Economic and policy developments
The Philippines has emerged as one of the most dynamic economies in the East Asia region. Despite a challenging global economic environment, the Philippine economy has grown at a rapid pace over the past five years, supported by sound macroeconomic fundamentals and a highly competitive workforce. Strong capital investment and robust domestic demand have helped secure the Philippines’ position as the leading growth performer among major economies in East Asia and the Pacific. GDP growth rate rose from 5.5 percent in the first half of 2015 to 6.9 percent in the first half of 2016, enabling the Philippines to outperform regional peers such as China, Indonesia, Malaysia, Thailand, and Vietnam.
Meanwhile, the country is transitioning to a new economic policy framework. The Duterte administration took office on June 30th after winning a peaceful democratic election marked by record voter turnout. The previous administration made major achievements in securing macroeconomic stability, promoting public sector transparency and focusing fiscal resources on pro-poor infrastructure projects and social services, and the new president’s economic team has prepared a 10-point socioeconomic agenda designed to reinforce private sector confidence in the continuity of the existing macroeconomic framework. The preliminary agenda is intended to bolster the government’s current fiscal, monetary and trade policy stances, while prioritizing tax administration reforms.
Prospects and risks
The economic outlook is optimistic, with risks tilted to the upside. The substantial improvements in macroeconomic stability achieved over the past decade have established the necessary conditions for further robust growth. Over the near term, the Philippines is poised to benefit from the completion of several large public infrastructure projects, which are expected to boost private investment. Improved infrastructure, solid remittance inflows and significant social spending should continue to support the growth of household consumption. If remaining budget-execution bottlenecks are successfully addressed in the next few months, and if uncertainties regarding the specifics of the reform agenda are quickly resolved, the annual GDP growth rate could exceed the 6.2 percent currently projected for 2017-18.
While the near-term outlook is highly positive, the Philippines’ growth model is subject to t medium-term risks. These include the continued failure of external demand to meet expectations and/or a decrease in remittance inflows, and potentially higher interest rates in the US and EU. On the domestic front, medium-term risks include the persistent vulnerability of the agricultural sector, as well as unresolved constraints on private investment, and a lack of competition in major sectors and structural deficiencies in the business environment. Finally, ensuring that growth is inclusive will continue to pose a major cross-cutting challenge to Philippine policymakers—one that is likely to intensify as the country’s evolving economy increasingly shifts to more skill- and capital-intensive forms of production.
Enhancing the inclusiveness of growth is a stated priority of the new administration. The Philippines has made some progress in its fight against extreme poverty. As the Philippine economy continues to develop, the challenge of ensuring inclusive growth will become more complex, and investment in human capital will be necessary to ensure that the nation’s workforce is able to meet a rising demand for skilled labor. The new administration is committed to continued investment in education, job skills, public health and social assistance in order to promote a transformative and inclusive growth pattern. The government is currently engaged in a process of stakeholder consultation as it develops the next six-year Philippine Development Plan, which is expected to provide guidance on both short- and medium-term policy priorities for achieving this ambitious goal.