Thank you for the honor of meeting you today. I have a happy story to tell and I am very proud to share it with you.
The Philippine economy is delivering the performance we anticipated, notwithstanding the political noise and a significant terrorist event in Marawi City. We have become an engine of growth for this part of the world.
For the second quarter of this year, our GDP grew by 6.5%. We expect even faster growth in the second half of this year. This performance is well on track in meeting the full-year target growth rate of 6.5% to 7.5%. Significantly, economic expansion was led by industry at 7.3% and agriculture at 6.3%. This is a departure from the earlier pattern where growth was led by the services sector.
The higher growth rate we have achieved is due to several factors.
Remittances from our foreign-based workers now account for about a tenth of GDP. That sustained inflow keeps consumption demand high.
We are also expecting more investments coming in as we modernize our infrastructure and reform our economic policies to spur business activity. Investment-led growth will make our domestic economy more inclusive and create quality jobs for our people. This will help bring down poverty incidence. Our entire economic strategy seeks to bring down poverty incidence from the current 21% to 14% by 2022.
The present government is pushing an ambitious infrastructure program that will increase roads, modernize our ports and airports and provide more mass transit for our cities. Called the Build, Build, Build program, we are seeking to match the infra investments of our neighbors such as Thailand and Vietnam. Investments in infra have high multiplier effects and our construction program will have expansionary effects on the economy. By the second quarter of this year, government spending accelerated by 7.1% year-on-year. This indicates greater absorptive capacity and a political resolve to get things done.
The Philippines is looking to spend about 20 Billion USD per year through the medium term to build the urgently needed infra. The escalated spending will be funded by means of official development assistance packages as well as by expanded revenues expected from the comprehensive tax reform package. The tax reform package will align our tax rates and policies with the rest of the region. We are hopeful the Philippine Congress will pass this reform package into law. The reforms enjoy the support of the business community, professional economists and a large number of private groups wishing to see a simpler and more efficient tax system. We aim to achieve a tax effort closer to the regional norm of 15% of GDP.
With the increased revenues from both administrative and tax policy reforms, we aim to keep our deficit to 3% of GDP. That will allow us to grow our economy more rapidly without inviting a spike in inflation. The fiscal discipline we maintained over the past few years enabled the country to achieve investment grade credit ratings. Those ratings enable us to borrow at significantly lower rates. We intend to continue deserving those credit ratings.
The Philippines benefits as well from a benign interest rate environment. That environment encouraged a property development boom as well as increased business activity. Over the coming years, we expect that benign interest environment to persist.
The benign interest rate environment enabled us to work down our public debt to more than manageable levels. This produced a virtuous cycle. The lighter debt load won us better credit ratings that in turn helped us keep interest rates low.
Notwithstanding increased spending for the infra program and expanded social services, we are forecasting the inflation rate at between 2% and 4% through the medium term. We are limiting the public sector deficit to 3% of GDP. As a matter of policy, we are maintaining an 80% to 20% ratio in borrowing favoring meeting our financing needs through domestic borrowing. This will lessen the exchange risks as we pursue an expansionary economic strategy.
Over the past few years, our GDP grew faster than our debt accumulation. Prudence dictates that we strive to maintain this trend. Fiscal stability is key to the sustainability of our economic expansion. We are further modernizing our capital markets to enable the consolidation of capital to support long-term growth.
We have significantly moved up the global rankings for the ease of doing business. We intend to build on these gains by working harder at reducing red tape, curtailing corrupt practices and limiting our negative list for investments. We have every interest in simplifying procedures for business. New investments and more business activities are what will liberate our people from poverty.
One of the least mentioned advantages of the Philippines is that we have a very young and talented work force. This is an asset in a region with aging workforces. Over the next few years, we expect to hit a demographic sweet spot. The large number of young people entering the workforce is, at the same instance, a challenge for the economy. We must expand quickly enough and draw larger volumes of investments to create the jobs the new entrants to the workforce expect.
We are investing heavily in training young Filipinos to be more competitive in the new global economy. We understand that this young workforce will be our economy’s comparative advantage long into the future. That young and talented workforce produces complementarities with the other economies of the region.
Great strides have been achieved towards building a common market among the ASEAN economies. This creates a large enough market to make the region’s industries achieve economies of scale. Our economy can perform as a gateway to a very large and increasingly prosperous Southeast Asian regional market.
The strong growth our economy exhibits could not be possible without strong partnerships with our friends in the region.
The Philippines and Japan have had a robust and mutually beneficial relationship since the normalization of diplomatic relations sixty years ago. In January this year, Japanese Prime Minister Shinzo Abe pledged a 1-trillion yen (9 billion USD) investment and development aid package to the Philippines. This is the largest that Japan has committed to a single country. As of March this year, Japanese ODA amounted to 5.41 billion USD, of which 149.32 million USD came in the form of grants.
We are extremely grateful for the assistance Japan extended, and continues to extend, to support our economic development. We are ready to begin working on our first subway line. The project has been made feasible by Japanese financing and technical support. It will be a great monument to the friendship between our two countries.
Japan has been a major source of industrial investments in the Philippines. As we modernize our infrastructure and accelerate our growth, we look forward to increased investment flows from Japanese companies. We are impressed with the commitment to excellence that imbues your corporate culture. We hope to benefit from the transfers of technology that invariably tracks investment flows.
On our part, we commit to further improve the ease of doing business, respect the sanctity of contracts, and promote a more conducive climate for investments. We look forward to an even stronger partnership with the Japanese people.
Thank you and good day.