Dr. Arsenio Balisacan, Chairman of the Philippine Competition Commission;
Mr. Gil Beltran, Undersecretary and Chief Economist, Department of Finance;
Ms. Stella Luz Quimbo, Commissioner, Philippine Competition Commission;
Mr. John Forbes, Senior Counsellor, American Chamber of Commerce;
Ms. Kelly Go, Founder of Filipinas Oro de Cacao;
Representatives of various government agencies;
Leaders of the business sector and civil society;
Ladies and gentlemen;
It’s my pleasure to welcome all of you today to the launch of our latest report on growth and productivity in the Philippines. This study has both an encouraging story to tell as well as a challenge to all of us.
The Philippines has a vision called AmBisyon Natin 2040 that aims to transform the country into a prosperous middle-class society free of poverty. The report seeks to answer this question: Can the country achieve this vision?
The report concludes that if the Philippines can sustain its current high growth rate by accelerating investments in physical infrastructure and making better use of capital, labor, and technology to increase productivity, the country can achieve this vision. However, this cannot come with a “business as usual” approach. In the long-run, a persistently booming economy will require constant boosts in productivity, for which structural reforms are necessary.
The Philippines’ economy is doing well, so why the urgency in this reform agenda? Well, there’s a popular saying that goes “the best time to fix the roof is when the sun is shining.”
Globally, we have seen lessons from countries that have sustained high growth and reduced poverty rapidly. We have seen how they have used their periods of high growth to implement reforms, invest in human and physical capital to raise productivity, boost workforce participation, and move closer to the goals of ending extreme poverty and building a middle-class society. The Asian tigers in the Philippines’s neighborhood – Hong Kong, Singapore, South Korea, and Taiwan – are among the classic examples.
Philippines can implement reforms
Can the Philippines implement the reforms needed to achieve its own vision? Please allow me to look back into recent history.
In the 1980s, the country experienced a debt crisis and political instability, leading to growth contraction and declines in average income.
By the second half of the 1980s, however, the Philippines started introducing reforms that made the economy more open to trade and financial sector competition.
Policymakers encouraged more players in important sectors including telecommunications, airlines, and inter-island shipping. Government also restored fiscal discipline and tamed inflation. Infrastructure started to improve.
As a result, the Philippine economy recovered and thrived, favored by an expanding global economy. It transformed into what it is today: one of the fastest growing in the East Asia and Pacific region. Since 2010, it has been growing by an average of over 6 percent, and income per capita nearly doubled between 2000 and 2017.
The country is also making significant progress in poverty reduction. Based on the latest available data, poverty rate is down to 21.6 percent in 2015 from 26.6 percent in 2006. The five-percentage point reduction was driven by several factors including the expansion of jobs outside agriculture, remittances, and social protection programs, including the Pantawid Pamilyang Pilipino Program.
Sustaining the momentum
Today, the Philippines clearly has the momentum for speeding up reforms to achieve its development goal.
The report stresses that to achieve the AmBisyon Natin 2040, the Philippines needs to triple its income per capita in the next two decades.
This means that the Philippine economy has to grow at an annual average rate of 6.5 percent for the next 22 years. This is a challenge – in fact one that only the “Asian tigers,” that is, China and a few others, have achieved in their periods of economic boom.
In the medium term, the report finds that accelerating “capital accumulation” or improvements in the country’s physical capital, including infrastructure, will play a big role towards achieving the country’s development goal.
But in the long term, sustaining current high productivity growth, and sharing the benefits more broadly, will be key. Toward this end, the country would need to overcome some hurdles.
Lack of domestic and foreign competition are among the most notable. Many economic sectors – for instance telecommunications, transport, and electricity – are dominated by a few players. Complex regulations stifle entrepreneurs and exporters, particularly the small and medium enterprises. The country is not attracting foreign investments as much as the rest of its neighbors in East Asia. It can still improve its capacity for innovation.
Three reform areas
The recommendations in this report center around three areas for reforms: improving market competition through regulatory reforms, simplifying regulations for trade and investments, and reducing labor market rigidities and costs.
Most of you in this room will find many of the recommendations in this report familiar. That this reform agenda continues to be on the table highlights the importance of taking concrete actions now with greater urgency. Yes, the reforms are challenging, but the payoff for these efforts will be enormous in terms of better quality of life for all Filipinos and future generations to come.
Let me stress here that this reform agenda is also about addressing inequality. You will see later during the presentation that in the last 16 years, real wages of Filipinos have remained stagnant despite the remarkable rise in the country’s GDP and productivity. Enlarging the ordinary people’s share in the country’s growing wealth therefore should be the overarching pillar of the country’s reform efforts.
The World Bank believes that with support from various stakeholders and development partners, the Philippines can take concrete actions to achieve its dream of becoming a prosperous middle-class society.
Thank you and good morning!