02 Can the Economy Outgrow the National Debt - Dr. Felipe M. Medalla
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Transcript of 02 Can the Economy Outgrow the National Debt - Dr. Felipe M. Medalla
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Can the Economy Outgrow
the National Debt?
Felipe M. Medalla
UP School of Economics
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Persistent Philippine economic problems thatwere aggravated by the global financial crisis
Tight Fiscal Situation and PoorRevenue Performance
Inadequate Infrastructure
Weak Investor Confidence due toGovernance concerns
Small Narrow, and Stagnant
Industrial Base High Incidence of Hunger and
poverty
Dismal Education Outcomes
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A country with a very youngpopulation.
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the vast majority of whom were born frommothers who have low education (and have morechildren than they desire)
Fertility by MothersEducation
DesiredFertility
ActualFertility
No education 4.1 5.3
Elementary 3.3 5.0
High school 2.5 3.5
College or higher 2.2 2.7
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The poorest forty percent of the mothers accountfor 56% of the births
Fertility by Wealth Quintile DesiredFertility
ActualFertilityWealth index quintile
Lowest 3.8 5.9
Second 3.1 4.6
Middle 2.6 3.5
Fourth 2.2 2.8
Highest 1.7 2.0
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And many of their children dont finishelementary school.
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Enrollment growth has lagged behind the growth ofschool-age population.
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National Government Debt Nearly Doubled From 2.2to 4.2 Trillion pesos.
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A big part of the increase in the public debtis not due to the national government sbudget deficit
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In a stable macroeconomic environment, the economy canout-grow the debt even with modest deficits provided that
off-budget deficits can be eliminated.
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The Philippine economy was less affected by theglobal crisis because exports of people of serviceswere less affected than the global trade of goodsand services.
PHILIPPINES: BALANCE OF PAYMENTS
2008, in million U.S. dollars Totals
CURRENT ACCOUNT Goods Services Income Transfers
Receipts 48,202 10,194 5,973 15,780 80,149Payments 60,784 8,756 5,827 555 75,922
Surplus/Deficit -12,582 1,438 146 15,225 4,227
CAPITAL ACCOUNT Direct Inv.PortfolioInv.
Derivatives
Other
Net Inflow/Outflow 1,283 -2,584 -144 -469 -1,914
NET UNCLASSIFIED ITEMS
-2,224
OVERALL BOP POSITION
89
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But remittances were much more resilient than
anticipated.
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Because of OFW remittance we have a BOPcurrent account surplus and a large and growinginternational reserves.
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That we have a BOP Current Acct Surplus alsomeans that there are more than enough savings(low rates of investments meant that much of theOFW savings ended up as reserves of the BSP)
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If not for the large excess savings, the ballooninggovernment deficit could have caused a lot of
problems.
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Unlike what happened in the past, thegrowth in the budget deficit did not cause aspike in interest rates.