The document discusses the strong macroeconomic fundamentals and economic growth of the Philippines in recent years. It notes that GDP growth has accelerated to over 5% annually despite natural disasters, driven by robust private consumption, investment, and growth in the manufacturing and services sectors. Inflation has remained low and stable between 3-5% while interest rates are historically low. The stock market and competitiveness rankings have also improved significantly in recent years according to various reports. However, challenges remain in generating higher and more inclusive economic growth through productivity gains and better job creation.

1. Special Issues in the
Administration of
Economic
Development
Josefina B. Bitonio, DPA
DPA 314

2. Philippine
Economic Update

3. Structural Policy Country Notes:
Medium-Term Policy Challenges
• Many Southeast Asian countries are searching for
“new growth and development strategies” The
global financial crisis has underscored the need
for Asian economies to rethink their past growth
models. The export-oriented growth strategies,
successful in earlier decades, have shown their
weaknesses. Excessive dependence on external
demand has made many Asian countries
vulnerable to fluctuations in global demand and
to other external shocks.
OECD, 2014

4. Structural policy country notes:
Medium-term policy challenges
• Many Southeast Asian countries are now
searching for new growth and development
strategies which are more focused on domestic
demand and better adapted to changing
international market conditions. Policy makers in
the region recognize the need to adapt their
development strategies and indeed have included
several new elements that reflect a shift towards
a new growth model in their medium-term
development plans.
OECD, 2014

5. • These elements include human capital
development, social and labor market policies,
policies to promote greener economies and
policies to address economic and social
disparities. Implementation of the new
development strategies will require the adoption
of a comprehensive package of reform
measures. Overall, enhancing productivity
through structural policy reforms will be key to
the success of the new development strategies
in the region.
OECD, 2014

7. • Higher growth was underpinned by the robust
performance of consumption and services, and
supported by the expansion of investments and
manufacturing. As in previous quarters, sustained
inflow of remittances fueled private
consumption, which grew by 5.6 percent. Private
construction increased by around eight percent,
supported by low interest rates and strong
demand for office and residential spaces by the
booming business processing outsourcing (BPO)
industry and its 900,000-strong workforce
OECD, 2014

8. • According to WB Report (2014), Despite
Typhoon Yolanda and a string of natural
disasters throughout 2013, Philippine economic
growth accelerated to 7.2 percent in 2013
and bringing full year growth to 5.8 percent in
2015. Underlying this remarkable growth are the
country’s strong macroeconomic fundamentals
which continued to support domestic demand
and shield the economy from the persistent
weaknesses of the global economy.

9. Strong Macroeconomic
Fundamentals
• What exactly are macroeconomic
fundamentals anyway? They include
unemployment, GDP, inflation (consumer
price indices), interest rates and fiscal and
monetary policy and balance of payments.
Wootton, 2015

10. • Improved efficiency of public infrastructure
spending also contributed to higher growth.
Exports, while improving, remained lackluster,
given slack demand for electronic products.
On the production side, both the services and
manufacturing sectors were drivers of growth.

11. • Like other emerging markets, Philippine financial
markets experienced large volatilities as investors
responded to the tapering of the US stimulus
program. Stock and bond prices fell significantly in
June, August, and December 2013. In August, when
volatility was most pronounced, the Philippine Stock
Exchange index lost nearly 30 percent of its value
(peak to trough), while bond prices fell by 20
percent. The outflow of portfolio investment
contributed to the peso’s 12-percent nominal
depreciation by year end. However, confidence in the
domestic economy remained high and the country
was globally recognized with a third credit rating
upgrade to investment grade

12. • Monetary and fiscal policy remained
supportive of growth. In 2013, Consumers
Price Index (CPI) inflation eased to three
percent, equivalent to the low end of the
central bank’s inflation target of three to five
percent. With low and stable inflation, policy
rates were kept at historically low levels of 3.5
and 5.5 percent for the overnight borrowing
and lending rates, respectively. Government
finances continued to improve, thanks to
improvements in tax administration and
spending efficiency

13. • Public spending was supported by strong
growth in infrastructure spending despite
slowdowns in other spending categories.
Revenue collection grew by about 12 percent,
driven by improved tax administration and
incremental revenues from the “sin tax.”
Further public finance reforms are underway.
These include rationalizing fiscal incentives,
improving customs administration, and
enhancing the accountability and transparency
of the budget through the reform of budget
execution.

14. • Moving forward, the country needs to
continue focusing its attention on generating
higher, sustained, and more inclusive
growth—the type that creates more and
better jobs and reduces poverty. With good
jobs, Filipinos can increase their income, save
more, and invest for the rainy days, thereby
reducing vulnerabilities to calamities

15. • The World Bank recently released the draft of
the Philippine Development Report (PDR)
“Creating more and better jobs” for public
discussion. The report argues that the
challenge of sustaining growth and creating
more and better jobs will have to focus on
raising the productivity of the majority of the
country’s workers, in particular farmers and
MSMEs.

16. • More and better jobs can be created by
accelerating reforms to protect property rights,
promote more competition, and simplify
regulations, while sustainably ramping up public
investments in infrastructure, education, and
health. However, fiscally sustainable increases in
investment levels are only possible through a
combination of more efficient government
spending and increased revenues from new tax
policy and improved administrative measures.

17. • With these reforms, the private sector will
have the incentive to invest more and create
jobs, and the country can attract more
investments as the economic rebalancing in
the world’s most dynamic region takes place.
An initial assessment of a new dataset on
trade in value-added suggests that the
Philippines is well-positioned to further
enhance its participation in the region’s supply
chains

18. • To increase the chances of success, broad
reform coalitions — that is, multi-sectoral
groups composed of many interests that can
address diverse options at the national or
local levels — are crucial. Locking in good
governance and translating it into inclusive
growth can only occur if government,
business, and labor, supported by civil society,
agree on a practical agenda for job creation
for all Filipinos.

19. • The Philippines is one of the most dynamic
economies in the East Asia region, with sound
economic fundamentals and a globally
recognized competitive workforce. Growth in
the Philippines has been on average above 5%
in the past decade, significantly higher than in
previous decades.

20. • The Philippines has a status of emerging
economy. In recent years, the country has been
steadily growing mainly due to inflow of foreign
direct investment and remittances. The
Philippines is the world’s largest center for
business process outsourcing. The country also
has a strong industrial sector based on the
manufacturing of electronics and other high-tech
components for overseas corporations. The
Philippines is rich in natural resources; it has
significant reserves of chromite, nickel, copper,
coal and oil.

23. Fast Facts about the Philippine Economy
• The performance of the Philippine economy in 2012
and in the first quarter of 2013 indicates that it is
moving along a higher growth trajectory. From the
3.6 percent growth recorded in 2011, the Philippines’
GDP grew by 6.8 percent in 2012 and by 7.8 percent
in the first quarter of 2013. The first quarter growth
of 2013 is the highest growth rate recorded under
the Aquino administration, and is faster than that of
China’s, Indonesia’s, Thailand’s, and Vietnam’s for the
same period.

24. • Remarkable growth was achieved alongside a
slowdown in the increase in prices of basic
commodities.
The retail prices of basic and prime
commodities remained below their suggested
retail prices and most have not increased in the
past three months, according to the Department
of Trade and Industry (DTI, 2015).
Read more: http://business.inquirer.net/185456/prices-of-basic-goods-
remain-unchanged-says-dti#ixzz4A4gsAY5L

25. • The full-year average inflation rate for 2012
was at 3.2%—the lowest recorded inflation
rate in five years and lower than the average
inflation rates in Indonesia, Singapore, India,
and Vietnam. Average inflation for the first
half of 2013 was at 2.9%, which is at the lower
than the 3% to 5% target for 2012 to 2013.
Philippines Inflation Rate at 7-Month High
Philippines annual inflation rate rose 1.5 percent in
December of 2015
http://www.tradingeconomics.com/philippines/inflation-cpi

26. Reflection
• Inflation is at a low level, GDP is growing at
Olympic gold-medal levels, interest rates are
low (only 36 percent to 48 percent a year for
credit card interest!) and fiscal and monetary
policy is on a tight rein. So if the
macroeconomic fundamentals are really
strong, why is the job market not reducing the
unemployment numbers significantly, if at all?
Wootton, 2015

27. • There have been 92 record highs in the
Philippine Stock Exchange Index since July
2010, the most recent record closing
registering on May 15, 2013 at 7392.20 points.
Two days after the country's elections, the
Philippine Stock Exchange index (PSEi) gained
221 points or 3.09% to close at 7,369.52. All
Shares also surged by 116.07 points or 2.72%
to 4,388.31
http://www.rappler.com/business/economy-watch/132739-philippine-
stocks-elections-rodrigo-duterte

28. • The World Economic Forum increased the
ranking of the Philippines in the Global
Competitiveness Index, from 85th place in
2010 to 65th (out of 144 countries) in 2012—
two consecutive 10-place jumps
WEF ranked the Philippines as the 47th most competitive
country in the world, out of 140 economies. When
grouped according to the WEF's productivity "pillars," the
country received its highest rank in macroeconomic
environment at 24th place, and its lowest rank in
infrastructure at 90th place.
http://cnnphilippines.com/business/2015/09/30/philippines-climbs-5-
places-in-wef-competitiveness-ranking.html

29. Infrastructure at 90th place
The bureaucratic nightmare that all but kills off any
development investment also inhibits the
government’s own attempts to spend and develop
investor-attractive infrastructure. If there were a
strong will to undertake development investment
and through that attract more private investment,
then it could be made to happen at the expense of
using some of the “security money” sitting doing
nothing in the government’s coffers as well as the
risk of opening up some of the almost impossible to
satisfy procedural requirements.
Wootton, 2015

30. • If the government leads with a strong will, the
private sector will follow but, for now, the
private sector can’t seem to think of too much
to do beyond developing land, where
opportunities are severely limited, thanks to a
lack of decent transportation infrastructure
itself leading to overbuilding and unrealistic
price levels [not to mention the awful traffic
snarls] in those areas that are accessible.
Wootton, 2015
Infrastructure at 90th place

31. Singapore was ranked the most competitive Southeast Asian
economy, at 2nd place in the overall index. Five other
Southeast Asian states ranked in the upper half of the
standings:
• Malaysia: 18th
• Thailand: 32nd
• Indonesia: 37th
• Philippines: 47th
• Vietnam: 56th
"With the exception of Thailand, all five have improved their
showing since 2007, most notably the Philippines, which has
leapfrogged 17 places," the WEF noted.
http://cnnphilippines.com/business/2015/09/30/philippines-climbs-5-places-
in-wef-competitiveness-ranking.html

32. • Foreign direct investments (FDI) grew by 54%
from USD1.8 billion in 2011 to USD2.8 billion
in 2012, outpacing Malaysia, Indonesia,
Thailand, and Singapore.
2011 2012 2013 2014
2,007,150,725 3,215,415,155 3,737,371,740 6,202,380,556
Source: http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD

33. • The Philippines has committed to provide up
to USD1 billion in loan resources under the
bilateral borrowing facility of the International
Monetary Fund.
• The BSP’s commitment of US$1 billion to the
IMF shows our support to the global efforts in
stabilizing the world economy and maintaining
its growth path. As a member of the global
community of nations, it is also in our interest
to ensure economic and financial stability
across the globe.

34. • Merchandise exports grew by 7.6% from
USD48.30 billion in 2011 to USD51.99 billion
in 2012, the highest recorded export earnings
in the country’s history amid adverse global
developments.
• Moreover, total merchandise exports for the
year 2015 registered a 5.6 percent drop, that
is from $62.102 billion in 2014 to $58.648
billion in 2015
https://psa.gov.ph/content/merchandise-export-performance-december-
2015#sthash.biOmXE6s.dpuf

35. • Recent estimates suggest that extreme
poverty decreased gradually between 2012
and 2014. Extreme poverty is estimated to
have decreased from 10.6 percent in 2012 to
nine percent in 2014. After a decrease of only
0.3 percentage points between 2009 and
2012, poverty fell more rapidly between 2012
and 2014, according to revised purchasing
power parity (PPP) estimates. However, high
rates of structural poverty remain, especially
among households depending on agriculture.

36. • Data from the Philippine Statistics Authority
(PSA)’s Annual Poverty Indicators Survey
(APIS) showed that poverty incidence among
Filipino individuals rose by 1.2 percentage
points to 25.8 percent in the first semester of
2014 from the 24.6 percent registered in the
first half of 2013.
Demographics of Philippines
Population 100,981,437 (2015 census)

37. Reflection
• The Philippines is not a “poor” country, given an
annual government budget of more than P3 trillion,
remittances from overseas Filipinos of about P9
trillion a year and the highest tax rates in Asia. But the
government finds it so difficult to spend its money,
seemingly preferring to hoard it like the Chinese
people in order to gain glowing compliments on its
macroeconomic fundamentals, fiscal and monetary
policy and protecting the value of the peso. No matter
unemployment figures, high interest rates (yes they
are high, and will remain so), lack of infrastructure,
poverty incidence and the drive to get work abroad.
Wootton, 2015

38. “The phrase “our strong macroeconomic
fundamentals” is frequently repeated, most recently
as the safeguard against the effects of changes in the
US dollar/peso exchange rate. I find the claim a bit
baffling really. This sort of statement along with
quotes, including one from the World Bank recently
that the Philippine economy has grown miraculously,
conflicts with unemployment, poverty, low levels of
government spending and foreign investment
statistics. There is an apparent dramatic disconnect”.
Wootton, 2015
if the macroeconomic fundamentals are really strong,
why is the job market not reducing the unemployment
numbers significantly, if at all?

39. • what kinds of elements will be important for
the new development strategies in the
Philippines; and how does the country
incorporate its new development model into
its medium-term plans?

40. • The government should start spending money,
wisely and strategically. Spend government
money to create jobs and build infrastructure,
which then attracts investment, creates more
jobs and lowers poverty incidence. The private
sector, even in regulation-captive Philippines,
is not going to do all this by itself as it has no
formal right to do so and you just never know
when the government may wake up to its
responsibilities.
Wootton, 2015

41. • The major policy challenges the Philippines faces
in its Medium-Term Development Plan are to
improve its road infrastructure, increase access to
education and development resources, and
ensure jobs for all. Both road transport and
power are critical to achieve a more closely
integrated Philippine economy, thereby helping
to attract private-sector investment. Increasing
secondary school enrolment and improving the
standards of teachers and pupils are vital
reforms, without which there can be no adequate
human and economic development or job
creation
OECD, 2014

42. The Philippines economy grew
an annual 6.9 percent in the
March quarter of 2016,
accelerating from an upwardly
revised 6.5 percent expansion in
the previous three months and
above market consensus of a
6.6 percent growth. It is the
strongest expansion since the
September quarter 2013 as a
faster increase in household
spending and investment offset
a slowdown in government
expenditure and exports.
The incoming
administration of
President-elect
Rodrigo Duterte
plans to achieve
annual economic
growth of 7.0 to 8.0
percent.

43. References
Organization for Economic Co-operation and
Development (2013) Southeast Asian
Economic Outlook 2013 WITH PERSPECTIVES
ON CHINA AND INDIA Narrowing
Development Gaps
https://www.oecd.org/dev/asia-
pacific/Pocket%20Edition%20SAEO2013.pdf

44. World Bank (2014) Philippine Economic Update.
Pursuing Economic Growth Through
Sustainable Reconstruction and |Job Creation

45. • Wootton, Mike (2015) ‘Strong
macroeconomic fundamentals’? August 11,
2015 8:25
• http://www.manilatimes.net/strong-
macroeconomic-fundamentals/208676/