. Share of Job Creation by Subsector AGRICULTURE Fishing and aquaculture 1% Agriculture, hunting and foresty 49% INDUSTRY Electricity, gas, steam, and air conditioning supply 1% SERVICES Financial and insurance activities 2% Human health and social work activities 2% Administrative and support service activities 4% Education 5% Accommodation and food service activities 12% Public administration and defense, compulsory social security 12% Wholesale and retail trade; repair of motor vehicles and motorcycles 36% 0% 10% 20% 30% 40% 50% 60% Source: PSA-LFS January 2019 and January 2020 rounds. Figure 25. Top 10 Subsectors with the Most New Jobs (100,000s) Electricity, gas, steam, and air conditioning supply 10 Fishing and aquaculture 19 Financial and insurance activities 38 Human health and social work activities 38 Administrative and support service activities 73 Education 81 Accommodation and food service activities 201 Public administration and defense; compulsory social security 201 Wholesale and retail trade; repair of motor vehicles and motorcycles 581 Agriculture, hunting and forestry 799 0 100 200 300 400 500 600 700 800 900 Source: PSA-LFS January 2019 and January 2020 rounds. The government has approved an extensive financial assistance for the beneficiaries of the country’s flagship package worth over US$4 billion to protect households and safety net program (i.e., the Pantawid Pamilyang Pilipino firms from the impact of the COVID-19 pandemic, including Program or 4Ps), and unemployment benefits through the short-term mitigation measures (Box 5). The package the social security system. In addition, there is targeted focuses on supporting the health sector, safety nets for financial support to MSMEs, the agriculture sector, and the the poor and vulnerable groups, and micro, small, and tourism industry to protect vulnerable firms affected by the MSMEs and jobs. About 18 million Filipino families are being crisis. With the implementation of the SAP, the government supported36 through the Social Amelioration Program (SAP) hopes to temper the negative impact of COVID-19 on its for ECQ-affected workers and businesses, including top-up poverty reduction efforts. 36 About 4.3 million households are assisted by the 4Ps, 2.9 million indigent senior citizens benefit from a social pension program, and 2.2 million other poor families are identified in the country’s social registry—Listahanan— as beneficiaries of unconditional cash transfers. However, there are an estimated 8 million informal-sector workers and vulnerable individuals who are not a part of existing social-assistance programs. 24 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION Box 5 . Social Protection Measures to Support Poor and Vulnerable Households The COVID-19 pandemic, along with the subsequent quarantine measures, has had a significant negative impact on the lives of many Filipinos, especially poor and vulnerable families. Poor and vulnerable families are less likely to be able to afford medical care and are more likely to resort to harmful coping mechanisms to deal with income loss and higher consumer prices. As the government is implementing measures to contain the infection (e.g., travel restrictions and quarantines), workers in the informal economy (in sectors such as tourism, transport, agriculture, etc.) are severely affected. Other vulnerable groups include those at greater risk of the disease (e.g., people with underlying health conditions and older people), health workers involved in disease prevention and control, and those at greater economic risk, including young people (who have higher rates of unemployment and underemployment) and migrant workers (who may be unable to return to their home countries or work). The Philippine government’s response has been strong, providing various types of assistance worth over Php200 billion (US$4 billion) through the enactment of the “Bayanihan to Heal as One Act” on March 24, 2020. To streamline and harmonize the social amelioration measures of different government agencies, the Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF-EID) Technical Working Group on Social Amelioration issued the Joint Memorandum Circular (JMC) No.1 on March 29, 2020. The following are the social protection-related public measures that target groups and sectors affected by the pandemic in the Philippines: Social Safety Net • Affected families have been receiving food and non-food items from the Department of Social Welfare and Development (DSWD) and LGUs, complemented by support from non-government organizations and the private sector. The total cost of relief assistance amounts to more than Php4.2 billion to date. • About 18 million low-income families, including Pantawid beneficiaries, will receive emergency subsidies from the DSWD amounting to Php10,000-Php16,000, depending on the prevailing minimum wage and rice subsidies and grants to Pantawid beneficiaries. • Small rice farmers will also receive cash assistance (Php5,000) from the Department of Agriculture (DA). • To support MSMEs during the crisis, the Department of Trade and Industry (DTI) will provide Php5,000- Php8,000 to qualified individuals and enterprises. • Public and private health workers who contract the disease while on duty will be compensated with Php100,000. In case of death, their families will receive Php1 million. All frontline public health workers are entitled to a special risk allowance, equivalent to a maximum of 25 percent of their monthly salary, for the duration of the ECQ. • Stranded overseas Filipino workers affected by the travel ban due to COVID-19, along with those who were repatriated, will receive US$200, or Php10,000, or its equivalent in local currency of the host country. Affected repatriates are also provided with temporary shelter, food, and transportation assistance. PART 1 RECENT DEVELOPMENTS 25 Public Works • Informal sector workers who have lost their livelihood can enroll in a temporary ten-day emergency employment program and disinfect/sanitize their houses and the immediate vicinity through Department of Labor and Employment’s (DOLE’s) Tulong Panghanapbuhay sa Ating Displaced/Disadvantaged Workers #Barangay Ko, Bahay Disinfection/Sanitation Project. Program beneficiaries can receive 100 percent of the highest prevailing minimum wage. Fee Waivers and Subsidies • Affected workers in the formal sector employed by private firms that have adopted flexible work arrangements or temporary closure are entitled to receive one-time financial assistance equivalent to Php5,000 under DOLE’s COVID-19 Adjustment Measures Program (CAMP). • Banks and other financial institutions are directed to implement a thirty-day grace period for the payment of all loans and credit card payments that are due within the ECQ period. Interests, penalties, fees, and other charges are waived. The thirty-day grace period is also extended to paying residential rents. • LGUs can access loans with a 5 percent fixed interest rate per annum (with one-year grace period on principal payment and payable for up to 5 years) under the Php10 billion Help via Emergency Loan Assistance to LGUs (HEAL) program, which was launched by the Land Bank of the Philippines (LBP). Social Insurance • Workers who lost their jobs as a result of layoffs or closures of private companies can receive unemployment benefits from the Social Security System (SSS), subject to membership contributions and eligibility requirements. • The SSS and Philippine Health Insurance Corporation (PhilHealth) have extended the period for payment contributions and filing for claims. PhilHealth will also cover the cost of treating COVID-19 patients. Employment Retention and Promotion Policies • All government workers who physically report to work during the Luzon-wide ECQ are entitled to hazard pay. Source: Administrative Order No. 28 on the grant of special risk allowance to public health workers, dated 6 April 2020; DOLE. Department Orders 211 and 212 Dated 21 March and 8 April 2020; DSWD. Disaster Response Updates. Disaster Response Operations Monitoring and Information Center (DROMIC) Report No. 43 dated 10 April 2020; POEA. Governing Board Resolution No. 9 dated 10 April 2020; and Report to the Joint Congressional Oversight Committee Pursuant to Section 5 of RA 11469, dated 6 April 2020. 26 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION PART 2 OUTLOOK AND RISKS The COVID-19 pandemic, alongside the enhanced healthcare system. Meanwhile, downside growth community quarantine, have effectively disrupted risks remain high as the full extent of the pandemic activities and paralyzed the Philippine economy remains uncertain. In the interim that a vaccine is not in the first half of 2020. The Philippines faces a yet available, the government must take a balanced looming recession in 2020 driven by contractions in approach between policies that flatten the infection household consumption and capital investment. In curve to save lives and those that flatten the addition, prolonged weakness in global and domestic recession curve to save livelihoods. It is important demand will likely result in negative exports and that the economic policies prevent temporary imports growth. The Philippine government is shocks from having permanent effects, which is very responding with unprecedented stimulus measures, relevant considering that the foreseeable economic both fiscal and monetary, to support the economy, contraction in 2020 is likely to cause increase businesses, vulnerable households, and the in poverty. PART 2 OUTLOOK AND RISKS 27 2.1 GROWTH OUTLOOK The Philippine economy is expected to contract in 2020, as the COVID-19 pandemic continues to disrupt global and domestic economic activities. The government is responding with unprecedented fiscal and monetary measures to support the economy while targeting the healthcare system and vulnerable sectors. Downside risks and uncertainty remain high, with no clear view of when and how the pandemic ends. The Philippine economy faces a recession in 2020 given a uncertainties weigh heavily on the growth outlook and may series of unexpected events. Amid domestic and external lead to a lower than projected growth rates. unexpected events and the severity of the global pandemic, the Philippine economy is projected to contract by 1.9 The country’s growth trajectory follows a similar pattern to percent in 2020 (Figure 26). This is the first contraction since the global economy, which is expected to contract in 2020, the Asian Financial Crisis, when the economy shrank by before recovering in 2021. The global economic contraction 0.5 percent in 1998. This projection assumes containment is expected to be broad-based, with advanced economies measures are gradually relaxed in the second half of the and major EMDEs expected to experience a recession in year, and economic activity returns in some sectors of the 2020 (Box 6). Widespread social distancing measures, a economy. Nonetheless, consumer and business confidence sharp tightening of financial conditions, and a collapse in remain weak leading to negative growth in household external demand are depressing economic activities across consumption and capital investment. The growth prospect the globe. Global trade is anticipated to contract, given the is expected to improve in the succeeding years, with disruptions to global value chains and international travel. growth projections of 6.2 percent in 2021 and 7.2 percent in The global economy is expected to shrink by 5.2 percent in 2022, as the economy gradually recovers from the impact 2020, which would be the deepest global recession since of the COVID-19 pandemic. Future economic growth will World War II, before rebounding to 4.2 percent growth in be dependent on public investments and a rebound in 2021, as the negative economic effects of the pandemic consumption as incomes recover, and there will also be gradually fade. Nonetheless, the global contraction in the base effects, given the economic contraction expected 2020 baseline forecast could prove optimistic, as there are in 2020. substantial downside risks to the projection. The growth projection faces a high degree of uncertainty. The government has abandoned its pre-COVID fiscal The full impact and duration of the COVID-19 pandemic deficit target for 2020, given the expected revenue on the Philippines remain highly uncertain with various shortfall and increase in public expenditure to address models predicting different peaks of infection cases. The the outbreak. Under the “Bayanihan to Heal as One Act”, degree to which the Philippines can effectively manage the the government approved measures to provide financial pandemic will impact its growth recovery trajectory. A return and in-kind support to low-income households, overseas to normalcy seems to rest on the discovery of a vaccine, OFWs, farmers and fisherfolks, MSMEs, and workers in but in the meantime, social and economic activities have to the informal sector, among others. In addition, new fiscal operate under a new normal characterized with stringent measures of unprecedented sizes and nature are currently social distancing measures, health and hygiene protocol, being deliberated in the Congress of the Philippines, with protection of the vulnerable such as the elderly, the young, proposals to support more sectors after the ECQ is lifted.37 and those individuals with co-morbidities, and continued To finance the fiscal packages, the government is monitoring of infection cases and contact tracing. All these 37 The Economy Moving Forward as One Act is a Php370 billion stimulus package that aims to protect businesses and labor employment by (i) compensating payroll costs during the extended ECQ; (ii) offering capacity-building programs; and (iii) providing zero-interest loans. The Philippine National Stimulus Strategy is another proposal that involves structural adjustment plans, including credit refinancing and mediation services, a negative interest loans plan, and a national emergency investment corporation. 28 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION Figure 26. The Philippine economy is projected to contract in 2020. Figure 27. Business sentiment weakened during the first quarter of 2020. 9.0 80 FORECAST 7.0 60 40 5.0 20 PERCENT PERCENT 3.0 0 -20 1.0 -40 -1.0 -60 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 -3.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Overall Business Confidence Index (Current quarter) April 2020 projections Actual growth Overall Consumer Confidence Index (Current quarter) June 2020 projections Source: BSP. Source: PSA, World Bank staff calculation. ramping up its war chest through the realignment of budget Private consumption is expected to contract due to strict items, advanced dividend payouts by GOCCs, a reverse containment measures, the associated income losses, repurchase agreement with the BSP, loan financing from and less remittances. Household consumption has been various multilateral and bilateral sources, and tapping into the primary driver of economic growth in the Philippines, domestic and international bond markets. Public revenues with household expenditures representing more than from income taxes, the value-added tax, customs tariffs, two-thirds of GDP. However, the ECQ and social distancing and other non-tax sources are projected to contract this measures have paralyzed local economies in all provinces year due to weak business and consumer activity. As a of the country, resulting in business disruptions and income result, the World Bank projects the fiscal deficit to reach 7.0 and wage losses in both the formal and informal sectors. percent in 2020, above the government’s pre-COVID target of For households that rely on foreign remittances, regular 3.2 percent. inflows are jeopardized as the U.S., Europe, Singapore, Hongkong, and the Middle East—key sources of remittances Monetary authorities are anticipated to use all of their to the Philippines—are managing their own localized policy tools to proactively support the economy during COVID-19 outbreaks. About 16,000 OFWs have returned to this extraordinary time. The BSP has been utilizing an array the country unemployed, contributing to the Philippines’ of policy tools to support the distressed financial sector rising unemployment rate.38 These developments will and the economy. Further reductions of key policy rate are effectively lower the rate of consumption, which is projected possible given the ample policy space to lower the domestic to contract by 2.6 percent in 2020, before rebounding in rate, the low prevailing U.S. Federal funds rate (0.05 percent 2021 (5.7 percent) and 2022 (6.1 percent), if the pandemic as of mid-April), and easing domestic inflation. Furthermore, is resolved and containment measures are effectively the BSP has access to large foreign reserves, totaling managed (Table 3). US$89.0 billion at end-March, to manage potential currency fluctuations, and it has provided regulatory forbearance to the banking industry. The COVID-19 pandemic is expected to plunge the global 38 Bettina Magsaysay, “All frontliners, PUIs, PUMs, in Metro Manila to undergo COVID-19 test,” Available Online: https://news.abs-cbn.com/news/04/28/20/ all-frontliners-puis-pums-in-metro-manila-to-undergo-covid-19-tests, May 9, 2020. PART 2 OUTLOOK AND RISKS 29 Box 6. Global Economic Outlook economy into recession in 2020. The global economy The global contraction in the baseline forecast could is expected to shrink by 5.2 percent this year, with prove optimistic, as there are substantial downside advanced economies contracting, China experiencing risks to the projection. If COVID-19 outbreaks persist record-low growth, and EMDEs facing external and longer than expected, lockdowns and other restrictions domestic headwinds (Table 2). This global recession on movement and interactions may have to be would be the deepest since World War II and more than maintained or reintroduced, prolonging the disruptions twice as steep as the 2009 global recession. Output to domestic activity and further lowering consumer is envisioned to rebound in 2021, as the negative and investor confidence. Economic disruptions are economic effects of the pandemic gradually fade, but weakening businesses’ ability to remain in operation it is unlikely to return to its previously expected level. and service their debt, while increased risk aversion This forecast assumes that (i) the pandemic recedes in globally has raised interest rates for higher-risk response to domestic mitigation measures, which can borrowers. In an environment in which debt levels were be lifted by mid-year; (ii) adverse global spillovers ease already at historic highs, this could lead to cascading during the second half of the year; and (iii) dislocations defaults and financial crises across many economies. in financial markets are temporary. The recovery could also be delayed if the crisis causes lasting changes in consumer and investor behavior, or if The global economic contraction is expected to pandemic-related shortages of inputs sourced through be broad-based in 2020. Advanced economies global value chains trigger a widespread retreat from are projected to shrink by 7.0 percent in 2020, as globalization, as companies reassess their risk exposure widespread social distancing measures, a sharp and governments act to protect industries from tightening of financial conditions, and a collapse in foreign competition. external demand depress activity. Due to the negative spillovers from weaknesses in major economies, Global trade is suffering one of the worst contractions alongside the disruptions derived from domestic in post-war history in 2020. The COVID-19 pandemic outbreaks and associated containment measures, has caused disruptions to international travel and EMDEs are forecasted to contract by 2.3 percent in global value chains. Trade is typically more volatile 2020. The projected fall in activity is broad-based, with than production and tends to fall particularly sharply more than 70 percent of EMDEs expected to register in times of crisis. Investment, which is more cyclical negative growth this year. The impact will likely be and more trade-intensive than other categories of most pronounced for countries with large domestic expenditure, has declined worldwide, as firms face outbreaks and limited healthcare capacity. Moreover, cash-flow problems and delay their expansion plans. countries deeply integrated in global value chains, Exporting firms tend to be particularly active in credit heavily dependent on foreign financing, and that rely markets and more adversely affected when the cost of extensively on international trade, commodity exports, credit increases. Disruptions in credit markets played and tourism are expected to suffer disproportionately an important role in the contraction in global trade from the impact of the pandemic. Nonetheless, during the global financial crisis and the subsequent growth is projected to rebound in 2021 to 3.9 percent weakness of the recovery. in advanced economies and 4.6 percent in EMDEs, supported by the expected pickup in China and a recovery of trade flows and investment. 30 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION Countries need to act decisively with strong policy and vulnerable populations, and improve countries’ measures to cushion the impact of the pandemic. capacity to prevent and cope with similar events in Per capita incomes in a large majority of EMDEs are the future. As EMDEs are particularly vulnerable, it is expected to shrink this year, with many millions falling critical to strengthen their public health care systems, back into poverty. This crisis, therefore, highlights the address the challenges of limited safety nets, and urgent need for health and economic policy actions— undertake structural reforms that enable strong and including global cooperation—to mitigate the negative sustainable growth. impact of the outbreak, protect poor households Table 2. Real Growth Projections 2017 2018 2019e 2020f 2021f World 3.3 3.0 2.4 -5.2 4.2 Advanced economies 2.5 2.1 1.6 -7.0 3.9 Emerging market and developing economies 4.5 4.3 3.5 -2.3 4.6 Developing East Asia & Pacific 6.5 6.3 5.9 0.5 6.6 Philippines 6.9 6.3 6.0 -1.9 6.2 Note: Developing East Asia & Pacific includes Cambodia, China, Fiji, Indonesia, Lao PDR, Malaysia, Mongolia, Myanmar, Papua New Guinea, Philippines, Solomon Islands, Thailand, Timor-Leste, and Vietnam. Source: Global Economic Prospects June 2020. Table 3. Economic Indicators for Baseline Projections 2017 2018 2019 2020f 2021f 2022f Real GDP growth, at constant market prices 6.9 6.3 6.0 -1.9 6.2 7.2 Private Consumption 6.0 5.8 5.9 -2.6 5.7 6.1 Government Consumption 6.5 13.4 9.6 10.6 10.0 10.5 Gross Fixed Capital Investment 10.6 12.9 3.9 -7.5 8.5 13.4 Exports, Goods and Services 17.4 11.8 2.4 -4.6 1.7 8.0 Imports, Goods and Services 15.1 14.6 1.8 -6.7 5.1 11.4 Inflation (period average) 2.9 5.2 2.5 1.8 2.5 3.0 National government balance (% of GDP) -2.1 -3.1 -3.4 -7.0 -4.2 -3.5 National government debt (% of GDP) 40.2 39.9 39.6 46.9 46.6 46.1 Current account balance -0.7 -2.5 -0.1 -0.5 -1.4 -1.7 Source: PSA and WB staff projections. PART 2 OUTLOOK AND RISKS 31 Economic disruptions, heightened uncertainty, and stress Weak international trade will soften both import and in financial markets discourage capital investments. export growth in the Philippines. As countries across An expected slowdown in private investment, on top of the world mitigate the impact of COVID-19 with strict delays in the implementation of government infrastructure containment measures, global trade will weaken, resulting projects due to the ECQ, is expected to result in a 7.5 percent in lower levels of goods exports and imports in the contraction in capital formation in 2020, a sharp reversal Philippines. Demand for tourism services, which accounted from the 3.9 percent expansion in 2019. The contraction for 12.1 percent of GDP in 2018, and adjacent industries fell is dependent on weak business sentiment, which can precipitously in the first quarter of 2020,40 and it will remain further deteriorate should there be a prolonged outbreak low as long as countries continue to restrict travel. While or a return to strict lockdown measures. The Business receipts for the BPO industry will likely be maintained Confidence Index dipped from 40.2 in the fourth quarter of as the sector remains open for business, the industry’s 2019 to 22.3 in the first quarter of 2020, the lowest rate since growth prospects are subdued. Likewise, growth in foreign 2009 at the height of the global financial crisis.39 Similarly, remittances may decelerate as laid off workers repatriate the country’s stock exchange index plunged by 46.9 percent, and the economies of source countries are disrupted by quarter-on-quarter, to 5,321 in end-March, down from 7,815 the pandemic. The current-account deficit is projected to in end-December, largely tracking developments in global settle at 0.5 percent in 2020 due to weaker services exports markets. In early May, Fitch Ratings downgraded its outlook and remittance inflows, before widening in 2021-22 as for the country from positive to stable, as the economy the economy normalizes and imports rise, including for faces the prospect of a recession. domestic infrastructure projects. 39 The Business Confidence Index is computed as the percentage of respondents that answered in the affirmative less the percentage of respondents that answered in the negative with respect to their views on a given indicator. 40 International tourist arrivals declined by 40 percent in the first quarter of 2020. 32 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION 2.2 POVERTY AND SHARED PROSPERITY Figure 28. Actual and projected $3.2-a-day poverty rates. 45% 40% 35% 30% 20% 20% 15% 10% 5% 0% 2006 2009 2012 2015 2018 2021 Source: World Bank staff calculations. The foreseeable broad-based economic contraction in slow. Second, cash distribution was done without proper 2020 is likely to cause increase in poverty. The imposed data verification, indicating that there are potentially ECQ that began in mid-March has cut off income streams inclusion and exclusion errors as well as duplications. from seasonal wages and entrepreneurial activities. Among these, exclusion errors are of concern as these Workers relying on these income sources will likely see reduce the program’s ability to mitigate the negative annual income losses of at least 16.7 percent. The growth of impacts of the COVID-19. Other operational issues include household incomes in recent years, particularly those from security and logistical challenges in reaching remote the lower income deciles, have been propelled by non- communities. If these implementation challenges and agricultural wages, mostly from low-end service jobs, which delays continue as the government moves on to the next have been severely affected by COVID-19 and ECQ. tranche of cash assistance, vulnerable households excluded in the program or did not receive benefits in a timely manner are likely to fall to poverty. While the emergency subsidy under the Social Amelioration Program is expected to partially offset income losses, the initial cash distribution to intended The expected growth contraction in 2020 and associated beneficiaries have had multiple challenges. First, income loss among poor and vulnerable families is likely identifying the beneficiaries beyond those included in to result in poverty increase in the short term. Poverty existing social programs such as the 4Ps and Unconditional is projected to increase to 21.5 percent based on the Cash Transfer (UCT) have been difficult. Local governments middle-income poverty line of $3.20/day in 2020. This is have been tasked to distribute the paper application forms equivalent to 1.2 million Filipinos more falling to poverty (Social Amelioration Card [SAC]), collect data submitted from the estimated poor in 2019. As the threat of COVID-19 through SAC, and submit encoded information to DSWD. pandemic dissipates and the business activities gradually The large size of the program and number of potential return to operation, economic growth recovery is expected beneficiaries as well as the observance of social distancing to contribute to poverty reduction, as the poverty rate will have made the transfer of the benefit cumbersome and decline to 20.4 percent and further to 19.1 percent by 2022. PART 2 OUTLOOK AND RISKS 33 2.3 RISKS AND POLICY CHALLENGES The full extent and duration of the COVID-19 pandemic remains uncertain. As businesses gradually return to operation, the new normal remains to be determined. It is essential that the government continues to protect the poor and vulnerable to protect recent gains in poverty reduction and shared prosperity. The government must take a measured and balanced approach between policies that flatten the infection curve to save lives and those that flatten the recession curve to save livelihoods. The full extent and duration of the COVID-19 pandemic financial volatility can affect the country’s economy through remain uncertain. Epidemiological models predict that the equity, bond, and credit markets, either through capital COVID-19 infections in the Philippines may peak either in outflows or a rise in the cost of credit, which can be the second or third quarter of 2020.41 This suggests that the challenging for the Philippine government as it is increases risk of continued transmission will remain after the end public spending to mitigate the impact of COVID-19. of the ECQ on May 30. Nevertheless, a prolonged lockdown comes with severe economic and social consequences. The Tighter financial conditions have become more apparent government should, therefore, proceed with a balanced with rising borrowing spreads. The emerging market bond and cautious approach to ensure that neither lives nor index (EMBI) strip spreads have shot up across the Asian livelihoods are needlessly jeopardized. This would require region, including in the Philippines where it rose from 66.5 further strengthening of health facilities and equipment, on bps in end-2019 to 221.5 bps in end-March 2020. The surge top of efforts to improve contact tracing, infection testing, in cost reflects tighter international financing conditions and the capacity to isolate and monitor infection cases, so amid a higher perceived risk of financial stress arising as not to overwhelm the healthcare system. The mandate from debt accumulation globally and significantly weaker for continued social distancing must remain, with selective growth prospects. Nonetheless, in April, the government lifting of the ECQ in places with manageable infection cases successfully raised US$2.35 billion through the sale of and close monitoring. Learning from the experiences of 10-year and 25-year U.S. dollar bonds, priced at the lowest other countries that were able to flatten the curve can coupon rate that can be achieved for those debt papers, provide insights and solutions for the Philippines. signaling that thanks to good macro fundamentals, the country is still able to access international financing with The global pandemic has amplified downside risks in the good rates. With the high global uncertainty, capital flight external environment. With the global economy in turmoil to safety may be prolonged. As global activities recover, from a global health shock, the risk of a global recession interest rates are likely to rise, and lead to higher debt has escalated, with many advanced economies and major service cost for those that accumulated debt during developing economies experiencing severe contractions in the pandemic. economic growth. The likely global recession, along with stringent international travel restrictions, will result in There are no immediate systemic financial stability risks in considerable weaker external demand and trade, leading the Philippines, but credit risks in highly indebted sectors to a potential contraction in goods and services exports could be amplified by the COVID-19 crisis. The banking from the Philippines. Moreover, increased international sector had strong capital levels and the asset quality of the 41 Experts from the DOH and the World Health Organization (WHO) estimate that the virus could peak by June 2020 if not properly contained (Source: https://www.rappler.com/nation/254982-doh-experts-philippines-coronavirus-cases-estimate-june-2020-if-not-contained). Also, a simulation from the Philippine Institute of Development Studies shows that the peak will occur in August 2020 (Source: https://pidswebs.pids.gov.ph/CDN/PUBLICATIONS/ pidsdps2015.pdf ). 34 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION financial system was good at the onset of the crisis42. Gross loans contributed to 60 percent of banking sector assets in 2019, most of which was directed to corporates (83 percent). However, nonfinancial corporate leverage in the Philippines, measured by the total debt to total assets ratio, has steadily increased since 2010 and is among the highest in the region43. Utilities and mining/energy firms are the most leveraged, followed by those in manufacturing and real estate. In addition, a significant share of Philippine firms’ outstanding debt is denominated in foreign currencies (17 percent in 2018). As some corporate vulnerability indicators started to deteriorate in recent years, risks from the corporate sector could be further exacerbated by the COVID-19 crisis. The thorough assessment of risks gets more challenging in the country given the existing complex mixed conglomerate structures, which could potentially exacerbate spill overs between the real sector and financial institutions. Moreover, bank secrecy laws undermine the effective supervision of banks44 and prevent the supervisory authorities to fully understand the risks of the financial system. Containment measures and lower economic growth across the globe have resulted in fewer overseas jobs for Filipinos, leading to workers returning to the Philippines unemployed. Business disruptions in major economies, protect the economy. The authorities are financing their along with the plunge in oil prices that has especially pandemic-related measures through domestic and foreign affected the Middle East, have weakened the demand for borrowing. The combination of contracting economic growth OFWs. Furloughed OFWs, including seafarers and domestic and a widening fiscal deficit is expected to result in a higher workers, have returned to the Philippines, dimming the debt-to-GDP ratio in the near term, although it is likely to growth prospect of foreign remittances. Unlike in previous remain sustainable in the medium term. The debt-to-GDP global health crises such as the SARS outbreak, the current ratio may reach as high as 46.9 percent in 2020, up from 39.6 pandemic affects all regions of the world, so a decline in percent in 2019. While additional borrowing would raise the remittances from one region is unlikely to be offset by debt level, the debt ratio is expected to remain relatively an increase in remittances from another. While returning similar to the average of the last decade (46.0 percent). As OFWs have benefited from the public financial assistance the government borrows more from foreign sources, the program, a prolonged pandemic may lower their chances of share of its foreign debt is estimated to grow from 34.0 swiftly returning back to their host countries, increasing the percent in 2019 to an estimated 37.6 percent in 2020. pressure on the domestic labor market. The government’s economic policy goal should be to The country’s fiscal and monetary policy response to the prevent temporary shocks from having permanent effects.45 COVID-19 pandemic will be costly. Nevertheless, it is a cost While expansionary fiscal policies are less effective in that the country must assume in order to save lives and 42 The universal and commercial banks consolidated risk-based capital adequacy ratio (CAR) of 16.0 percent and consolidated leverage ratio of 9.8 percent indicates the overall industry strength in terms of its ability to absorb unforeseen business losses, while allowing buffer for further expansion 43 IMF. 2020. “Selected Issues paper on Philippines.” IMF Publications. February. file:///C:/Users/wb220103/Downloads/1PHLEA2020002%20(2).pdf. 44 Banking supervision, Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) timely access to accounts. Source: Asia Pacific Group on Money Laundering AML/CFT Mutual Evaluation 2019. 45 World Bank, “East Asia and Pacific in the time of COVID-19,” Washington DC: World Bank, April 2020. PART 2 OUTLOOK AND RISKS 35 increasing production and employment during periods of In the medium term, critical reforms need to be lockdowns and social distancing, they can be important accelerated to boost private sector confidence to support to facilitate the economic recovery. Fiscal policies should a sustainable economic recovery. Given the duration of the include social-protection measures to help households, COVID-19 pandemic remains uncertain, negatively impacting especially the most economically vulnerables, to provide consumer and business confidence, the government should temporary relief. Moreover, employment support can help accelerate pending reforms to unleash the country’s workers reintegrate into the economy and ensure that growth potential such as amendment of public sector temporary deprivation does not translate into long-term act that would open up the telecom sector to foreign losses of human capital. Firms will also need liquidity investors and fast-tracking the digital transformation of the injections or bridge financing to help them stay in business. country, particularly important under the new normal. The While the optimal economic policy response changes over government would also support the recovery by following time and depends on the evolution of the shock, the policy through the implementation of recent game changing goal remains to ensure that temporary shocks do not have reforms such as the rice liberalization law, the ease of doing permanent effects. business, introduction of a national ID, among others, which are essential for inclusive growth in the long term. To successfully execute the government’s policies, capacity and implementation constraints must be addressed to Moreover, given Philippines’ high risk to natural disasters, effectively reach targeted businesses and households. factoring climate change in the design of public Capacity and implementation constraints have been a infrastructure projects will not only support economic constant challenge for successive administrations to fully recovery in the short term but also contribute to country’s deliver effective public services. The COVID-19 outbreak has long term resilience. As private investment is expected to brought these constraints to the forefront, as some public recover very gradually, accelerating public investment would programs, including the social amelioration package for re-start the economy by providing jobs to newly displaced low-income households, have faced temporary setbacks in workers. Considering Philippines is one of the most natural comprehensively identifying their beneficiaries. To address disaster prone country in the world, largely affected by some of these constraints, national and local government climate change, priority public investments need to support authorities need to coordinate their efforts to ensure the resilience to natural disasters and climate change to timely and efficient deployment of public policies. Moving support country’s sustainable long term growth. swiftly to provide cash transfers, wage subsidies, and tax rebates to households and businesses will help people Similarly, digital technologies can help address the impact meet their basic needs and businesses stay afloat. of the COVID-19 pandemic in the short term while boosting the country’s growth potential in the long term. Before a Strengthening the capacity of the healthcare system commercial vaccine is available, innovative solutions should should be an ongoing priority throughout the duration of be considered to keep the economy open, even partially, the pandemic. The DOH has mobilized all hospitals and while avoiding the resurgence of the virus. One such frontline health workers to accommodate COVID-19 patients, solution lies in the use of digital technology. In countries and it has ramped up the testing capacity of its Research like the Republic of Korea, information and communication Institute for Tropical Medicine and other subnational technologies (ICT) have been used to encourage social laboratories. Despite these efforts, the country’s health distancing, identify COVID-19 cases with speedy tests, and system still lacks the necessary capacity to effectively even facilitate treatment. In the Philippines, there have deal with the pandemic and faces the risk of shortages in reportedly been more e-commerce and online financial medical supplies and PPE in case there is a second wave transactions, virtual meetings, and web-based work during of infection outbreak. Given the urgency of the present the pandemic. Yet, to fully harness these ICT solutions, situation, the government needs to prioritize efforts to more needs to be done to improve the digital enablers, boost the health system’s capacity to contain the spread of especially in terms of providing relevant infrastructure, the virus and treat patients, and it needs to adopt policies to fully unleash country’s potential in the global digital that mitigate the negative socioeconomic effects of disease market. Chapter III discusses the challenges in the country’s prevention measures. digital infrastructure and the policy recommendations to address them. 36 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION Box 7. Digital Delivery of Large-Scale Cash Transfers for COVID-19 Pandemic Response Many countries have announced a vertical and Other countries (e.g., Jordan, Thailand, Brazil) set up horizontal expansion social assistance programs as online self-application platforms, through websites part of their response to the COVID-19 pandemic.46 The and mobile applications. They provide access to objective is to continue to support the traditionally anyone who wants to apply, but their eligibility and poor (e.g., existing social assistance beneficiaries ID is verified against the existing databases and the including the income poor, people with disabilities, national ID system. In the Philippines, the large majority indigent senior citizens) and to protect the newly of SAP beneficiary families had to use paper forms vulnerable group (e.g., informal sector workers) from known as SACs. This paper-based process for the SAC falling into poverty. The Philippines was one of the first was cumbersome and slow while also being disposed countries to have announced a significant expansion to high risks of fraud and errors as it does not require of social assistance through its SAP. The eligibility cross checking with existing databases. This is partly criteria set for the provision of emergency cash subsidy due to lack of a national ID system that would allow under SAP includes both existing social assistance for an easy way to verify and match individuals across beneficiaries and newly impoverished, vulnerable databases, such as to check if a beneficiary family populations, covering 18 million families. received assistance from another program. While the Philippines was an early mover in policy Making payments safely and securely during the actions, it has encountered implementation pandemic challenges: (i) expanding the list of eligible beneficiaries; and (ii) making payments safely and Digital payments have been increasingly used, taking securely during the pandemic. advantage of high mobile phone penetration in developing countries. The delivery of physical cash Expanding the list of eligible beneficiaries comes with substantial costs and logistical complexity and is not safe in normal times and even more so during a pandemic. Account-based transactions (e.g., Some countries (e.g., Chile, Colombia, Pakistan, Peru) bank account, mobile money) provide opportunities have been using their existing social registry or not only for transparent, timely payments but also for integrated social protection information systems to longer-term financial inclusion. Non account-based identify new beneficiaries who meet the eligibility transactions (e.g., one time passcode, e-vouchers) criteria. Dynamic registries and information systems allow temporary but widely accessible means for digital with up-to-date information of households, including payments. In the Philippines, the majority of Pantawid on economic activities, greatly facilitates the program beneficiaries have the cash cards issued by the LBP. expansion to the near poor and vulnerable non-poor Although the LBP cash card, being a single purpose who would not have been in the existing safety nets. In account, has some constraints including insufficient the Philippines, the Listahanan is outdated for social payout points and does not result in financial inclusion, registry-based beneficiary identification and targeting it has been able to facilitate digital payments for most as it is based on the 2015 survey and the 2019-2020 Pantawid beneficiaries. The new SAP beneficiaries, survey has not yet been completed. however, relied on house-to-house cash delivery or collection of cash at pay-out points, which slowed down the delivery process and was often inconsistent with social distancing and no-mass-gathering guidelines. 46 A total of 171 countries have announced social protection measures in response to the COVID-19 pandemic, among which new cash transfers introduced in 88 countries comprise a significant share, as of May 8, 2020. PART 2 OUTLOOK AND RISKS 37 Robust digital delivery system is needed going forward approach so that Listahanan draws information from key government administrative data sources (e.g., PhilHealth, BIR, SSS, and GSIS) would reduce Given that the impact of COVID-19 may continue, errors and constantly update the beneficiary list as particularly in terms of the economic fallout, and that circumstances change. the provision of social assistance benefits is not a one- time event, a more robust digital delivery system will be required going forward. In the Philippines, digital 3. Promote digital payments. Both account and platforms and technologies will be able to enormously non-account transactions are useful during the improve the speed, impact, transparency and crisis period. However, a stronger emphasis on accountability of social assistance delivery. However, account-based transactions and broader financial such digital solutions are not just about developing a inclusion through multiple and flexible payment website or a digital tool but must also be combined service providers should be warranted during the with beneficiary centered policy and process while economic recovery phase. ensuring accountability and integrity of the program. The Government could prioritize the following 4. Build a robust and integrated Management five areas (Figure 29) that would strengthen social Information System (MIS). Currently, multiple assistance delivery: social assistance programs have their own information system without inter-operability and 1. Enhance the access of potential beneficiaries cross matching. Closely linking and orchestrating to various social assistance programs offered the end-to-end business process through MIS will by government. Strategic communications and transform the beneficiary experience and greatly community reach-out including through media and enhance the effectiveness and efficiency of social digital platforms would be useful. protection in the Philippines. 2. Strengthen Listahanan to become a more dynamic 5. Incorporate a robust grievance redressal social registry and targeting instrument. Currently, mechanism. Citizens (both beneficiary and non- Listahanan is carried out through a massive beneficiary) should be able to lodge grievances ‘’census-sweep”, with the latest done in 2015 through multiple channels including local offices, and the upcoming one in 2019-20 still pending. hotlines and mobile messages, and web portals. At As an immediate next step, completing the new the same time, backend systems should be able to Listahanan, ensuring its quality, and adopting it classify the type of grievances, track the progress in for targeting purposes are required. At the same resolution, and enable follow ups as needed, which time, pursuing a more dynamic and integrated digital tools can greatly facilitate. Figure 29. Strengthening social assistance delivery through digital payments. Community reach-out Eligibility assessment (Listahanan) Compliance verification 1 and beneficiary listing 2 and verfication 3 and payments Grievance Redressal Management Information 5 Mechanism (GRM) 4 System (MIS) 38 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION PART 3 SPECIAL FOCUS NOTE: ACHIEVING FASTER AND MORE AFFORDABLE INTERNET SERVICES FOR ALL PART 3 SPECIAL FOCUS NOTE: ACHIEVING FASTER AND MORE AFFORDABLE INTERNET SERVICES FOR ALL 39 3.1 INTRODUCTION Affordable, reliable and widely available internet services including Facebook, Google, Alibaba, Grab, and Lazada, are essential to support economic recovery post COVID-19 whose platforms for e-commerce, online sharing, and social in the medium term, and more equitable growth and media have gained strong foothold in the country. Similarly, competitiveness in the long term. The ongoing COVID-19 the Philippines has penetrated foreign markets, being a outbreak and imposed ECQ highlight the need to accelerate leader in the Information Technology and Business Process the digitalization of the Philippine economy. This would Outsourcing (IT-BPO) industry. require having resilient and affordable internet services that enable business continuity; disease tracking and The digital economy in the Philippines is far from monitoring; supply chain management; expansion of reaching its full potential, and the country’s performance e-commerce; digital financial services; technology-based generally trails behind many regional neighbors. The entrepreneurship; and digital public service and social World Bank Digital Adoption Index (DAI) and its three protection delivery47. sub-indices on people, government and business reveal that the Philippines fell behind the world average on The Philippines is potentially a significant player in the digital adoption. In general, the country’s digital adoption global digital market. From 23 million in 2010, the number is on par with its level of economic development when of Filipino internet users has more than tripled to 73 million compared to countries around the world, but it performed in 2020. Connected Filipinos are world leaders in internet poorly compared with regional peers (Figure 30). Among usage and social media. On average, every Filipino spends the three key agents in the Philippines, businesses and nearly 10 hours on the internet per day, the most worldwide; people are more accustomed to the use and adoption with over five hours on mobile internet. The size of the of digital technology than the government. The relatively country’s domestic market, with over 105 million consumers, poor performance in digital adoption can be traced to a has attracted international and regional ICT companies multitude of factors including to problems of digital Figure 30. Digital adoption index and sub-indices relative to world average 2.5 2 1.5 STANDARD DEVIATION DIFFERENCE 1 0.5 0 -0.5 -1 -1.5 -2 MYANMAR LAO PDR CAMBODIA INDONESIA PHILIPPINES VIETNAM THAILAND BRUNEI MALAYSIA SINGAPORE Digital Adoption Index Business sub-index People sub-index Government sub-index Source: World Bank (2018). “Information and Communications for Development: Data Driven Development,” Washington DC: The World Bank. Note: Droplines show the standardized difference of indicator values between ASEAN countries and the world average. 47 There is discussion globally about establishment of a meaningful connectivity standard defined as: when a user has access to a smartphone and or 4G equivalent quality mobile internet, along with reliable fixed wired or wireless access at home, school, or work every day 40 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION Table 4. Broadband Penetration and Speeds, Philippines vs. ASEAN Philippines ASEAN Share of population which are active broadband subscribers 70% 88% 4G/LTE mobile broadband network coverage 72% 82% Share of population which are fixed broadband subscribers 4% 10% 3G/4G mobile average download speed 7Mbps 13Mbps Fixed broadband average download speed 26Mbps 59Mbps Sources: Alliance for Affordable Internet (A4AI), International Telecommunication Union (ITU), Ookla Speedtest. infrastructure and connectivity, high cost of broadband and broadband speed, the cost of a fixed broadband plan in the internet services, and uneven quality of internet service, Philippines is close to the cost of similar plans in Singapore among others. and Thailand, countries which have the fastest speeds in the region. The current state of internet in the Philippines, however, calls for urgent and substantial improvements for the Increasing digital adoption and its contribution to digital economy to play a key role in the economic economic growth requires government actions to create recovery. The country’s broadband (high-speed) internet a conducive and competitive business environment. penetration is below the expected level of countries The Philippines’ digital infrastructure has always been with comparable per capita income.48 For instance, only private sector led. From the monopoly and fixed line 70 percent of Filipinos are active mobile broadband era, the country shifted to mobile services, as the subscribers, lower than the ASEAN regional average of telecommunications sector was liberalized, and new 88 percent;49 72 percent of the population can access the market entrants competed. However, unchecked mergers country’s 4G/LTE mobile broadband network coverage, lower and acquisition over the years have resulted in a highly than the regional average of 82 percent;50 only 4 percent concentrated market, with two dominant players each of Filipinos are subscribed to fixed broadband services, controlling and operating their own single, vertically much lower than the regional51 average of 10 percent;52 the integrated network. The current state of internet in the Philippines’ 3G/4G mobile average download speed of 7 Philippines is thus the result of under-investment in Mbps is considerably slower than the regional average of 13 broadband internet network resulting from insufficient Mbps;53 and the country’s fixed broadband average speed competition and an outdated legal, policy and regulatory of 26 Mbps is lower than the regional average of 59 Mbps framework. It will need the government to set up a sound (Table 4).54 Furthermore, the Filipinos pay higher price for regulatory environment with strong implementation that lower download speed. At USD 6.30 per month for 500 MB of encourage competition, guarantee accountability, and prepaid, handset-based mobile broadband, the Philippines protect consumers to unleash the full potential of the has the fourth highest cost next to Singapore, Brunei, and digitalization of the Philippine economy. Malaysia.55 Surprisingly, despite middling in terms of fixed 48 World Bank. 2019. The Digital Economy in Southeast Asia: Building the Foundations for Future Growth. 49 Based on the International Telecommunication Union’s (ITU) key information and communication technologies (ICT) indicators, as of June 2018. Source: ITU. 2018. Measuring the Information Society Volume 2. https://www.itu.int/en/ITU-D/Statistics/Documents/publications/misr2018/MISR-2018-Vol-2-E.pdf 50 Based on latest Opensignal report on mobile networks, as of May 2019. Source: Opensignal. 2019. The State of Mobile Network Experience: Benchmarking mobile on the eve of the 5G revolution. https://www.opensignal.com/sites/opensignal-com/files/data/reports/global/data-2019-05/the_state_of_mobile_ experience_may_2019_0.pdf 51 “Regional” refers to Southeast Asia, which includes Brunei, Cambodia, Indonesia, Laos PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. 52 Based on the ITU country ICT data, as of 31 December 2019. Source: ITU. https://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx. 53 Download Speed Experience shows the average download speed experienced by Opensignal users across an operator’s 3G and 4G networks. It factors in 3G and 4G download speeds along with availability of each technology. Source: Opensignal. 2019. 54 Based on the Ookla Speedtest report on fixed broadband, as of January 2020. https://www.speedtest.net/global-index Accessed 25 February 2020. The last Akamai State of the Internet (SOTI) report recorded the Philippines’ fixed broadband average download speed at 5.5 Mbps for Q1 2017, lower than the regional average of 11.23 Mbps. The SOTI report on broadband quality of service after 2017 was not available. 55 ITU, “World Telecommunication/ICT Indicators Database 2017,” 2017. PART 3 SPECIAL FOCUS NOTE: ACHIEVING FASTER AND MORE AFFORDABLE INTERNET SERVICES FOR ALL 41 3.2 MARKET FAILURES IN THE PROVISION OF DIGITAL INFRASTRUCTURE The digital infrastructure—defined here as the physical line telephony. The installation of fixed internet services networks and resources that facilitate Internet typically requires some civil works. Mobile internet connectivity, including radio spectrum—is the basic is delivered to mobile phones or other devices (e.g., foundation of the digital economy. Digital infrastructure tablets) through radio signals transmitted via networks requires physical facilities and resources that facilitate of towers. These radio signals are transmitted at different connection to the Internet, whether fixed or mobile.56 This frequencies (measured in megahertz or gigahertz) of the includes different network segments that allow packets of electromagnetic spectrum, impacting the speed of data data to be transmitted to their destination, as summarized transmission, from 2G (lowest) to 3G, 4G, and 5G (highest). in Figure 31. See Box 8 for the country’s Internet The speed of transmission (e.g., for uploading/downloading Network System. data) is measured in megabits or gigabits per second. A country’s spectrum is a scarce resource managed by government regulators; and it is divided into different These network segments transmit packets of data that frequency bands that are allocated to particular services are delivered to end-user devices through fixed (wired) or such as broadcast TV, radio, and mobile telephony/internet. mobile (wireless) technologies. Fixed internet connections include optical fiber, cable or copper wires used for fixed Box 8. Digital Infrastructure Components The Philippines digital infrastructure consists of the following components: i. First mile. The first mile or backbone links the Philippines to the World Wide Web (WWW). The first data transmission link is made between international networks, which consist of international submarine cable systems and satellites, and associated terrestrial infrastructure, and the domestic backbone network, which connects cable landing stations to major regions throughout the country. The Philippines is well-served by international cable networks (Figure 31). ii. Middle mile. This connects the domestic backbone network to the core networks of telecom/internet service providers in provinces and/or cities and municipalities through points of presence. iii. Last mile. This refers to the towers and cables that provide connections to computers, phones, mobile devices of end users. Users include government offices, public facilities, businesses and households. iv. iv. Digital infrastructure also includes: internet exchange points (IXPs) that allow exchange of local internet traffic; content delivery networks (CDNs - geographically distributed servers coordinated for fast delivery of internet to users); and data centers that host servers containing digital content and services. 56 A fixed internet connection is accessed in homes and other physical establishments, while mobile connection is accessed typically through cellular phones. 42 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION Figure 31. How the Philippines Connects to the Internet Satellite Data Centers, IXPs, CDNs INTERNET Ballesteros Cavite Daet FOBN International Submarine Cable Systems Last Mile La Union Batangas TELECPHIL DFON Davao Cable Landing Domestic International Station Middle Mile Backbone Cable Backhaul Source: The Philippines National Broadband Plan, adapted by the World Bank. The Philippines’ market for internet services is effectively example, there are no open access or non-discriminatory a duopoly market.57 As a result of mergers and acquisitions, pricing regulations for the domestic backbone that would and the absence of a comprehensive competition law58 guarantee any service provider access to the backbone before 2015, the country’s internet market is dominated infrastructure built by PLDT or Globe. Also, there are by two telecommunication firms – PLDT and Globe – that no regulations that prevent price discrimination, which have almost an equal share of the market in all segments59. contributes to the high price of wholesale broadband The two dominant service providers each operate a access. According to the industry’s regulatory body, the vertically integrated network, where one company has a National Telecommunications Commission (NTC), there significant stake and operates in all segments of the digital is limited competition in international connectivity and infrastructure—from the international submarine cables, nationwide backbone networks, while the access network cable landing stations, backbone, middle mile, and last mile can be considered very competitive for fixed connectivity networks, down to the devices and equipment at customer but still limited for mobile networks.60 For mobile premises. This can be disadvantageous to smaller internet broadband services, competition between the two providers service providers particularly outside Metro Manila. For has largely focused on increasing market shares. 57 World Bank. 2019. The Digital Economy in Southeast Asia — Strengthening the Foundations for Future Growth. http://documents.worldbank.org/curated/ en/328941558708267736/pdf/The-Digital-Economy-in-Southeast-Asia-Strengthening-the-Foundations-for-Future-Growth.pdf 58 Prior to the enactment of the Philippine Competition Act in 2015 and the creation of the Philippine Competition Commission, it was the sole responsibility of the NTC to review and approve mergers and acquisitions in the telecommunications sector. 59 Telecommunications is classified as a public utility in the Philippines and is subject to foreign ownership limitation of 40 percent. PLDT has received investment from the Salim Group of Indonesia and NTT Docomo of Japan while Globe Telecom has investments from Singtel of Singapore. Dito Telecom, a new entrant that has not yet commenced operations, has received investments from China Telecom. 60 While there are more than ten providers of fixed-line and fixed wireless broadband networks, including PLDT and Globe, there are only two mobile network providers in the country. Source: Presentation by NTC Deputy Commissioner Edgardo Cabarios at the celebration of the 25th anniversary of the Philippine Internet, 29 March 2019, Richmonde Eastwood Hotel, Quezon City. PART 3 SPECIAL FOCUS NOTE: ACHIEVING FASTER AND MORE AFFORDABLE INTERNET SERVICES FOR ALL 43 Figure 32. The Philippines’ Fiber Optic Network and Submarine Cables Ballesteros La Union Nasugbu Daet Cavite Batangas Parang Davao Philippine Fiber Optic Network Map Submarine Landing Station International Submarine Landing Station International Submarine Cable Station PLDT Fiber Network Globe Fiber Network While 95 percent of Filipinos access the internet to 1,364 in Vietnam and 3,000 in Indonesia.62 More recent through mobile devices, the number and location of data gathered by Project Bandwidth and Signal Statistics cell sites—which determine the access and quality of (BASS)—a volunteer, non-profit group that measures mobile Internet—is among the lowest in the region. mobile broadband and Wi-Fi quality of service through The Department of Information and Communications crowdsourced data—reveal a total of 32,183 unique cell site Technology (DICT) estimates the country’s number of cell IDs (of which 76 percent were 4G/LTE), which is still low towers to be less than 20,000 in 2019,61 far below Vietnam’s compared to global and regional averages (Figure 34 and 70,000 and Indonesia’s 90,000 towers. This equates to Figure 35). As a result, mobile network coverage and signal about 5,400 people per tower in the Philippines, compared strength varies widely across the country. 61 Pateña, A.J. “PH needs more cell tower firms, telco stakeholders say”. Philippine News Agency. 27 September 2018. Accessed from: https://www.pna.gov. ph/articles/1049367 62 Camus, M. 2018. “Gov’t pushes new cell tower scheme for level field, better service.” January 20. Inquirer.net. http://business.inquirer.net/244506/govt- pushes-new-cell-tower-scheme-level-field-better-service. 44 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION 48+32+137C 42+58+C Figure 33. Market Shares in Fixed and Mobile Broadband Sky 7% Converge 13% PLDT PLDT 48% 42% Globe 58% Globe 32% Fixed Market Share Mobile Market Share (includes mobile broadband) Note: Total of fixed broadband and mobile service markets are based on combined total subscribers of service providers. Data include fixed wireless. Source: Various firm financial statements and press releases. Figure 34. Number of Unique Cell Site IDs Detected as of February 2020 Figure 35. 4G Network Coverage (% of Population) 25,000 Philippines 72.4 20,000 15,000 ASEAN 82.1 Average 10,000 5,000 Global Average 78.6 0 4G 3G 2G 66.0 68.0 70.0 72.0 74.0 76.0 78.0 80.0 82.0 84.0 Smart Globe Note: The number of cell sites reflects those detected within range when subscribers use the BASS application. Note: Availability is calculated as the percentage of time that 4G mobile device users were able to Source: ProjectBass Quick Reference Sheet on Tableau63 access a 4G signal. Source: Open Signal data (2019) 63 Since BASS results come from crowdsourced data, the cell sites detected are only those within the range of a BASS mobile app user. BASS Quick Reference Sheet. Accessed February 25, 2020. https://public.tableau.com/shared/GBRGCT86S?:display_count=n&:origin=viz_share_link PART 3 SPECIAL FOCUS NOTE: ACHIEVING FASTER AND MORE AFFORDABLE INTERNET SERVICES FOR ALL 45 Fixed internet access is also very limited in the Philippines. to improve, they remain among the slowest in the region In terms of deployment of fiber optics, the Philippines is (Figure 36). Similarly, prices for internet services have far behind countries with comparable GDP per capita like declined, but entry-level fixed broadband (postpaid, Vietnam64, which has 170 percent more fiber connections 1GB) service is equivalent to 6.5 percent of the country’s than the two dominant Philippine operators have of all GNI per capita67 per month, which is above the 2 percent types of fixed broadband subscribers combined.65 In 2018, affordability threshold recommended by the United Nations the United Nations Broadband Commission reported that Broadband Commission and the Alliance for Affordable about 40 percent of the Philippines’ total population of Internet (Figure 37).68 Although mobile (postpaid, 1GB) 103 million, or about 57 percent of the country’s 23 million broadband service is more affordable, it is still higher than households did not have internet access.66 the ASEAN average. For the Economic Intelligence Unit’s Inclusive Internet Index, competition in the market is a factor in affordability. In its 2019 report, the Philippines was Limited infrastructure and weak competition lead to poor placed in the lower half of rankings in Asia because of “poor quality and high cost. Access to quality internet services affordability” caused by a competitive environment that is a prerequisite to successfully participate and thrive in ranks last in the group (Figure 38). the digital economy. While, like internet penetration rates, the country’s internet download speeds are continuing 64 In 2017, the GDP per capita, PPP (current international US$) was $8,343 in the Philippines, and US$6,776 in Vietnam. Source: World Bank Open Data, https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD 65 Extrapolated from citations of Philippines fixed line subscribers and Vietnam fixed lines FTTH connections extensively cited in the FTTH section. See http://newsroom.globe.com.ph/press-release/corporate/2018-02/globe-keeps-revenue-growth.html http://newsroom.globe.com.ph/press-release/ corporate/2018-02/globe-keeps-revenue-growth.html; Mirandilla-Santos et al. 2018. 66 Share of individuals using the Internet and households with Internet access from ITU data, as of June 2018. ITU. 2018. Measuring the Information Society Report Volume 2. https://www.itu.int/en/ITU-D/Statistics/Documents/publications/misr2018/MISR-2018-Vol-2-E.pdf 67 The Philippines per capita GNI was PHP 25,396 (in constant pesos) in Q1 2019. 68 In 2018, the ITU’s Broadband Commission adopted the A4AI’s target of “1 for 2”—1GB of mobile broadband available for 2% of less of GNI per capita. Source: A4AI. 2018. UN Broadband Commission Adopts A4AI “1 for 2”Affordability Target. https://a4ai.org/un-broadband-commission-adopts-a4ai-1-for-2- affordability-target/; A4AI. 2017. The Affordability Report 2017. http://a4ai.org/affordability-report/report/2017/#implementing_policies_to_achieve_the_“1_ for_2”_broadband_affordability_target 46 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION Figure 36. Mobile and Fixed Internet Download Speeds (August 2019)- Ookla Mobile Download (mbps) Fixed Download (mbps) Indonesia Myanmar Philippines Indonesia Cambodia Cambodia Malaysia Brunei Lao PDR Philippines Myanmar Lao PDR Brunei Vietnam Thailand Malaysia Vietnam Thailand Singapore Singapore 0 10 20 30 40 50 60 0 50 100 150 200 250 Source: Ookla (speedtest) Figure 37. Price of mobile broadband (1GB, prepaid) Figure 38. Economist Intelligence Unit (EIU) Affordability Score, 2017-2019 as % of GNI per capita Score of 0-100, higher score is better. Affordability 95 Philippines 1.95% 90 85 80 THA, 78.6 75 SG, 76.4 ASEAN Average 1.37% 70 MLY, 70.2 VN, 67.6 65 INO, 62.4 60 CAM, 58.9 Global 55 PHL, 53.7 Average 5.46% 50 45 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 2017 2018 2019 2020 Source: Alliance for Affordable Internet Source: Economist Intelligence Unit Note: Methodology described in https://theinclusiveinternet.eiu.com/assets/external/downloads/3i-methodology.pdf PART 3 SPECIAL FOCUS NOTE: ACHIEVING FASTER AND MORE AFFORDABLE INTERNET SERVICES FOR ALL 47 3.3 GOVERNMENT INITIATIVES TO IMPROVE INTERNET SERVICES The government has recently launched several major agreements and provide internet services to end users. initiatives to improve internet services and quality. Finally, the government will also install infrastructure and Through the DICT, the government has been working on: (a) provide direct internet services to end users. While the the National Broadband Plan (NBP), (b) free public Wi-Fi in government may have the capital resources to fund the public places, and (c) the selection of a new, third major building of infrastructure, it does not have the expertise telecommunications player. Other policies and regulations nor the flexibility necessary to build and operate a recently issued are summarized in Table 7. telecommunications or broadband network. Global best practice suggests that public authorities should play a role in addressing regulatory and legal constraints that support The NBP aims to develop (a) an alternative source of a market-driven approach by creating a fair playfield for all international bandwidth, (b) submarine cable landing operators, rather than provide direct investments and be stations, and (c) a domestic backbone network. Provisions directly involved in operations. in the plan are intended to provide smaller market participants with a choice of bandwidth sources, other than PLDT and Globe. However, the optimal business Meanwhile, the government is deploying its own fiber model for the domestic backbone network has yet to be network to connect the major public agencies in Metro determined. The NBP outlines three options for expanding Manila and augment the country’s poor fiber network last-mile connectivity. First, the network and service coverage. According to the DICT, the network is being providers will install infrastructure and provide internet created using government assets, such as the metro services to end users. The government may opt to share rail transit (MRT) system, that can provide infrastructure the cost with private providers. Second, the government and right of way at lower cost. Apart from providing will develop infrastructure and install the network, while internet service to public agencies, the DICT believes service providers will access infrastructure through leasing that this initiative will augment the limited fiber optic 48 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION network deployed by private telcos nationwide. This strategy and sustainable business model for the program. could potentially be implemented through availability The government could consider a sunset provision to and cost oriented pricing for dark fibre, a model currently determine when government funding for free public Wi-Fi is being considered by the government of Mexico City, for no longer needed in certain areas, which would depend on example. In May 2019, the DICT signed an agreement with the willingness of private sector operators to come in. This the Philippine Fiber Optic Cable Network Ltd., Inc. (PFOCN) type of sunset provision should be feasible since RA 10929 which will reportedly invest between US$1 billion and allows ISPs enrolled in the program to sell excess capacity US$2 billion to establish a shared network infostructure for a fee. between 2019 and 2028. According to the DICT, the rollout of the shared network will become part of the Free Public To complement these two government programs, a new Wi-Fi Network.69 The PFOCN will reportedly give preferential major telecommunication player was selected in 2019 rates to the government while the rest of its capacity will but its defined service obligations are not at par with the be leased to telecommunications firms, internet service requirements for the two incumbent telcos. In response providers (ISPs), and cable TV operators. Depending on to a Presidential Directive, the government awarded a the final business model the shared network model could license to Dito Telecom, through a special selection process potentially lower the cost of fiber-based internet.70 in 2019. Unlike the incumbent telcos, the new entrant is expected to comply with defined service obligations, The Free Public Wi-Fi program is intended to provide including a minimum population coverage and broadband internet service to low-income locations, but download speed after five years of operation. Not only do implementation has been slow. The Free Internet Access these requirements make it for difficult for the new telco to in Public Places Act of 2017 aims to provide internet access provide competitive prices, but failure to deliver will result in over 100,000 public sites nationwide by 2022 (from the in it losing its performance bond worth Php25.7 billion. previous target of 20,000), which would extend internet Network planning had started as of early 2020, but the services to low-income municipalities, and lower the timing for rolling out Dito Telecom’s network, along with cost for end users. It also aims to improve the quality of its impact on the competitive landscape, is uncertain. A internet services by using Wi-FI sites to offload mobile fair and level playing field for all operators would require traffic. Despite the huge budget allocated for the program (a the government to apply the same service obligations and total of Php6.5 billion for the period 2015-2019)71, only 3,283 performance standards to the incumbent telcos as well as free Wi-Fi sites or 3 percent of the total target have been the new telco. put up since 2015.72 Challenges include developing an exit 69 https://dict.gov.ph/dict-partners-with-hyalroute-for-billion-dollar-fiber-network-investment/ 70 ICT company and cellular mobile telephone system (CMTS) licensee, NOW Corporation, signed a memorandum of understanding with PFOCN for the former’s nation wide expansion. 71 Figures from the General Appropriations Act 2015-2019. https://www.dbm.gov.ph/index.php/dbm-publications/general-appropriations-act-gaa 72 Data published, as of 5 February 2020. See http://freepublicwifi.gov.ph/free-wi-fi-for-all-eyes-taytay-and-cavite-for-next-rollout-of-sites/. PART 3 SPECIAL FOCUS NOTE: ACHIEVING FASTER AND MORE AFFORDABLE INTERNET SERVICES FOR ALL 49 3.4 LEGAL AND REGULATORY CHALLENGES Beyond the government’s priority initiatives, there are The requirement for a Congressional franchise is a key challenges that need to be addressed to improve the significant barrier to entry. The Public Telecommunications availability, quality and affordability of internet services. Policy Act of 1995 (RA No. 7925) requires an entity wishing The four key challenges that need to be addressed are: (a) to build a “network” to acquire a license as a public restrictions on investment and competition; (b) complex telecommunications entity (PTE). In order to become a permit regulations; (c) infrastructure sharing for the PTE, the entity needs to secure: i) franchise from Congress; deployment of mobile and fixed networks; and (d) ways to ii) provisional authority (PA) valid for 3 years from the NTC; more efficiently and effectively manage the radio spectrum. and iii) a certificate of public convenience and necessity This section also briefly considers the issue of satellite (CPCN) from the NTC which will be co-terminus with the services for very remote regions. Congressional franchise, and is usually valid for 25 years. The CPCN approval process is quasi-judicial in accordance (a) Restrictions on investment and competition. with the provisions of the Public Service Act of 1936 (CA No. 146). A legislative franchise can only be granted to entities that are at least 60-percent Filipino-owned, as articulated Public utility designation limits foreign investment. in Article XII Section 11 of the 1987 Philippine Constitution. The Public Service Act of 1936 (Commonwealth Act No. 146) provides a high-level framework for classifying telecommunications or “wired and wireless The process for becoming a recognized PTE should be communications” as a “public utility.” A public utility is streamlined – particularly by removing the ability of subjected to certain regulations, such as restrictions incumbents to oppose the entry of competitors – in on foreign ownership and a cap on the rate of returns. order to encourage the participation of small, regional or The law does not distinguish between a “public service” community-based players in the provision of broadband and a “public utility” so these two terms are often used networks. The quasi-judicial process for acquiring a PA interchangeably. Moreover, it does not provide a definition or a CPCN can create opportunities for existing market of “public services” but enumerates businesses—such as participants to quash or delay the entry of potential ice plants and ice-refrigeration plants along with freight competition. The process allows for an “oppositor” to make or carrier services, electricity, gas, power, and wired or its case to the NTC against an application because it could wireless communication systems—as public services. negatively affect its existing business. The trial-like hearings Under this definition, telecommunications/internet is can go on for several years, making it cumbersome and considered a public utility, and thus subject to a 40 percent costly for a new player to enter the market.73 Procedural foreign ownership ceiling. The legislation is in the process reforms at other quasi-judicial agencies, such as the of revision, however. The recent Congressional approval Maritime Industry Authority, to set strict limitations on what of House Bill No. 78 on March 10, 2020 distinguishes legal motions oppositors can do during the hearings for the telecommunication systems as a public service, no longer award of Certificates of Public Convenience, can shorten the as a public utility. A public service was defined as those hearing process significantly. which are “non-rivalrous or imbued with public interest.” It likewise allows for 100 percent foreign ownership of public Inefficient spectrum allocation limits market competition. services. Hence, this amendment will allow for more players The Radio Control Law of 1931 (Act No. 3846 and its to enter and usher in competition. amendment RA No. 58474), which governs the management 73 For example, one report involves a PA hearing for a new entrant that went on for four years due to opposition from an incumbent telecommunication firm. The trial dragged on for so long that the technology and equipment being proposed by the new entrant was already considered old by the time the process ended. 74 NTC. “Republic Act no. 3846.” http://ntc.gov.ph/wp-content/uploads/2015/10/LawsRulesRegulations/RAs_PDs_EOs/RA_3846.pdf; Corpus Juris. “Republic Act No. 584.” https://thecorpusjuris.com/legislative/republic-acts/ra-no-584.php 50 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION of the radio spectrum, requires a Congressional franchise in Lack of open access to different parts of the broadband order to secure a permit to construct, install, establish, or infrastructure also limits market competition. The Open operate a radio station,75 which includes the testing of radio Access in Data Transmission bill identifies the various equipment for a new and emerging technologies, according segments of the broadband infrastructure and proposes to the NTC.76 The Radio Control Law also limits the use of to open them up to more and different types of market the radio spectrum (i.e., limits the transmission of data, participants. This is a means to level the playing field or internet services) to enfranchised telecommunications and ensure that market participants compete based on firms only (i.e., only to providers that offer voice telephony services and innovation, not on their capacity to secure services as well as internet services). This constitutes costly licenses. The Philippines is the only country in another barrier to entry, as it effectively requires potential the ASEAN region that still requires a franchise from participants to invest in telephony, even though it is slowly Congress as the first step in obtaining a license to build becoming obsolete. As demand for internet services and operate a network. Global best practice points to increases, and as different types of internet-based having administrative license issued by either the industry technologies emerge (e.g., voice over internet protocol), regulator or ministry in charge of ICT (Table 5). In the 17th the policies governing the management of the spectrum Congress, a bill proposing an open access framework should evolve and adapt as well. An updated approach in data transmission was approved in the House of would be to allow ISPs that do not provide traditional Representatives but failed to move forward in the Senate. voice telephony to have regional—rather than nationwide— This was a major setback for broadband development in spectrum assignments, and to consider dynamic spectrum the country, especially since many of the proposals in the use. This would allow more participants to enter the market NBP are anchored on an open access policy. The bill was and improve competition, as well as benefit communities refiled by both houses in the 18th Congress, but it is pending that are not serviced by traditional telecommunications committee approval, to date. networks.77 Identifying and expanding unlicensed spectrum opportunities are also critical and will receive a big push with 6 Ghz band licensing. Table 5. Licensing of ISPs Across Select Countries in Asia Pacific Country Licensing Cambodia License from the Telecommunication Regulator of Cambodia Indonesia License from the Indonesian Telecommunications Regulatory Authority Malaysia License from the Malaysian Communications and Multimedia Commission Philippines Telecommunication franchise law passed by Congress; and PA/CPCN issued by National Telecommunications Commission Thailand License from the National Broadcasting and Telecommunications Commission Singapore License from the Infocomm Media Development Authority South Korea Registration with the Korea Communications Commission Japan Registration with the Ministry of Internal Affairs and Communications (if installing cable facilities); and the ministry needs to be notified prior to providing telecommunications services, including related to internet Source: Better Broadband Alliance, 2019. 75 Under the law, a “radio station” is interpreted to mean a facility that uses radio equipment for wireless data transmission. 76 Mirandilla-Santos, M., Brewer, J. & Faustino, J. 2018. From Analog to Digital: Philippine Policy and Emerging Internet Technologies. The Asia Foundation: Manila. 77 In some countries, regulators have adopted innovative licensing, such as a “social purpose” license, and exclusive service license granted in rural unserved or underserved areas to non-traditional network operators, including community networks. Examples include India, Mexico, and Brazil. Source: Internet Society. “Policy Brief: Spectrum Approaches for Community Networks.” https://www.internetsociety.org/policybriefs/spectrum/ PART 3 SPECIAL FOCUS NOTE: ACHIEVING FASTER AND MORE AFFORDABLE INTERNET SERVICES FOR ALL 51 Current laws make it difficult for existing cable TV A mobile network provider needs to secure separate providers to provide broadband services. The operation permits for the installation of a radio station;82 importing of cable TV, governed by Executive Order (EO) No. 436,78 equipment; and obtaining a radio station license. These is regulated by the NTC through its authority to award PA requirements determine the radio equipment, location, or a certificate of authority.79 While cable TV operators and frequencies needed for the network. The process for are not allowed to use their spectrum allocation to offer awarding licenses can be lengthy, and it can even delay or telecommunications services, they can offer broadband even halt network rollout if providers lack guidance on how services by sub-leasing any excess spectrum capacity of to expedite the process. its cable TV system to a third party. However, under RA No. 7925, cable operators that wish to build any network Various network deployment permits and fees are segment outside their service area will need to secure a required by different authorities. These are imposed by franchise from Congress and PA for each municipality the several NGAs, LGUs, and private property management network will pass through. This requirement can be lengthy firms, such as building administrators and homeowners and costly for a provider that wishes to operate a network associations. Some of these bureaucratic requirements, across municipalities. In addition, private companies that arbitrary fees, and permits can be institutionalized barriers wish to offer retail broadband service at the last mile are to competition” and prevent the timely and cost-effective subjected to the Retail Trade Liberalization Act of 2000 (RA expansion of last-mile infrastructure. According to Globe No. 8762),80 which requires capitalization of at least US$2.5 Telecom, the approval process can take up to 8 months million for foreign companies.81 (see Table 6). Service providers have identified an average requirement of 25 permits, depending on the cell site’s The reform or repeal of various legislative barriers is a location and other requirements imposed by the prerequisite to a more open and competitive broadband approving entity. market in the Philippines. Policymakers need to amend the Radio Control Law, the Public Service Act, and the Public Aside from the general need to streamline processes in Telecommunications Policy Act, and pass the Open Access securing permits and licenses among relevant agencies, in Data Transmission bill to lower barriers to entry and LGUs, or associations because this acts as a barrier to allow a more diverse set of providers access the market. For entry, there is a need to look into the issue of exclusivity, example, the government should remove the requirement particularly between ISPs and certain residences or for a Congressional franchise and PA/CPCN, and it should homeowners’ associations. The Philippine Competition consider adopting a simple administrative registration and Commission (PCC) has recently filed a competition case qualification process for the entry of broadband network against a condominium corporation in this regard.83 operators and for the assignment of the radio spectrum. (c) Lack of Tower-Sharing Policies and Other Modes of (b) Permits and licenses Infrastructure Sharing A proliferation of permits and licenses slows down The absence of a tower-sharing policy for mobile networks the rollout of broadband networks. The deployment of keep entry costs high. A new firm in the mobile network broadband networks in urban and rural areas depends not market would either need access to significant capital only on the availability of infrastructure provided by the to build and maintain its own network infrastructure major telecommunications firms, but also on a whole gamut or suffer discriminatory charges to use its competitors’ of licenses, permits and other bureaucratic requirements. network. Under infrastructure sharing arrangements, 78 NTC. “Executive Order No. 436.” http://ntc.gov.ph/wp-content/uploads/2015/10/LawsRulesRegulations/RAs_PDs_EOs/EO_436.pdf 79 Cable TV operation is reserved for Filipino-owned entities. 80 Philippine Board of Investment. “Executive Order 8762.” http://boi.gov.ph/wp-content/uploads/2018/02/RA-8762.pdf 81 Below this level of capitalization, only fully Filipino-owned entities can engage and invest in retail trade. 82 Sec. 2 Act 3846, as amended. Source: NTC. “Republic Act 3846.” http://ntc.gov.ph/wp-content/uploads/2015/10/LawsRulesRegulations/RAs_PDs_EOs/ RA_3846.pdf. 83 https://phcc.gov.ph/press-releases/pcc-urbandeca-8990-holdings-abuseodominance-sett-case/ 52 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION Table 6. Reasons for the 8-month Long Process to Construct a Cell Site in the Philippines Requirement Permits and Clearances No. of Permits Length of Time Right of way Negotiations and documentation of prospective cell site location 8 1-2 months Social acceptability Barangay resolution, homeowners association consent, and 5 1-2 months residents’ conformity Various LGU permits Zoning clearance from Housing and Land Use Regulatory Board 5 2 months (HLURB) city or municipal resolution, occupancy permits, and mayor’s permits. National permits Department of Environment and Natural Resources (DENR), 8 1-2 months Laguna Lake Development Authority (LLDA), Civil Aeronautics Board (CAB), DOH, Philippine Council for Sustainable Development (PCSD), Bureau of Fisheries and Aquatic Resources (BFAR), and National Commission on Indigenous Peoples (NCIP) Structural permits Zoning permits, locational clearance, building permits including 5 3-5 months electrical permits, sanitation permits and mechanical permits, occupancy permits Construction starts Source: R. Icogo, Peter. “Why It Takes 8 Months For One Cell Site To Be Constructed In The Philippines?” Giz Guide, https://www.gizguide.com/2016/05/cell-site-construction-ph.html; ABS-CBN News. “Globe says permit delays delay cell site building.” https://news.abs-cbn.com/business/11/22/18/globe-says-permit-delays-delay-cell-site-building. however, operators typically agree to share facilities The government has been developing a common tower ranging from passive infrastructure (e.g., site locations, policy which is expected to be finalized by 2020. In masts, and cabinets), and radio access networks (e.g., mid-2018 the government announced a plan to issue base station equipment, operation, and maintenance), to a common tower policy to accelerate the buildout of active infrastructure (e.g., the radio spectrum, and core telecommunications towers and achieve its target of 50,000 network).84 The deployment of cell sites can consume up towers by 2022. In May 2019, the DICT issued Rules on to 50 percent of a mobile carrier’s capital expenditure the Accelerated Roll-out of Common Towers,88 which also and up to 60 percent of its operating expenses. Given the identified 2,500 government sites that can be used for tower massive amount of capital resources needed to promote installation. Under the current administration, the DICT an expansion of broadband deployment,85 infrastructure announced that it would issue new common tower policy sharing policies for mobile networks is becoming global in response to stakeholders seeking “firmer guidelines best practice.86,87 before committing major investments.”89 To date, twenty four tower companies have signed a memorandum of understanding with the DICT to express their intent to enter the tower market. The common tower policy is expected to 84 International Telecommunication Union. “Mobile Infrastructure Sharing.” https://www.itu.int/itunews/manager/display.asp?lang=en&year=2008&issue= 02&ipage=sharingInfrastructure-mobile 85 The DICT Undersecretary Eliseo Rio, Jr. announced that the Philippines needs 50,000 cellular towers in order to cope with the demand and quality standards of good mobile services. 86 Towers and base stations also require users to be within 0.5 to 2km radius, which will become more important with the introduction of 5G technology. 87 IFC. 2020. Accelerating Digital Connectivity Through Infrastructure Sharing. https://www.ifc.org/wps/wcm/connect/2d3c4eff-12a8-4b0b-b55d- 9113a950ed33/EMCompass-Note-79-Digital-Infrastructure-Sharing.pdf?MOD=AJPERES&CVID=n2dwWtn 88 The DICT issuance includes a list of DICT towers and real estate that can be used for the tower buildout, a list of about 1,000 “hard to acquire sites” (according to PLDT and Globe) where government assistance in securing permits is most needed, and GovNet sites. Source: DICT. “Rules on the Accelerated Roll-Out of Common Towers in the Philippines.” https://dict.gov.ph/rules-on-the-accelerated-roll-out-of-common-towers-in-the-philippines/ 89 Business World. “DICT may issue a new common tower policy.” https://www.bworldonline.com/dict-may-issue-new-common-tower-policy/ PART 3 SPECIAL FOCUS NOTE: ACHIEVING FASTER AND MORE AFFORDABLE INTERNET SERVICES FOR ALL 53 be finalized in 2020, addressing the following issues. (NEA). Currently, there is no regulation on pole attachment Once adopted it could also facilitate faster rollout of the for non-electric access seekers, such as telecommunications third telco: and broadband operators. In August 2018, the DICT, NEA and the Philippine Rural Electric Cooperatives Association, Inc. a. Foreign ownership restrictions on independent tower (PHILRECA) signed a memorandum of understanding companies (ITCs); b. Limitation on the number of ITCs allowed to enter the for the implementation of the NBP, particularly on the market; co-use of fiber optic cables.94 However, the rising cost of c. Mode of engagement for ITCs; pole attachment (from Php100 to Php400 per pole, per d. Independence of tower companies from mobile attachment, per year) has been challenging.95 network operators; and e. Financial and technical qualifications of ITCs. The two dominant incumbent players own and control the country’s broadband infrastructure. The operation of Poor coordination with the Department of Public Works any broadband network in the country, including that of and Highways (DPWH) lead to slower deployment the government, is dependent on access to infrastructure and higher costs for both service providers and the of PLDT and Globe. Any new entrant, unless it plans to government. The excavation and restoration of roads is build and operate its own network or is provided access estimated to consume as much as 80 percent of the cost to government assets (e.g., existing roads, railways, towers, of deploying fixed-broadband networks.90 There are no fiber optic network and/or planned cable landing stations, common or shared utility corridors in the Philippines that or the National Grid Corporation of the Philippines’ (NGCP) will allow various operators to use conduits to lay fiber in fiber optic network) will have to bilaterally negotiate existing roadworks, and there is no “dig once” policy that interconnection and access to the incumbents’ facilities, requires coordination for one-time civil works.91 Ideally, including cable landing stations, backbone, middle mile, broadband infrastructure is installed while roads are and access networks. This puts any new player at risk of being built to minimize disruption.92 With coordination, non-competitive behavior (e.g. discriminatory charging) the cost for both service providers and the government from the two incumbents. will be minimized since road construction and broadband reinstallation are done only once. Synchronizing the It is, therefore, important that there is open and non- schedules of project implementation is, however, critically discriminatory access to the country’s broadband important, as national road projects cannot be delayed by infrastructure. Instead of a single, vertically integrated the deployment of broadband networks.93 network, it is recommended that the government adopts an “open access” approach. This promotes infrastructure New regulation on pole attachment can help reduce fiber sharing among service providers and ensures access deployment costs. Pole attachment is very important for to network segments on fair, reasonable and non- cable broadband operators and aerial fiber deployment. discriminatory (FRAND) terms. Infrastructure sharing is Poles are often owned and operated by electricity a way to optimize the use of resources by allowing two distributors (e.g. Meralco and the provinces’ electric or more service providers to use the same structure cooperatives) and are within the jurisdiction of electric or network element. With the end goal of increasing power industry regulators (e.g. the Energy Regulatory broadband connectivity, infrastructure sharing promises Commission (ERC) and the National Electrification Authority to reduce the cost of deployment, lower asset duplication, 90 According to MetroWorks ICT Construction, which carries out civil works for telecommunications firms and ICT operators. 91 Instead, the operator needs to submit a detailed plan for the civil works and get approval from the regional or district offices. 92 Interview with DPWH Central Office officials and staff for policy and design, and bureau of planning, [date]. 93 Interview with DPWH Central Office officials and staff for policy and design, and bureau of planning, [date]. 94 https://nea.gov.ph/index.php?option=com_content&view=article&id=744:nea-dict-urge-power-co-ops-cable-operators-and-telcos-to-collaborate-to- expedite-nbp-rollout&catid=12:news&Itemid=12 95 See Memorandum No. 2018-55 to Electric Cooperatives on Standard Joint Pole Agreement and Pole Rental Rate, https://nea.gov.ph/index. php?option=com_phocadownload&view=category&download=3256:memo-to-ecs-2018-055-standard-joint-pole-agreement-and-pole-rental- rate&id=203:2018&Itemid=264 54 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION reduce the environmental impact, lower barriers to entry such as roads, railways, and electricity transmission. The and increase competition, expand network coverage, and policy must include standards, regulation on access and lower service prices.96 pricing, and a coordinating body to look into how different utilities, government agencies, and regulators can work In the absence of a national law on infrastructure sharing, together. The policy should also include provisions for the DICT could consider issuing its own policy. Using an coordinated planning and construction among various open-access approach, the DICT should consider allowing government agencies and private service providers. The private service providers to use government assets such timing is appropriate, as the current administration the 2Tbps cable capacity from Pacific Light Cable Network is implementing its “Build, Build, Build” infrastructure (PLCN), the Bases Conversion and Development Authority program, and a number of roads, bridges, and train projects (BCDA)-built landing stations, or the NGCP’s fiber optic are underway. Finally, in a setting where open access to network. However, the government needs to balance a private operator’s property is involved, the policy must maximizing the use of assets, and even monetizing them, provide a mechanism for when and how the government with providing an alternative source of bandwidth for new can intervene in cases when: (i) the access seeker and and small providers in rural areas. Infrastructure sharing infrastructure owner fail to reach an agreement within the can adopt any of the following business models:97 prescribed time period of negotiation, (ii) there are disputes over the terms and conditions for accessing infrastructure, • Joint development: infrastructure owners and (iii) there are pricing disputes. and network operators coordinate planning and construction activities; (d) Spectrum Management for Mobile Broadband. • Hosting: infrastructure owner hosts third-party Current laws that regulate spectrum use and allocation telecommunications network equipment; are outdated. The way the government manages its radio spectrum resources is crucial to ensuring mobile • Dark fiber: host provides passive infrastructure for broadband coverage and quality of service, as well as lease to network operator; in promoting competition in the mobile service market. However, the laws that govern the radio spectrum in the Philippines are designed for legacy (analogue) technology • Joint venture: infrastructure owner allows the network and they merely provide a general regulatory framework for owner to use existing infrastructure and offer the regulator. commercial services on a profit-sharing basis; and The country’s radio spectrum has never been allocated • Wholesale telecommunications services: infrastructure through a competitive bidding process. The NTC has never owner provides commercial wholesale service to carried out an open tender for the spectrum because network operators. the supply has reportedly always exceeded demand. To date, all frequencies have been awarded through a simple The scope of an infrastructure sharing policy should administrative process98 akin to a “beauty contest”,99 be cross-sectoral to include networked infrastructure where the applicants that best show their financial and 96 Deloitte, APC. 2015. Unlocking Broadband For All. https://www.apc.org/sites/default/files/Unlocking%20broadband%20for%20all%20Full%20report.pdf; World Bank. 2017. Infrastructure Sharing and Co-deploymentIssues. https://www.unescap.org/sites/default/files/Infrastructure%20Sharing%20and%20Co- Deployment%20Issues%2C%20World%20Bank.pdf 97 World Bank. 2017. “Infrastructure Sharing and Co-Deployment Issues.” https://www.unescap.org/sites/default/files/Infrastructure%20Sharing%20and%20 Co-Deployment%20Issues%2C%20World%20Bank.pdf. 98 The process often involves the submission by an applicant of a letter of request to the regulator for its spectrum needs. This is unlike in other countries, where there are public consultation documents, market reviews, and spectrum management plans issued by the regulator before spectrum is assigned or awarded to an entity. 99 On August 23, 2005, the NTC issued Memorandum Circular No. 07-08-2005 or the Rules and Regulations on the Allocation and Assignment of 3G Radio Frequency Bands, allocating the 825-845MHz/870-890MHz frequency bands for 3G. The NTC issued 3G spectrum to four mobile operators, namely Smart, Globe, Digitel and CURE. Bayantel was disqualified but won a petition in the Court of Appeals, who, in December 2010, ordered the NTC to stop the bidding for the last remaining 3G frequencies. The case has been pending in the Supreme Court since April 2010. https://www.philstar.com/ business/2010/04/11/564944/ntc-elevates-3g-award-row-bayan-supreme-court. PART 3 SPECIAL FOCUS NOTE: ACHIEVING FASTER AND MORE AFFORDABLE INTERNET SERVICES FOR ALL 55 technical capacity to provide the required capitalization and spectrum assignment reviews and publishing their results. infrastructure are granted the spectrum license, regardless Furthermore, the NTC, in coordination with the DICT and the of their current spectrum holdings or the validity of the PCC, can issue rules and regulations (based on global best justification for the additional spectrum.100 Given these practice) that govern the shared use of the spectrum. The criteria, the process is likely to favor incumbents and large NTC and DICT can also explore the adoption of emerging telecommunications firms, making it very unlikely that management practices such as dynamic spectrum is awarded to a new entrant. Moreover, spectrum allocation. the administrative method of assigning frequency has produced inefficiencies and underutilization of spectrum (e) Addressing Connectivity Needs in Remote Areas. bandwidth, not to mention limiting the flexibility in service provision and impeding technological developments.101 The government needs to develop a clear strategy on how to deploy better broadband services in remote areas. A The scarcity of the remaining unassigned spectrum bands small number of regions in the Philippines are unable to will limit the competitiveness of any new entrants. In 2017, readily connect to terrestrial (fixed or mobile) networks upon the directive of the DICT, the NTC published the result due to geographical constraints. These areas will have of an audit of “assigned, returned and vacant mobile access to continue to rely on satellite services. However, there frequencies,” which showed that the spectrum in key bands, is limited information on the government’s plans on to such as 900 MHz and 1800 MHz, have been assigned to only facilitate access to satellites for broadband connectivity, two telecommunications firms. A recent Senate report noted other than that satellite technology will be used to address that the remaining frequencies for the third player will be the needs of isolated locations (i.e., mountainous, coastal limited to data-driven services,102 which is problematic and small islands areas) where the deployment of the fiber in a country where at least 40 percent of mobile phone network will be challenging. Nevertheless, there seems to users remain dependent on basic call and text services. As have been an increasing adoption of satellite technology spectrum hoarding has become a barrier to competition, through the Free Public Wi-Fi program as satellites are the government needs to clarify the powers and functions being used to connect free public Wi-Fi sites in unserved of the NTC in terms of spectrum assignment, recall, and areas in Marinduque and hard-to-reach areas in Bohol, reassignment, as this is absent in existing laws. It should Davao, and Sorsogon. An option to consider for the define the guidelines for how and when the NTC initiates medium term may be the deployment of more advanced proceedings for recalling and reassigning the spectrum to high through-put satellites (HTS) which can also make a ensure the spectrum is available for multiple operators. In significant impact on cellular backhaul though 200-500Mbps the current scenario, the third telco will face higher costs to the tower (a near substitute for fiberizing towers) for both associated with the limited amount of spectrum that it has community Wifi and 4G mobile services. been allocated (less spectrum requires construction of more infrastructure to offer the same level of service as a Open access to satellites can boost the rollout of satellite- telecommunication firm that has more spectrum). based broadband services. The government could consider replacing EO No. 467 (s. 1998) to enable more equitable The management of the country’s spectrum could be more access to satellites and other emerging technologies that transparent and dynamic. Spectrum assignments in the can offer innovative solutions for rural and hard-to-reach Philippines are considered confidential, and the process communities. The tourism, banking, shipping, and mining for awarding the spectrum is an internal process. Moving sectors are just some of the areas that can benefit from forward, the authorities need to require the publication of open access to satellite broadband technology. A liberalized all applications, approvals, and decisions for test permits, satellite market can also help connect the 34,000 or so demonstration permits, assignment, re-assignment, and co- public schools that remain offline due to lack of internet use of the spectrum. In addition, public consultations are facilities in their communities.103 needed before the NTC can any issue an approval. Efforts to increase transparency include defining the period for 100 PCC. Note on Spectrum Management. 101 Gilbert Llanto, Policy Note on Reviewing the Philippines’ spectrum management policy, 2006; PCC’s Policy Note on Spectrum Management, 2018. 102 Senate Committee Report No. 78. 17 May 2016. https://www.senate.gov.ph/lisdata/2505522326!.pdf 103 Based on DepEd data in 2016. 56 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION 3.5 CONCLUSIONS AND RECOMMENDATIONS Improving and expanding broadband connectivity will • Fast-track and lower the cost of deploying broadband be key for the Philippines to thrive in the digital age infrastructure through infrastructure sharing policies and for Filipinos to be active participants in the digital that address: (a) the use of government assets economy.104 However, this is hampered by the inadequacy (submarine cable, NGCP dark fiber); (b) the use of of the country’s digital infrastructure. While the private existing infrastructure across sectors such as roads, sector should continue to lead investment efforts in the railways, electricity transmission; and (c) coordinated Philippines’ digital infrastructure, the government plays an build for a shared utility corridor. important role in creating an enabling policy and regulatory framework to ensure a competitive broadband market and • Encourage more private sector infrastructure sharing enhance access to and the affordability of internet services which can be approved under existing bills, such as throughout the country. This is particularly critical under the proposed Open Access in Data Transmission Act or the “new normal” as many companies will still be required can be proposed as separate DICT policies to promote or opted to continue work from home arrangement, at common towers, pole sharing, and access to ducts. least for part of their workforce; students are expected However, an executive order mandating infrastructure to continue remote learning in the medium term; and sharing across these passive infrastructure modalities government agencies will shift many of their transitions would have a more immediate impact. online. This can be achieved through a combination of the following measures listed below: • Make more spectrum available for internet connectivity. About 95 percent of Filipinos access the • Lower barriers to market entry by easing the Internet through mobile and wireless devices. Spectrum restrictions to foreign ownership of equity in management reform would entail amending the Radio telecommunications and broadband networks. This can Control Law and/or the Public Telecoms Policy Act, and be accomplished by amending the Public Service Act by passing the Open Access in Data Transmission bill, and the Public Telecommunications Policy Act, and by including the guidelines that will clarify the powers and passing the Open Access in Data Transmission bill. functions of the NTC in terms of spectrum assignment, recall, and reassignment. • Streamline permit requirements for network deployment and rationalize fees imposed by various Finally, Government is recommended to focus its efforts on national and local government agencies, as well as addressing these regulatory and legal issues supportive of a private sector associations. market-driven approach rather than direct investment and operation of networks. • Provide a fair and level playing field for operators that requires the government to apply the same service obligations and performance standards for the third telco to the incumbent telcos. 104 World Bank (2019) The Digital Economy in Southeast Asia: Strengthening the Foundations for Future Growth PART 3 SPECIAL FOCUS NOTE: ACHIEVING FASTER AND MORE AFFORDABLE INTERNET SERVICES FOR ALL 57 Table 7. DICT and NTC Policy and Regulatory Issuances Affecting Broadband Access, Quality and Affordability (2016-present) TOPIC DICT ISSUANCE POLICY NTC ISSUANCE REGULATION Shared May 2019 Rules on the Accelerated Roll-Out of infrastructure Common Towers in the Philippines110 Mobile number NTC MC No. 03-06-2019 Rules and Regulations Implementing portability Republic Act No. 11202 Otherwise Known as the “Mobile Number Portability Act”111 Mobile device DICT-MO-004-2018 Mandatory Unlocking of Mobile NTC MC No. 01-05-2019 Rules and Regulations on Unlocking of unlocking Phones and Devices After Lock-In Mobile Phones and Devices113 Period and Compliance with Terms and Conditions Contained in Subscription Agreements112 Third DICT-MO-001-2018 Policy Guidelines for The Entry of NTC MC No. 09-09-2018 Rules and Regulations on the Selection Telecommunications a New Major Player in The Public Process for a New Major Player in firm Telecommunications Market114 the Philippine Telecommunications Market115 NTC MC No. 12-03-2018 Document Verification Report on the Requirements Submitted by the Provisional New Major Player116 Free internet access June 2018 Rules and Regulations to Implement in public places the Provisions of Republic Act No. 10929 (Free Internet Access in Public Places Act)117 Radio spectrum DICT-DO-004-2018 Directing the NTC to Review and Make NTC MC 02-02-2018 Additional Frequency Allocations for Appropriate Adjustments to Increase Broadband Wireless Access (BWA)119 Spectrum User Fees (SUF)118 DICT-DO-003-2018 Directing the NTC to Review and Make Appropriate Adjustment on SUF for the 610-790 MHz, 790-960 MHz, and 1710-2025 MHz International Mobile Telecommunications (IMT) Frequency Bands120 110 https://dict.gov.ph/wp-content/uploads/2019/05/Final-Version-Rules-on-the-Accelerated-Roll-Out-of-Common-Towers-in-the-Philippines.pdf 111 http://ntc.gov.ph/wp-content/uploads/2019/07/MC-03-06-2019.pdf 112 https://dict.gov.ph/wp-content/uploads/2018/12/Memorandum-Order-No.-004.pdf 113 http://ntc.gov.ph/wp-content/uploads/2019/MC/MC-01-05-2019.pdf 114 http://dict.gov.ph/wp-content/uploads/2017/01/DICT-MO-001-2018-POLICY-GUIDELINES-FOR-THE-ENTRY-OF-A-NEW-MAJOR-PLAYER-IN-THE- PUBLIC-TELECOMMUNICATIONS-MARKET.pdf; See latest amendments http://dict.gov.ph/wp-content/uploads/2018/09/MEMORADUM-N0.-003.pdf 115 http://ntc.gov.ph/wp-content/uploads/2018/MC/MC-09-09-2018.pdf 116 http://ntc.gov.ph/wp-content/uploads/2018/MC/NMP_TWG_Document_Verification_Report_20181112.pdf 117 https://dict.gov.ph/wp-content/uploads/2020/02/RA10929-Published_IRR_Free-Internet-Access-in-Public-Places-Act.pdf 118 http://dict.gov.ph/wp-content/uploads/2018/09/DICT-DO-004-2018-DIRECTING-THE-NATIONAL-TELECOMMUNICATION-COMMISSION-NTC-TO- REVIEW-AND-MAKE-APPROPRIATE-ADJUSTMENTS-TO-INCREASE-SPECTRUM-USER-FEES-SUF.pdf 119 http://ntc.gov.ph/wp-content/uploads/2018/MC/MC-02-02-2018.pdf 120 http://dict.gov.ph/wp-content/uploads/2018/06/imagetopdf.pdf 58 PHILIPPINES ECONOMIC UPDATE JUNE 2020 EDITION TOPIC DICT ISSUANCE POLICY NTC ISSUANCE REGULATION Interconnection DICT-DO-002-2018 Directing the National NTC MC No. 05-07-2018 Interconnection Charge for Short charges Telecommunications Commission to Messaging Services and Voice Reduce the Interconnection Rates Service122 Between Public Telecommunications Operators.121 NTC MC No. 09-11-2016 Interconnection Charge for Voice Service123 Broadband quality of NTC MC No. 10-12-2016 Rules on the Measurement of Mobile service Broadband/ Internet Access Service124 NTC MC No. 07-08-2015 Rules on the Measurement of Fixed Broadband/ Internet Access Service125 121 http://dict.gov.ph/wp-content/uploads/2018/05/DICT-DO-002-2018-DIRECTING-THE-NATIONAL-TELECOMMUNICATIONS-COMMISSION-TO-REDUCE- THE-INTERCONNECTION-RATES-BETWEEN-PUBLIC-TEECOMMUNICATIONS-OPERATORS..pdf 122 http://ntc.gov.ph/wp-content/uploads/2018/MC/MC-05-07-2018.pdf 123 http://ntc.gov.ph/wp-content/uploads/2016/MC/MC-No-09-11-2016.pdf 124 http://ntc.gov.ph/wp-content/uploads/2016/MC/MC-10-12-2016.pdf 125 http://ntc.gov.ph/wp-content/uploads/2016/MC/2015/MCNo.2015_0708.pdf REFERENCES 59 REFERENCES Abrigo, Michael R.M., et. al., Projected Disease ITU. 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