Economy of the philippines

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List of the 17 Regions in the Philippines
National - Capital Region I - Ilocos II - Cagayan III - C. Luzon IV-A - Calabarzon IV-B - Mimaropa V - Bicol VI - W. Visayas VII - C. Visayas VIII - E. Visayas IX - Zamboanga X - N. Mindanao XI - Davao XII - Soccsksargen XIII - Caraga XIV - CAR XV - ARMM

Economy of The Philippines

  • GDP (2009): $160.6 billion.
  • Annual GDP growth rate (2009): 0.9% at constant prices.
  • GDP per capita (2009): $1,746.
  • Natural resources: Copper, nickel, iron, cobalt, silver, gold.
  • Agriculture: Products--rice, coconut products, sugar, corn, pork, bananas, pineapple products, aquaculture, mangoes, eggs.
  • Industry: Types--textiles and garments, pharmaceuticals, chemicals, wood products, paper and paper products, tobacco products, beverage manufacturing, food processing, machinery and equipment, transport equipment, electronics and semiconductor assembly, mineral products, hydrocarbon products, fishing, business process outsourcing services.
  • Trade (2009): Exports--$38.3 billion. Imports--$42.8 billion.

  • GDP (2007): $144.1 billion.
  • Annual GDP growth rate (2007): 7.2% at constant prices.
  • GDP per capita (2007): $1,627.
  • Natural resources: Copper, nickel, iron, cobalt, silver, gold.
  • Agriculture: Products--rice, coconut products, sugar, corn, pork, bananas, pineapple products, aquaculture, mangoes, eggs.
  • Industry: Types--textiles and garments, pharmaceuticals, chemicals, wood products, food processing, electronics assembly, petroleum refining, fishing.
  • Trade (2007): Exports--$50.5 billion. Imports--$55.5 billion.

Since the end of World War II, the Philippine economy has been on an unfortunate trajectory, going from one of the richest countries in Asia (following Japan) to one of the poorest. Growth immediately after the war was rapid, but slowed over time. Years of economic mismanagement and political volatility during the Marcos regime contributed to economic stagnation and resulted in macroeconomic instability. A severe recession from 1984 through 1985 saw the economy shrink by more than 10 percent, and perceptions of political instability during the Aquino administration further dampened economic activity.

During the 1990s, the Philippine government introduced a broad range of economic reforms designed to spur business growth and foreign investment. As a result, the Philippines saw a period of higher growth, although the Asian financial crisis in 1997 slowed Philippine economic development once again.

Despite occasional challenges to her presidency and resistance to pro-liberalization reforms by vested interests, President Arroyo made considerable progress in restoring macroeconomic stability with the help of a well-regarded economic team. Nonetheless, long-term economic growth remains threatened crumbling infrastructure and education systems, and trade and investment barriers. International competitiveness rankings have slipped.

The service sector contributes more than half of overall Philippine economic output, followed by industry (about a third), and agriculture (less than 20%). Important industries include food processing; textiles and garments; electronics and automobile parts; and business process outsourcing. Most industries are concentrated in the urban areas around metropolitan Manila. Mining also has great potential in the Philippines, which possesses significant reserves of chromate, nickel, and copper. Significant natural gas finds off the islands of Palawan have added to the country's substantial geothermal, hydro, and coal energy reserves.

Today's Economy

The Philippine economy seems comparatively well-equipped to weather the global financial crisis in the short term as a result of the efforts over the past few years to control the fiscal deficit, bring down debt ratios, and adopt internationally-accepted banking sector capital adequacy standards. The Philippine banking sector -- which comprises 80% of total financial system resources -- has limited direct exposure to distressed financial institutions overseas (i.e., $2 billion, less than 2 percent of aggregate banking system assets). Conservative regulatory policies, including the prohibition of investments in structured products, shielded the insurance sector from exposure to distressed financial firms. While direct financial exposure to problematic investments and financial institutions is limited, the impact of external shocks to economic growth, poverty alleviation, employment, remittances, credit availability, and overall investment prospects is a concern.

GDP grew by 7.3 percent in 2007, the fastest annual pace of growth in over three decades, capping nine consecutive quarters of growth at greater than 5 percent. Historically, the Philippines has struggled to sustain growth over 5 percent. GDP increased by 5.4 percent in 2006, 4.9 percent in 2005, and 6.4 percent in 2004. Growth in 2007 was fueled by increased government and private construction expenditures; a robust information communications technology industry; improved post-drought agricultural harvests; and strong private consumption, spurred in part by $14.4 billion in remittances from overseas workers (equivalent to about 10 percent of GDP).

The services sector, which now accounts for about 55 percent of Philippine GDP, grew by 8.7 percent in 2007. Business process outsourcing (BPO) has been the fastest-growing segment of the Philippine economy, totaling an estimated 10 percent of the global outsourcing market and generating an estimated $5 billion in revenues in 2007 (equivalent to about 3.5 percent of Philippine GDP). BPO revenue grew 40 percent during 2006 and 2007. The construction industry grew by almost 20 percent in real terms during 2007, fueled by a 30 percent real increase in government construction expenditures and a 10 percent increase in private construction investment. Tourism and mining continued to emerge as key industries in 2007. Tourism enjoyed a record year in 2007, with over 3 million arrivals from overseas spending more than $5 billion and helping to fuel air transportation growth of 15 percent. Mining and quarrying grew by 25 percent.

However, real year-on-year GDP growth slowed to 4.6% during the first half of 2008 and is expected to end the year closer to 4%, reflecting the impact of high food and fuel prices and global financial uncertainties on the domestic economy. It will take a higher, sustained economic growth path to make more appreciable progress in poverty alleviation given the Philippines' annual population growth rate of 2 percent, one of the highest in Asia. The portion of the population living below the national poverty line increased from 30 percent to 33 percent between 2003 and 2006, equivalent to an additional 3.8 million poor Filipinos. Slower economic growth here and abroad and uncertainties over domestic and overseas employment opportunities threaten to push more Filipinos into poverty.

At $8.6 billion, the overall balance of payments ended 2007 with a record surplus resulting from higher overseas workers remittances, tourism receipts, BPO-related revenues, portfolio investments, and official development assistance funds. Growth in merchandise exports, relying heavily on electronics shipments for about two-thirds of export revenues, slowed to 6 percent (from 15 percent in 2006). January-August 2008 merchandise exports decelerated further to 4.4% growth year-on-year. Although there has been some improvement over the years, the local value added of electronics exports remains relatively low at about 30 percent. Net foreign direct investment (FDI) inflow rose from a low base to nearly $3 billion in 2006 and 2007-- nearly double the 2005 level -- but still lags most regional neighbors. Net FDI will end 2008 weaker, with net inflows estimated at $716 million during the first eight months of 2008, down 59% year-on-year. The BOP surplus had contracted to $2 billion as of September 2008, partly reflecting higher import bills for rice and fuel and net outflows of jittery foreign portfolio capital. The United States remains the Philippines' largest trading partner with over $17 billion in two-way trade, and the largest investor with more than $6.5 billion in total FDI.

Stocks

The Philippine stock market index -- which closed 2007 among the top performers in East Asia – has since declined and, as of the third week of October 2008, had slipped to a near three-year low. As of the third week of October, the index had slipped by about 27% from August 2007 and by 46% from the end of 2007. The Philippine peso, which appreciated about 16 percent against the U.S. dollar over the course of 2007, has since weakened and closed the third week of October 2008 down 18% from the beginning of the year. Gross international reserves ended 2007 up nearly 47 percent year-on-year to a new record high of $33.7 billion, and had increased further to nearly $36.7 billion as of September 2008, adequate for nearly 6 months of goods and services imports and equivalent to 2.7 times foreign debts maturing over the next 12 months.

Efforts in recent years to reduce the public sector deficit by raising new taxes have helped reduce high debt ratios, create additional fiscal space to increase spending on vital social services and infrastructure after years of tight budgets, and improve confidence. December 2004 legislation provided for biennial adjustments to the excise tax rates for tobacco and liquor products until 2011, while a law signed in January 2005 seeks to institute a performance-based rewards system in the government's revenue collection agencies.

Budget

The national government worked to reduce its fiscal deficits for five consecutive years to 0.1 percent of GDP in 2007 and had hoped to balance the budget in 2008, two years ahead of its original plan. The government has since reverted to the 2010 balanced-budget schedule in order to stimulate the economy and temper the adverse impact of global external shocks on the already high number of Filipinos struggling with poverty. The national government's deficit-reduction program helped yield modest primary surpluses during 2006 and 2007. While more reforms and greater transparency are needed, tighter financial controls over state-owned companies and initiatives to improve the longer-term viability of state-run pension funds also contributed to recent surpluses. Although still high, the debt of the consolidated public sector has declined to under 75 percent of GDP. Major credit rating agencies raised their rating outlook for Philippine sovereign debt from "negative" to "stable" in recognition of fiscal progress and declining debt ratios. Looking forward, further reforms are needed to ease fiscal pressures from large losses being sustained by a number of government-owned firms and to control and manage contingent liabilities. Despite recent improvements, challenges still remain to the long-term viability of state-run pension funds. The national government's tax-to-GDP ratio (14% in 2007) remains low relative to historical performance and vis-à-vis regional standards. The government has intermittently relied on heftier privatization receipts to make up for the shortfall in targeted tax collections but this is not a sustainable revenue source.

The Philippine Congress enacted an anti-money laundering law in September 2001 and followed through with amendments in March 2003 to address remaining legal concerns posed by the Organization for Economic Cooperation and Development (OECD) Financial Action Task Force (FATF). The FATF removed the Philippines from its list of Non-Cooperating Countries and Territories in February 2005, noting the significant progress made to remedy concerns and deficiencies identified by the FATF to improve implementation. The Egmont Group, the international network of financial intelligence units, admitted the Philippines to its membership in June 2005.

Seven years after the Arroyo administration enacted legislation to rationalize the electric power sector and privatize the government's debt-saddled National Power Corporation (NPC), significant progress was made in 2007, notably the privatization of the state-owned transmission company (Transco) and sales of 68% of total generating assets in Luzon and the Visayas.

The U.S. Trade Representative removed the Philippines from its Special 301 Priority Watch List in 2006, reflecting improvement in its enforcement of intellectual property rights (IPR) protection. It maintained the Philippines on the Special 301 Watch List in 2007. However, sustained effort and continuing progress on key IPR issues will be essential to maintain this status.

Despite a number of policy reforms, the Philippines continues to face important challenges and must sustain the reform momentum to catch up with regional neighbors, spur investments, achieve higher growth, generate employment, and alleviate poverty for a rapidly expanding population. Absent new revenue measures, sustained fiscal stability will require more aggressive tax collection efficiency to address the severe under-spending in infrastructure and social services after years of tight budgets. Continuing efforts to fast-track power sector privatization remain critical to the long-term stability of public sector finances, ensuring reliable electricity supply, and bringing down the cost of power.

Investments

Potential foreign investors, as well as tourists, remain concerned about law and order, inadequate infrastructure, policy and regulatory instability, and governance issues. While trade liberalization presents significant opportunities, intensifying global competition and the emergence of low-wage export economies also pose challenges. Competition from other Southeast Asian countries and from China for investment underlines the need for sustained progress on structural reforms to remove bottlenecks to growth, to lower costs of doing business, and to promote good public and private sector governance. The government has been working to reinvigorate its anti-corruption drive, and the Office of the Ombudsman has reported improved conviction rates. Nevertheless, its slipping anti-corruption ranking indicates that the Philippines’ efforts are lagging and that more needs to be done to improve international perception of its anti-corruption campaign -- an effort that will require strong political will and significantly greater financial and human resources.