IHS Analysis: Can the Philippines tiger economy continue to roar?

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JAKARTA – IHS Global Insight forecasts that the Philippines economy will grow at a pace of around 6% per year over the medium-term outlook from 2016-2020, said Rajiv Biswas, Asia Pacific Chief Economist, of the research agency in his latest report.

Following is the key points of IHS Global Insight report:

  • IHS Global Insight forecasts that the Philippines economy will grow at a pace of around 6% per year over the medium-term outlook from 2016-2020.
  • The total size of the Philippines’s economy is projected to grow from $300 billion in 2016 to $700 billion by 2025, becoming a trillion dollar economy in US dollar terms by 2030.
  • The long-term potential GDP growth rate for the Philippines is projected to be 5.3% per year over the 2016-2025.
  • The IT-BPO (i.e. IT outsourcing services) industry has become a key growth engine for the Philippines economy, with total IT-BPO industry revenue reaching USD22 billion in 2015, with around 1.2 million direct jobs in the industry.
  • Total IT-BPO industry revenue is estimated to reach USD25 billion in 2016, with an additional 225,000 new jobs expected to be created in 2016, led by rapid growth in healthcare-related IT-BPO services.
  • Total worker remittances by overseas workers reached USD 25.8 billion in 2015, accounting for around 9.8% of GDP. 

Under President Aquino’s administration, the Philippines has seen rapid GDP growth averaging around 6% per year over 2011-2015. If the incoming President and the new Philippines government administration can continue to pursue economic reforms and strengthen institutional governance, then GDP growth of around 6% per year can be sustained over 2016-2020. The total size of the Philippines’s economy is projected to grow from $300 billion in 2016 to $700 billion by 2025, becoming a trillion dollar economy in USD terms by 2030. This will make the Philippines one of the leading emerging markets in Asia.

Two key growth engines for the Philippines economy during President Aquino’s term of office have been the fast-growing IT-BPO industry as well as the large inflows of remittances from workers abroad. The IT-BPO industry has become a key growth engine for the Philippines economy, with total IT-BPO industry revenue reaching USD22 billion in 2015, with around 1.2 million direct jobs in the industry.

Total IT-BPO industry revenue is estimated to reach USD 25 billion in 2016, with an additional 225,000 new jobs expected to be created in 2016, led by rapid growth in healthcare-related IT-BPO services. Total worker remittances by overseas workers reached USD 25.8 billion in 2015, accounting for around 9.8% of GDP.

The export revenue from the IT-BPO sector has more than doubled since 2008, while remittances from Filipino workers abroad continue to provide a key source of strength for the balance of payments. The rapid growth of the IT-BPO industry is also creating positive transmission effects, including rapid growth in demand for commercial floor space, underpinning the development of existing and new office parks in urban centres.

Economic Challenges Ahead

Despite the nation’s considerable economic progress under President Aquino, the next President and the incoming government will face tremendous economic challenges. A key priority for the next government will need to be improving the business climate for investors. At present, the Philippines is ranked 103 out of 189 countries on ‘The World Bank’s Ease of Doing Business Ranking’ for 2016. Although the Philippines has lifted its position significantly on this ranking under President Aquino, from 136 in 2012 to 103 in 2016, the ranking of the Philippines is still far below some other Southeast Asian economies, notably Singapore, which is ranked 1st globally, Malaysia which is ranked 18thand Thailand which is ranked 49th. Improving the business environment for foreign investment into manufacturing and infrastructure will be a critical challenge for the incoming Philippines government administration, in order to boost manufacturing exports and employment.

One of the more important economic priorities for the next government will be to tackle the high level of poverty that still persists in the Philippines. An estimated 25.8% of the total population of the Philippines still live below the poverty line, and this ratio has only declined very gradually from a rate of 28.8% in 2006. Rural poverty in some regions is a key public policy challenge. These problems have been aggravated by current dry weather conditions due to the El Niño effect, which have resulted in severe drought in parts of the southern Philippines, resulting in food shortages and severe hardship for the rural population in some areas. Agricultural production fell by 1% year-on-year in Q4, 2015, with crop output down 2.7% and the paddy rice crop down 3.8% year-on-year, mainly due to the El Niño effect and the impact of typhoon-related crop damage.

Therefore, ensuring that the benefits of rapid economic growth do reach a wider share of the population will be a crucial policy priority for the next administration, and key strategies to reduce poverty will be to accelerate foreign investment inflows into manufacturing and infrastructure development. Increased investment in agricultural infrastructure and irrigation technology, as well as insurance schemes for farmers will help to boost rural incomes and mitigate risks associated with extreme weather events such as drought or typhoons.

The next administration will also need to ensure that trade and investment liberalization are high priorities on its policy agenda, through bilateral and regional trade and investment initiatives with key partners such as the ASEAN+3 nations as well as the EU, the US and India. (*)

 

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Source: The Insiderstories
IHS Analysis: Can the Philippines tiger economy continue to roar?

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