Looking at the Fundamentals of the Economy of the Philippines
The economy of the Philippines has been characterized as resilient, not only by local economists but also by foreign experts. It has shown through the years that it can grow in healthy digits, thanks to major sectors and even consumers supporting the economy. But 2020 gave the economy of the Philippines its worst enemy over many years. The lockdown measures to contain the coronavirus’ spread have greatly affected it, along with the global economy.
Still, experts have a positive outlook for the economy of the Philippines in the coming years. They see recovery. They are seeing the economy of the Philippines returning to its former glory.
The economy of the Philippines pins its hope on the national government’s budget. It is deemed the biggest to date. The budget covers spending for different sectors seen to uplift the economy.
Now, let us discuss in detail the economy of the Philippines.
What Drives the Economy of the Philippines?
Across East Asia and the Pacific, the economy of the Philippines is deemed among the most dynamic ones. It was growing by at least 6 per cent in gross domestic products (GDP) for many consecutive years before the coronavirus pandemic occurred in 2020.
With a virus spreading at an alarming pace, the country, like any other nation, implemented lockdown measures to avoid further cases. This put the economy into a halt, with business activities put on hold—some temporarily while others were shut down. This scenario has put great stress on the Economy of the Philippines, which registered a 9.5-per cent contraction, the first in many years.
Still, economists and even the International Monetary Fund (IMF) are optimistic that a turnaround will be seen for the economy of the Philippines in 2021 and onward.
Many factors drive the upbeat outlook on the economy of the Philippines. According to the World Bank, the country’s key economic drivers are its solid fundamentals, competitive workforce, remittances, stable market job market, and big-ticket investment in the construction sector. The Philippines even launched a massive infrastructure drive to spur the growth of the country. It has allotted billions of pesos allocated for the construction sector, which is seen to boost spending and employment.
Given that the Economy of the Philippines is driven by consumption, household spending is also contributing a big portion to the country’s GDP pie. Economists are still waiting for private consumption to return to pre-pandemic levels, so the economy of the Philippines will be restored to its former glory.
The inflation rate, or the growth of consumer prices, has been stable as well. In 2020, consumer price growth averaged 2.6 per cent, which is slightly higher than 2.5 per cent in 2019. This is still within the country’s Central Bank’s target band of 2 per cent to 4 per cent. In 2021, economists expect inflation to rise as demand could potentially return, but the IMF clarified that it would remain at the 3 per cent level only.
Major Sectors in the Philippines
The economy of the Philippines is defined by the major sectors that contribute to the GDP. While the country is known for its agricultural roots, the Philippines has also established robust industrial and service sectors. Let us discuss each of them.
The agriculture sector accounted for about 25 per cent of the economy of the Philippines, but it has declined through the years to around 9 per cent. This, as the country gradually shifted to an industry-driven and service-oriented economy. Still, this sector provides jobs for 25 per cent of the overall workforce in the country.
When agriculture is defined, this sector includes the following:
- crop cultivation
- livestock production
The primary agricultural products in the Philippines, meanwhile, are the following:
While the sector faces challenges, the government is pouring in investments to make agriculture vibrant anew. Among the Department of Agriculture’s projects are farm mechanization, national organic agriculture, and post-harvest development, all of which stabilize the labour cost and reduce post-harvest losses of the farmers.
The industrial sector has proven to be a major contributing factor to the Economy of the Philippines employing over 18 per cent of the country’s workforce. In 2018, it accounted for 30 per cent of the GDP.
The major industries in the country include the following:
- mining and mineral processing
To boost the sector, the Philippines has been exerting further initiatives to make the country an attractive destination for foreign direct investments. The country has already put up economic zones housing foreign companies. According to reports, some foreign firms in China were looking to relocate their business in the Philippines amid uncertainties brought about by Beijing’s trade war with Washington.
The service sector has the lion’s share when it comes to labour. It employs over 56 per cent of the country’s workforce—which is more than the combined job opportunities in both the agricultural and industrial sectors.
This sector is driven by business process outsourcing (BPO). The demand for BPO services lies in the voice talents, which the Philippines is known for, given that it is an English-speaking nation. Many also preferred hiring Filipino call centre agents because of their neutral accent when conversing in English.
The service sector is also booming because of the tourism industry. The Philippines, which is home to many tourist attractions, has been raking in visitors year after year as many enjoy its beautiful beaches and other exciting getaway spots. Among the popular tourist destinations are Boracay, Palawan, Cebu, and Bohol. Along with tourism, the hospitality segment also supports the service sector. When visitors travel, they need accommodation, of course, and the hotels are there to fulfil the demand.
The overseas Filipino workers are also part of the service sector, sending huge sums of remittance yearly. This helped boost consumption in the country, which could result in improving the Economy of the Philippines.
In 2020, the whole world, including the Philippines, accelerated its initiatives for digital transformation. Every country saw the importance of establishing online channels and portals to complete usual tasks, such as banking and buying essential goods. This was prompted by the worldwide lockdown measures implemented to contain the spread of the deadly coronavirus. Eventually, the people adapted to digital platforms to perform such tasks.
Given this situation, the Philippines increased focus on the electronic commerce or e-commerce industry in the country. Under the Philippine e-Commerce Roadmap 2022, the amount of digital transactions is expected to reach P1.2 trillion by 2022, which is markedly higher than P599 billion in 2020. With this higher contribution, the e-commerce segment has the potential to account for 5.5 per cent of the GDP—an increase from 3.4 per cent in 2020.
At the same time, the government is eyeing to have 1 million firms be online sellers by 2022, a twofold jump from around 500,000 in 2020. The reason behind this is because the Department of Trade and Industry wants the entrepreneurs to maximize the opportunity in the e-commerce industry, given that lockdown measures are still in place.
The Trade department is optimistic that the roadmap will be followed, noting that business registrations already reached over 93,000 in the first month of January. The government agency said it was a good indication that the Filipino entrepreneurs are open to adapting to the changing times.
If a country is pushing for a massive digital transformation, it should be backed up by information technology infrastructure. Why? This is to encourage more people to transact online and firms to set up enhanced logistics to improve service delivery. This is something that the roadmap also addresses. The Trade department wants the public to enjoy a seamless connection to the internet.
Record High National Budget of the Philippines
The government allocated P4.507 trillion for its national budget to boost the economy of the Philippines. This budget is equal to 21.8 per cent of the GDP.
Broken down, the social services sector received the largest share or 37 per cent of the budget at P1.668 trillion. The economic services sector accounted for 29.4 per cent of the budget of P1.323 trillion. This sector includes the government’s major infrastructure drive called Build, Build, Build.
The general public services sector, debt burden, and defence were provided P747.8 billion, P560.2 billion, and P206.8 billion, respectively.
Let us take a look at the allocation of the budget according to government departments.
- Department of Education – P751.7 billion, 16.7 per cent
- Department of Public Works and Highways – P695.7 billion
- Department of Interior and Local Government – P249.3 billion
- Department of Health – P210.2 billion
- Department of National Defense – P205.8 billion
- Department of Social Welfare and Development – P176.9 billion
- Department of Transportation – P87.9 billion
- Department of Agriculture – P71 billion
- Judiciary – P45.3 billion
- Department of Labor and Employment – P37.1 billion
The government also allocated P71.4 billion to partially fund the health insurance premiums of 13 million indigent families and seven million senior citizens under its National Health Insurance Program.
The government also gave focus to the micro, small, and medium entrepreneurs or MSME sector. Through the Department of Labor and Employment’s Livelihood and Emergency Employment Program, They allocated P20.4 billion to help the displaced formal and informal workers. They also gave P2.4 billion to the Trade department’s MSME Development Program.
In addition, the government aims to continue providing subsidy funds to aid the vulnerable groups in the country. The programmed budget for the initiative—aimed at poor families, indigent senior citizens, and others—totalled around P138 billion.
Medium- and Long-term Development for the Philippines
The government has set up development plans to make the economy of the Philippines more robust so it can fortify its resiliency.
For example, the Philippine Development Plan 2017-2022 is its medium-term roadmap aimed at promoting inclusive growth. This economic blueprint addresses concerns surrounding poverty, growth disparities among regions, and ways to achieve global competitiveness. There are three pillars of an economic plan:
- establishing trust and transparency between the government and society
- mitigating inequality while boosting opportunities
- speeding up economic growth via innovation and development of human capital
While there have been revisions for this plan due to the pandemic, the government did not lose sight of prioritizing the impoverished sector.
Meanwhile, the longer-term planning for the economy of the Philippines is named AmBisyon Natin 2040 vision, which was established back in 2016. This economic blueprint’s goal is to eliminate poverty so the Philippines will be turned into a middle-income country. With this, the government aims to triple its GDP per capita from $2,892 to $9,350 by 2040 and have a consistent economic growth of at least 6 per cent annually. Under this economic plan, the highlighted sectors include the following:
- financial services
Future of Economy of the Philippines
By 2022, the World Bank saw the Economy of the Philippines revitalized anew after the pandemic threw a wrench to its momentum. The multilateral institution said that the country is expected to ease its lockdown protocols to make way for more business activities to return. This way, further losses due to inactivity will be tempered, and growth will be seen finally.
With the expected improvement in the economy of the Philippines, the World Bank said that the country might see a lower level of poverty. The government also pushed an additional 2.7 million Filipinos into poverty amid the pandemic.
Still, the World Bank said that there are still risks that the government need to monitor. Should it fail to contain the spread of the coronavirus, the outlook for the Economy of the Philippines might go bleak.
Prior to the pandemic, the economy of the Philippines has been touted for its resiliency. It has strong fundamentals, as evidenced by the country’s growing GDP before the pandemic. Now, the resiliency is with the Filipinos themselves as they try to live and navigate through the uncertainties. Truly, the economy of the Philippines lies with what the Filipinos do next.