Philippines
Date: 10 May 2012
The event will be held in Manila , Philippines , with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:
Ms. Ma. Cyd N. Tuano-Amador
Assistant Governor
Monetary Policy Sub-Sector
Central Bank of Philippines
Mr. Sudip Ranjan Basu
Economic Affairs Officer
Macroeconomic Policy and Development Division
United Nations Economic and Social Commission for Asia and the Pacific
Country briefing note <download pdf file>
Economic growth weakened due to declining exports and lower public spending
• Philippines ' strong performance of 7.6% economic growth in 2010 was followed by a weaker 3.7% growth in 2011.
• Faltering global demand for its key exports weighed in heavily, with electronics, accounting for half of total export revenue, plunging by around 23%.
• Growth was thus driven more by domestic demand, in particular, private consumption, which benefited from a large inflow of overseas workers' remittances and rising incomes from dynamic sectors such as business process outsourcing.
• Public expenditure was initially kept low in an effort to improve the fiscal balance but in response to weak growth, a disbursement acceleration programme was announced in October 2011.
• Gross fixed capital formation marginally fell to 20.5% of GDP, from 20.7% in 2010, at constant 2000 prices.
• On the supply side, growth was led by the large services sector, which expanded by 5%, as the industrial sector struggled from supply chain disruptions and weak construction. Agricultural output grew by 2.6%, despite the devastating typhoons and floods in the second half of the year.
• In 2012, economic growth is forecast to accelerate up to 4.8%, given the weaker-than-expected performance in 2011 and thus some base effect and the public infrastructure projects set to take off.
Inflation moderate; not a major concern
• Inflation increased from 3.8% in 2010 to 4.8% in 2011.
• The country imports nearly all its crude oil needs and is a major rice buyer, importing a record 2.4 million tons in 2010 and 708 thousand tons in 2011 to alleviate upward pressure on food prices.
Fiscal health improving, but public infrastructure projects delayed
• The Government reviewed all public projects for efficiency and cost considerations, and this kept public expenditure unusually low through the first three quarters of 2011.
• This, together with higher revenues from strengthened tax administration, helped to improve fiscal health and receive a higher sovereign credit rating. Fiscal deficit fell to 2% of GDP in 2011, from 3.5% in 2010, while National Government debt declined to 50.9% of GDP, the lowest level since 1998.
• However, such measures also delayed infrastructure projects initially planned to take off in 2011. To support the weak economy, a disbursement acceleration programme equivalent to 0.7% of GDP was announced in October, and as result the public construction sector grew by almost 50% in the fourth quarter from a year earlier.
• The Government has front-loaded spending in 2012 and widened its fiscal deficit target to 2.6% of GDP.
Monetary policy turns accommodative to support growth
• With the economy strong in 2010 and through early 2011, the central bank of the Philippines raised policy interest rate in March and May 2011. Previously, it had employed reserve requirements and other monetary tools to curb inflation. Given the favourable inflation outlook and the impact of weaker external demand, the policy interest rate was cut by a total 50 basis points in January and March 2012, back to the level where it was during the global financial crisis in 2009.
Remittances and balance of payments strong, but overall export base and FDI inflow remaining weak
• Merchandize exports fell by 6.9% to $47.2 billion in 2011. Electronics exports plunging by 23.4% in 2011, falling by as much as 36.5% in October, compared to a record high growth of 54.6% in September 2010. However, other exports including textiles and agricultural commodities performed well. After eight months of decline, exports began to gain positive momentum in early 2012.
• With prolonged weak external demand from traditional markets in developed countries, it is a relief to know that South-East Asia's export base has diversified over the past decade, with a higher share of exports now going to regional markets in Asia . For instance, the share of euro zone and United States markets declined from 32% in 2000 to around 20% in 2010. This same period, however, also saw the deepening of regional supply chains, with a rising share of intermediate goods exports. ESCAP analysis shows that the subregion's export dependency on traditional markets remains quite high, once such re-exported goods are considered.
• Business process outsourcing continued to expand, reaching nearly $11 billion in 2011, roughly half of the remittance incomes received by the country. Remittances increased by 7.2% to $20.1 billion in 2011, keeping the current account in surplus despite the trade deficit.
• In terms of foreign direct investment inflows, the Philippines continued to lag behind other major economies in the subregion, receiving only $1.3 billion in 2011, similar to the 2010 level.
• The Philippines peso gained 5.6% against the US dollar in 2010 and 4.2% in 2011.
Creating quality jobs and improving the infrastructure among key challenges
• The country faces many challenges, including a high share of non-wage earners and large infrastructure gaps. The share of workers earning wages and salaries, as opposed to the self-employed and unpaid family workers, also remain quite low.
• Creating better jobs and investing in roads, ports and irrigation will be vital for inclusive and sustained economic growth.
• At the same time, income inequalities have led to a slower reduction of income poverty and also to higher rates of perceived or self-rated poverty. More inclusive policies are needed to address this problem.
Policy brief: Living with high commodity prices <download pdf file>