Gem of Southeast Asia

Philippines has grown at a healthy rate during the last six years. With the resounding victory of Rodrigo Duterte, the new president-elect, hopes for an inclusive and broader growth are even higher.

Even as the dark clouds continue to loom large over the global economy, Philippines is proving to be somewhat insulated from external risks, at least for now, and grow at 6.4 per cent this year. The country will stay resilient, even as the global economy takes a turn for the worse, says the World Bank in its latest assessment.
The World Bank has downgraded this year's growth forecast for the global economy from 2.9 per cent (predicted in January) to 2.4 per cent in the wake of sluggish growth in economies such as the US, Japan, and Europe, and low commodity prices, which have severely affected a lot of export-led economies.
However, Philippines is benefitting from increased domestic consumption and less reliance on exports for growth. The country is one of the bright spots in Southeast Asia having grown much faster than regional competitors such as Thailand and Malaysia.
Between 2010 and 2015, the economy expanded at an average annual rate of 6.3 per cent, nearly two percentage points faster than in the previous five years - and the biggest improvement among Southeast Asia's large economies.
During the first quarter of this year, the economy grew at better-than-expected 6.9 per cent, compared to 5.2 per cent during the same period last year.

Reform-minded policies

The credit lies largely with the legislative changes and reform-minded policies introduced by the President Benigno Aquino, who will leave office in June end this year. He was the first Philippine President to enter and leave office in an orderly democratic transition since Fidel Ramos in 1998.
Arguably, under his tenure the country has seen improvements in economic management, increased foreign investments and tourists, transparency and governance. Aquino built on fiscal and budgetary reforms begun by his predecessor, Gloria Macapagal Arroyo, and brought the country's credit rating above investment grade for the first time, which made it cheaper for the Philippines to borrow.
Consequently, the country has invested heavily in ramping up its infrastructure and other important projects. The spending on infrastructure has risen to around 5 per cent of the GDP this year, up from 1.8 per cent when Benigno Aquino took office in 2010.
During Aquino's tenure the country also improved its position in Transparency International's corruption index from 134th to 95th last year.
He had built on Arroyo's ambitious social programmes and fiscal reforms. In 2012, for instance, his government imposed "sin taxes" on tobacco and alcohol. Almost, 85 per cent of the revenue was directed to healthcare and the rest 15 per cent was ably utilised to help tobacco workers and farmers find new jobs.
Interestingly, in just a couple of years the health department's annual budget rose from $1.25 billion to $2 billion. By mid-2015, the number of people covered under a popular national health-insurance scheme had risen to 82 per cent from 74 per cent in 2011.
Aquino has also expanded basic education to include kindergarten and schooling to the age of 18, and extended Arroyo's cash-transfer programme to the poor.

The new President-elect

The pace of reforms is expected to accelerate further after the recent resounding victory of Rodrigo Duterte in the country's presidential election. The president-elect is a populist firebrand mayor of Davao and plans to decentralise power, create a federal system in Philippines to promote inclusive growth, reduce concentration of power in the hands of a few elites and end insurgency in the south.
Duterte is the first president from the southern Philippines. His win represents a wave of change in politics of the nation that was looking for a shift from an establishment-based technocratic administration. Duterte has a strong appeal among ordinary folk and many of his supporters are among the 10 million Filipina citizens who live overseas.
Industry experts suggest that the centerpiece of his administration would be to end the decades-long war with southern insurgents and communist militants. "He clearly sees a need for a dramatic decentralisation of power away from Manila. Duterte also intends to change the constitution to transform the Philippines into a more federal country, proposing a national referendum for these constitutional changes by 2019," notes Joshua Kurlantzick, a fellow for Southeast Asia at the Council on Foreign Relations.
The Duterte administration is expected to chart policies to promote broader growth in the country and in turn reduce the high-income inequality, when he comes to power officially next month. Despite the high economic growth, Philippines still struggles with a high unemployment rate of around 6.5 per cent and large number of people who live under $3.2 a day. Fostering investment in the south and other outlying regions, and making the economy more reliant on agricultural and manufacturing exports, rather than consumption, say industry experts, would allow the wealth and economic gains to percolate to the grass root level and bring more prosperity for the archipelagic nation.
BPO and Remittances

Philippines has about a 100 million people. The nominal income per head in 2014 was $2,873, up from $2,372 in 2011. The rising income level can be attributed to two major features: outsourcing business and remittances.
Most of the Filipinos speak good English compared to its neighbours, which has helped the country build a booming service sector built on business process outsourcing. The country has created the world's fastest growing business process outsourcing (BPO) industry, which includes call centres, data transcription, software and engineering design, and other back-office tasks. The BPO industry earned more than $25 billion in export revenues last year and employs an estimated 1.3 million people. The industry has been successful in keeping its more skilled Filipinos at home.
The number of Filipinos living abroad has fallen from 10.2 million in 2013 to 9.4 million last year, Aquino had mentioned in one of his recent interviews to the local media.
In terms of remittances, the country is the third largest recipient in the world. Remittances grew for the 14th year in a row in 2015 and now account for 10 per cent of the GDP. Filipinos in the country are increasingly using this money for savings. Recent statistics suggest that more than 70 per cent of the households use remittance money for savings compared with just 4 per cent at the turn of the century.
From the 'Sick Man of Asia' to an economy with 'strong prospects' the country has come a long and promises to emerge as one of the most resilient economies in the world.


-suneeti@khaleejtimes.com