The Market Monitor Minding the Nation's Business
By Luis Leoncio
The Philippines has the potential of becoming a $1-trillion economy, from the current $200 billion, to rank among the world’s 20 biggest economies in 2030, if it can maintain its economic momentum, the Washington-based think tank and credit watchdog IHS Global Insight said.
In its Sovereign Risk Review report for the third quarter, the IHS said it upgraded its outlook on the country’s credit rating to “positive” from “stable,” amid improved financial fundamentals, investor confidence, and governance standards.
The IHS rates the Philippines with a minimum investment grade of “BBB-“, but the improved outlook means the rating is likely to be raised soon.
“Apart from the clearly strengthened macrofinancials over the last few years, the more recent upgrade to the Philippines’s outlook to positive in the third quarter rested on improved governance standards and reforms enhancing competitiveness under the Aquino administration,” it said in the report.
But Rajiv Biswas, IHS chief economist for Asia-Pacific, said there was “still a great deal of work to do to improve the overall competitiveness of the Philippines to attract large inflows of FDI.” (In mid-October, the Joint Foreign Chambers in the Philippines [JFC] said big foreign investors continued to bypass the Philippines, despite government claims of improved business perception, as shown by the country’s measly 4.6 percent share in the total FDI or foreign direct investments that flowed into the economies of the Association of Southeast Asian Nations, or Asean, in the first half of 2015.)
“Tackling urban crime must be a key priority in order to make the Philippines a more attractive environment for foreign investment and tourism,” Biswas said.
He said poverty and unemployment should also be addressed, as government data show that 28 percent of the population still lives in poverty. Unemployed and underemployed Filipinos exceed 10 million, Biswas noted.
“Therefore, creating a diversified economy with key growth industries that can generate rapid jobs growth will be a key strategic imperative for the government,” the IHS chief economist for Asia-Pacific said.
IHS noted in its report that the country’s liquidity mirrored by sustained surpluses in its current account, and the falling level of debt compared to economic output on the back of prudent fiscal management and the growing economy.
The debt-to-gross domestic product (GDP) ratio stood at 36.2 percent as of the end of June, from a peak of 68.1 percent in 2003.
The current account, propped by remittances, revenues from the business-process outsourcing industry (BPO), and tourism receipts, among other factors, posted a surplus of $4.7 billion during the first half.
The account has been in a surplus for 12 consecutive years, or since 2003.
“The key driver to these upgrades has been a successively strong current-account surplus generation, with newfound sources of export earnings other than workers’ remittances and lower energy import bills,” Jan Randolph, IHS director of sovereign risk, said in a statement.
Biswas estimated that the Philippines, with a GDP of about $292 billion, has the potential to become a $695-billion economy by 2025 and over a $1-trillion economy by 2030.
“Two important growth drivers for the Philippines’ economy are the rapidly growing information technology-business-process outsourcing (IT-BPO) sector and the strong flow of remittances from Filipino workers abroad,” Biswas said.
The country’s per-capita GDP is also expected to double from $3,000 in 2015 to $6,000 by 2024, according to Biswas.
“These significant increases in per-capita GDP will create one of Asean’s largest consumer markets of the future, as the middle-class rapidly expands over time. This will help FDI by multinationals into the Philippines’ manufacturing and services industry,” he said.
The Philippine economy has the capacity for robust long-term economic growth to average around 5.5 percent a year between 2016 and 2020, Biswas added.
The export revenue from the IT-BPO sector has more than doubled between 2008 and 2014, reaching an estimated $18 billion a year; the total number of employees in the IT-BPO industry is estimated at 1.3 million.
Biswas said the rapid growth of this industry is also driving economic development in a number of cities across the Philippines, with Manila and Cebu now ranked among the world’s leading IT-BPO hubs.
“The rapid growth of the IT-BPO industry is also creating positive transmission effects for the rest of the economy, including the commercial-property sector, with rapid growth in demand for commercial floor space, underpinning the development of existing and new office parks in urban centers,” Biswas said.
There are also the remittances from overseas Filipinos that continue to be a key driver of GDP growth support, consumer expenditure, and housing construction, Biswas said.
Remittances from overseas Filipino workers rose to $26.9 billion in 2014, up 6.2 percent from a year ago.
Biswas said some 35 percent of annual worker remittances were used to pay for residential property purchases.