#KYR: Philippines - EconomyBy The Cove October 4, 2021
The ‘Know Your Region’ series is designed to support unit and individual professional military education on the South East Asian region. It’s important for all serving members of our military to have a foundational knowledge of the countries and issues in the Indo-Pacific.
PHILIPPINES – ECONOMY
On this page:
- Economy and GDP
- Trade Policies
- Trade with Australia
Considered to be an emerging market and a newly industrialised country, the Philippines is swiftly transitioning from an agricultural base to services and manufacturing. The economy has been relatively resilient to global economic shocks due to a number of factors including less exposure to troubled international markets, lower dependence on exports, relatively strong domestic consumption, large income – or remittance – from about 10 million overseas Filipino workers and migrants, and a rapidly expanding services industry.
Migration and remittances have been a feature of Philippine culture for decades. The Philippines remains the source of one of the world’s largest emigrant populations, consisting of temporary Overseas Filipino Workers or OFWs. As of 2019, there were 2.2 million OFWs working in a wide array of fields, most frequently in services (such as caregivers and domestic work), skilled trades, and construction – but also in professional fields, including nursing and engineering. According to the World Economic Forum, Filipinos make up the eighth-largest diaspora in the world. The following video by Vox explains the history of one prominent field for OFWs:
The Philippines has been named one of the Tiger Cub Economies alongside Indonesia, Malaysia, Vietnam, and Thailand. Former Filipino President Gloria Macapagal-Arroyo ensured the Philippine economy was one of the few to avoid contraction following the 2008 global financial crisis, and the Philippine economy expanded during each year of her administration. This left the country well positioned and the video below tracks the unique development path taken by the archipelago by answering the question: is the economy truly rising or still under-performing?
President Duterte pledged to make inclusive growth and poverty reduction his top priority. Running on a platform that illegal drug use, crime, and corruption are key barriers to economic development. The administration wants to reduce the poverty rate to 17% and graduate the economy to upper-middle income status by the end of the President’s term in 2022. Key themes under the Ten-Point Socio-economic Agenda include the continuity of macro-economic policy, tax reform, higher investments in infrastructure/human capital development, and improving competitiveness and the overall ease of doing business. The Duterte administration has a vision to rebuild the economy by addressing infrastructure shortcomings and has pledged to spend $65 billion on infrastructure by 2022 as part of the Build, Build, Build program. During 2017, due to massive Government spending, the current account balance fell into the negative range for the first time since the 2008 financial crisis. Although the final outcome is yet to be seen, the resources below provide insight into Philippines’ economy.
- Inquirer Net | OFWs are back home, what now?
- Philippine Star | OFW remittances may rise by up to 7% this year
- Manila Bulletin | What has ’Build, Build, Build' achieved so far?
- Nikkei Asia | Duterte cannot build his way out of Philippines’ economic troubles
- ASEAN Briefing | Rodrigo Duterte’s Economic Vision: The Punisher’s Plans for the Philippines
- AIIA | Advancing Gender Equality in Southeast Asia: Case Studies From the Philippines and Singapore
Economy and GDP
The Philippines’ economy is the 27th largest in the world by nominal GDP and the 3rd highest in South-East Asia. The Duterte administration has shepherded efforts for a comprehensive tax reform program to raise revenues and promote a more equitable and efficient system. As it stands the low tax-to-GDP ratio severely constrains Government spending of the Philippine Peso (PHP).
Before COVID-19, the Philippines had one of the fastest growing economies in Asia, with real GDP growing on average 6.3% over the ten years to 2019. However, the pressures imposed by the pandemic and severe lockdowns sent the Philippines into recession in August 2020. Yet, international reserves remain at comfortable levels, the banking system is stable, and macro-economic fundamentals remain sound. The World Bank’s Macro Poverty Outlook forecasts the Philippine economy to rebound to 5.3% in 2021 and 5.6% in 2022. This projection assumes that the country successfully manages COVID-19 transmission. Another report by the World Bank investigates the opportunity presented by COVID-19 to rapidly digitalise the Philippine economy. Access to foreign loans, manageable borrowing costs, and a healthy foreign reserve buffer will help fuel the Philippines’ economic recovery.
Regardless of the above, major problems remain. Besides measures to reduce corruption and invest in infrastructure – which are both critical to ensure future economic growth – there is a need to alleviate wide income and growth disparities between different Filipino regions and socio-economic classes. Poverty afflicts more than a fifth of the total population, but in some areas of the southern Philippines this can be as high as 75%. Continued efforts are needed to improve governance, the judicial system, the regulatory environment, the infrastructure, and the overall ease of doing business.
- Brookings | The Philippine economy under the pandemic: From Asian tiger to sick man again?
- Al Jazeera | Philippines sees fastest growth in 30 years even as COVID looms
- Oxford Business Group | The administration of President Rodrigo Duterte continues to focus on inclusive growth and reducing income inequality in the Philippines
The Philippines is undergoing domestic trade policy reforms to attract foreign investment which the country believes is the key to expanding domestic markets. Manila’s major import partner is China; while export partners are more diverse – in order of their share they include China, the United States, Japan, Hong Kong, Singapore, and Germany. Primary exports are mainly electronic products including integrated circuits, office machinery/parts, insulated wiring, semiconductors, and transformers. Other exports include transport equipment, garments, copper products, petroleum products, coconut oil, and fruits.
The Philippines-Japan Economic Partnership Agreement was approved in 2008. It is the Philippines’ only bilateral free trade agreement, covering trade in goods and services, investments, movement of natural persons, intellectual property, customs procedures, improvement of the business environment, and government procurement. The United States and the Philippines have maintained a dependable trade relationship for more than a hundred years, under the bilateral Trade and Investment Framework Agreement (TIFA) updated in 1989. TIFA is inclusive of customs administration and trade facilitation, cooperation on stopping illegal transhipments of textiles and apparel, and implementation of minimum access commitments by the Philippines.
The Philippines has displayed a strong commitment to strengthen multilateral trading systems by playing an active role in negotiations in many areas such as fisheries subsidies. Since 2016, the Philippines has held an agreement with members of the European Free Trade Association – Iceland, Liechtenstein, Norway, and Switzerland – covering trade in goods and services, investment, competition, intellectual property, government procurement, and trade and sustainable development. As part of the ASEAN Economic Community, Manila is a signatory of the ASEAN Trade in Goods Agreement (ATIGA) which covers tariff liberalisation, trade facilitation initiatives, simplification of rules of origin, and establishment of an ASEAN Trade Repository. This is a preferential trade agreement with China, Hong Kong, India, Japan, South Korea, Australia, and New Zealand.
For more information on Philippines trade and policies, read the following articles:
- Council on Foreign Relations – Duterte’s China Policy Has Been A Bust
- Forbes | How Much More Can the Philippine Economy Endure From Rodrigo Before Growth Falters?
- Focus Economics | The economic impact of a break in U.S.-Philippines ties
- Philippine Star | Duterte, Xi renew vow to boost Philippines-China ties
- ASEAN Today | A spat over palm oil: The Philippines’ patience with Malaysia and Indonesia wears thin
Trade with Australia
As the Philippines emerges from the pandemic, there is considerable opportunity to expand upon existing trade, investment, and economic ties. Australia’s proximity to the Philippines and its reputation as a supplier of quality materials and services are important factors in penetrating a Filipino market of nearly 110 million people. Two-way trade in goods was valued at AU$3.6 billion in 2019. Electrical machinery, gold, and manufactured goods are among the Philippines key merchandise exports to Australia; while agricultural, copper, and precious metal ores are key imports.
Two-way trade in services was valued at AU$2 billion in 2019. Education-related travel dominated Australian services imports to the Philippines, while services exports were driven primarily by Australian tourists in the Philippines, reflecting strong people-to-people links. Education ties are growing and Australia, before the pandemic, was the number one destination for Filipinos studying abroad.
The existing trade agreement is the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA), which has reduced a wide range of tariffs on trade since it was signed by Ministers from all 12 participating countries on 27 February 2009 in Hua Hun, Thailand.
The Regional Comprehensive Partnership (RCEP) is a free trade agreement among 15 Asia-Pacific nations to promote further economic growth in the region. Virtually signed in Hanoi, Vietnam on 15 November 2020, it is the biggest trade bloc in history accounting for 30% of the world’s population (2.2 billion people) and 30% of global GDP (US$26.2 trillion) as of 2020.
For more information on Asia-Pacific’s new trade deal please watch the following videos:
- Many economists agree that the Philippines has made a remarkable transition from an agricultural-based to an industrial-based society and is considered one of the Asian Tiger economies. What can Australia do to enhance economic opportunities with the Philippines? What implications to Australia’s interests in the region if the Philippines economy continues to expand?
- President Dutuerte is seeking to significantly reduce the poverty levels in the Philippines and raise the number of people in the middle class. They are taking a similar approach to China’s rapid economic growth. Is there a risk to the region through the shifting strategic partnerships and the Philippines part in those shifts?
- The Philippines have a significant number of trade agreements, both with regional neighbours as well as nations further afield (i.e. Europe). Is the Filipino economy structure resilient enough to withstand both the pandemic as well as increased strategic tensions in the region? How can Australia assist the Philippines to gain this resilience? What current threats might undermine the stability of the Filipino economy?