Economy and Trade
The Republic of the Philippines was once one of the richest countries in Asia, but economic mismanagement and corruption—most notoriously during the presidency of Ferdinand Marcos, who ruled from 1965 to 1986—reduced the archipelago to one of the poorest. Since then the economy has enjoyed relatively strong growth rates for much of the time, but agriculture still accounts for around 20% of GDP and employs around 40% of the workforce. The country has a growing manufacturing sector, producing goods such as semiconductors and electronic microcircuits, finished electrical machinery, and garments. Like India, the country is also benefiting from the outsourcing of IT operations from developed countries. Mining is potentially one of the biggest industries—the country is rich in chromite, copper, nickel, and coal—and natural gas has been discovered. A good educational system and the fact that Filipinos are taught in English means that their services are in demand abroad—worker remittances account for more than 13% of GDP. The Philippines provides significant numbers of nurses to the United Kingdom as well as other state and private medical services.
Economic Policy over 12 Months
The national government worked to reduce its fiscal deficits for five consecutive years, to 0.1% of GDP in 2007, and had hoped to balance the budget in 2008, two years ahead of its original plan. However, the global slowdown has affected these plans, and the budget deficit in 2008 amounted to 0.9% of GDP. In 2009, the government recorded a deficit of 3.8%.
The government’s response to the global financial crisis has included a package of support for returning foreign workers, and increased spending on social services and community infrastructure projects, which it hopes will fuel economic activity and support growth. In 2009, government spending rose significantly and helped support aggregate demand. The government provided cash transfers and emergency employment programs to vulnerable groups as the economy slowed. It also increased spending on infrastructure to compensate for a slump in private investment, according to the Asian Development Bank.
The government’s privatization program boosted revenues in 2008 and 2009. In January 2009, the government received around US$1 billion in partial payment from a consortium that won the right to operate the country’s power grid. The Central Bank of the Philippines (Bangko Sentral ng Pilipinas; BSP) tightened monetary policy in mid-2008, raising policy rates in June, July, and August by a total of 100 basis points. However, it left rates unchanged at the October and November monetary meetings, citing an improving outlook for inflation. The central bank cut rates by a total of 200 basis points between December 2008 and July 2009, taking the overnight borrowing rate to 4.0%, the lowest level in about two decades. The central bank also supported banking system liquidity and depositor confidence by, among other changes, reducing commercial bank reserve requirements and increasing the ceiling on deposit insurance. Easing inflationary pressures helped the central bank relax monetary policy with inflation averaging 3.2% in 2009, down from 9.3% in 2008.
According to the OECD quarterly report on the Philippines from January 2011, although GDP growth in the Philippines has been well above the rate of population growth since 2003, the results of this increase in wealth are still not benefitting the poorest stratum in society. Growth averaged 5.4% between 2003 and 2006, and 4.3% between 2006 and 2009, but the poverty incidence rose from 24.9% of the population in 2003 to 26.4% in 2006 and is still at more or less that level today. In contrast to many countries in the region, according to the OECD, food price inflation has been subdued in the Philippines, and good planting projections for 2011 suggests that any rises will be moderate.
Monetary policy is projected to tighten gradually through the second half of 2011, though overall the BSP is expected to maintain an accommodative policy.
Economic Performance over 12 Months
In 2009, the Philippines economy avoided a technical recession as second- and third-quarter GDP in 2009 rebounded by 1.7% and 1.0% (quarter-on-quarter) respectively, following the 2.1% seen in the first quarter. Growth picked up in the fourth quarter, as industrial output rebounded. The economy grew by 0.9% overall in 2009, compared with average growth of 5.5% over the previous 5 years. Buoyant private consumption and public spending helped to offset weakness in investment and net exports. Helped by remittances from overseas workers, private consumption grew by 3.8% (compared with 4.7% in 2008) to remain the biggest contributor to GDP growth on the demand side, according to the Asian Development Bank (ADB).
The global economic crisis, which has caused layoffs among Filipinos working overseas, affected worker remittances to the Philippines in 2008. However, a recovery got underway in 2009. According to the ADB, remittances rose by 5.6% to US$17.3 billion in 2009, with double-digit increases seen in November and December, when workers sent additional amounts to their families who had been devastated by tropical storms.
The slump in global trade cut merchandise exports by just over 22% to US$37.5 billion, the lowest level since 2003. Exports of electronic goods and clothing were particularly badly affected. Imports fell by 24% to US$46.4 billion.
Unemployment rose in 2008 as the global downturn hit the manufacturing sector. The country’s jobless rate stood at 6.8% in October 2008, compared with 6.3% a year earlier. In 2009, employment grew, mainly in services, but fell short of the 1.1 million increase in the labor force, so the unemployment rate rose to 7.5% (the rate of underemployment was 19.1%). Pressure on under- and unemployment was mitigated by the deployment of about 1.3 million workers overseas in the first 11 months of 2009, 12% higher than the prior-year period.
According to the OECD’s January Report on the Philippines, the economy surged forward in 2010 with GDP rates in double digits, a thing not seen for 30 years: “On the demand side private consumption, investment and net exports were the main drivers of growth. On the supply side, industry and services propelled the economy. The external position continued to strengthen thanks to a consistently strong current account and through improvements in the capital and financial account.” Growth in 2011 is expected to return trend levels of around 5%. This figure agrees with a forecast by the IMF in its Article IV country report on the Philippines, in July 2011: “The authorities’ emphasis on re-orienting spending towards social and capital expenditure will help to strengthen the basis for rapid and inclusive growth going forward,” the IMF concludes.
Support for Inward Investment and Imports
The Philippine Board of Investments (BOI), an agency of the Department of Trade and Industry, is responsible for the promotion of investments in the Philippines. The Bureau of Customs regulates importing into the Philippines.
Information on tax exemptions can be found at the Bureau of Internal Revenue Service.
GDP growth: 5% (IMF, 2011)
GDP per capita: US$3,500 (2010 est.)
CPI: 3.8% (2010 est.)
Key interest rate: 4% (December 31, 2010); Commercial bank prime rate 5.39% (December 31, 2010)
Exchange rate versus US dollar: PhP45.11 (2010)*
Unemployment: 7.3% (2010 est.)
FDI: US$24.5 billion (December 31, 2010 est.)
Current account surplus: US$9.51 billion (2010 est.)
Population: 101,833,938 (July 2011 est.)
* Philippine peso
Source: CIA World Factbook except where stated