Philippines: Country Profile

Country Profile | 30 Jun 2017

The economy will grow at a solid pace in 2017. Robust growth in private final
consumption and an increase in public spending on infrastructure (predicted to be
5.8%) are the main drivers. Improvements in investor confidence and rising FDI
provide additional support. Saddled by weaknesses in external demand, exports
continue their anaemic performance. Uncertainty over pledged investments from
China is a risk. Growth of real GDP will be about 7.1% per year in the medium term.

KEY POINTS
The Philippines is one of the world's fastest-growing countries. Real GDP should
increase by 6.3% in 2017 after gains of 6.9% in 2016.
The real value of private final consumption rose by 6.5% in 2016 and an increase
of 6.4% is expected in 2017. Steady growth in employment and public sector
spending provide support.
Unemployment was 5.7% in 2016 and it will rise to 5.8% in 2017.
Underemployment is nearly 20% and more than 40% of the employed work in the
informal sector. The country must generate about 800,000 jobs annually to absorb
new entrants.
The economic outlook is bright. Growth of real GDP will be about 7.1% per year in
the medium term.

Chart 1 Real GDP Growth and Per Capita GDP: 2011-2017

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Note: Data for 2017 is forecast. GDP per capita are in constant 2016 prices

FACTS

Area
298,200 square kilometres

Currency

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Philippine peso (Ps = 100 centavos)

Location
Composed of 11 large islands and some 7,000 smaller islands and atolls, the
Philippines lies some 800km off the coast of Indo-China, north-east of Papua New
Guinea and north of Indonesia. The group of islands is some 900km in length from
north to south.

Capital
Manila

GOVERNMENT

Head of State
President Rodrigo Duterte (2016)

Head of Government
President Rodrigo Duterte (2016)

Ruling Party
The PDP-Laban Party leads a coalition.

Political Structure
The Republic of the Philippines has an executive president who is elected for a six-
year term by universal mandate and then appoints a cabinet. Congress has two
chambers. The House of Representatives has 292 members elected for a three-year
term (of whom 80% are directly elected and 20% are selected from party lists).
The Senate has 24 members, elected for a six-year term by proportional
representation, half of them renewed every three years.

Last Elections
Presidential elections were held in May 2016. Duterte took 39% of the vote,
defeating four other candidates. Elections to the Senate and House were held in
May 2016. In the Senate, the Liberal Party now holds six seats while the Nationalist
People's Coalition has three seats. The United Nationalist Alliance holds four seats
and the Nationalist Party has three seats. The remainder are scattered among
several smaller parties. In House elections, the Liberal Party has 111 seats, the
Nationalist People's Coalition has 36 seats and the National Unity Party has 23
seats. The Nacionalista Party took 15 seats and the remainder went to several
smaller parties.

Political Stability and Risks

In March 2014, the government signed a comprehensive peace agreement with the
Bangsamoro, or Moro nation. The agreement is a plan for establishing stability in
Muslim areas of Mindanao. The army is also fighting the Abu Sayyaf Jihadist group
and other Muslims elsewhere in the country. Peace talks have been stalled for
several years. The situation on the island of Mindanao deteriorated significantly in
2017 when fighting with IS led the president to declare martial law.

President Duterte's anti-drugs campaign has led to the death of several thousand

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since he took office. The country has the highest rate of methamphetamine usage
in the region. The campaign has resulted in harsh international criticism of its
methods. Income inequality is among the highest in the region.

In November 2016, President Duterte declared that the disputed Scarborough Shoal
will become a fishing-free zone, a move seemingly aimed at further defusing
tensions with China. Manila had previously brought an international court case
against Beijing over the issue which was supported by the court.

International Issues
In 2016, the ASEAN Economic Community (AEC) was officially launched. The
organisation should give ASEAN members (including the Philippines) a greater role in
regional and global economic affairs.

The Philippines claim the Malaysian territory of Sabah which, it argues, was illegally
ceded to the new Malaysian state by Brunei. The dispute has been dormant since
the late 1970s, however. The Philippines has also claimed the Spratly Islands in the
South China Sea, and brought its case to the Permanent Court of Arbitration in the
Hague in 2016. The Court ruled that there was no evidence China had historically
exercised exclusive control over the waters or resources. China has said it will not
be bound by the ruling and the Philippine president has suggested that he may
withdraw the claim.

Government Finance
Public debt in 2016 totalled Ps4,871 billion. The sum represents 33.6% of GDP. In
real terms, public debt will rise by 3.5% in 2017. The authorities are under some
pressure to accelerate the process of debt reduction. Measures to trim the public
debt include tighter oversight of government-controlled firms with large liabilities
and greater reliance on domestic capital sources.

Officials managed a small budget surplus in 2015 (0.6% of GDP) as a result of

underspending. A fiscal deficit equal to 0.4% of GDP was reported in 2016. The
deficit was largely due to additional spending on infrastructure. In 2017, a deficit
equal to 1.0% of GDP is expected. Spending plans could push the deficit up further
in subsequent years.
In 2016, 36.3% of government expenditure went to general public services followed
by spending on economic services (20.0%).

Chart 2 Public Debt: 2011-2016

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Source: Euromonitor International
Note: Data are in constant 2016 prices

ECONOMY

Economic Structure and Major Industries

Agriculture employs 29.9% of the workforce. The sector's historical rate of growth
is only about 3% per year but officials hope to double that over the next decade.
At present, agricultural output barely meets domestic demand. The Philippines is
the world's largest importer of rice. Output rose moderately in 2016 after a period
of weather-related problems.

Manufacturing accounts for 20.3% of GDP and employs 8.5% of the workforce. The
country provides about 10% of the world's semiconductor manufacturing services,
including for mobile phone chips and micro-processors. Semiconductors account for
about three-fifths of exports. The Philippines' thriving business process outsourcing
sector has also overtaken major rivals such as India as a global hub for call centres,
accounting and information technology support. BPO operations employ more than
one million people. Toyota plans additional investment to increase production and
localisation of several models. Manufacturing output rose by 5.4% in 2016.
The service sector accounts for 57.1% of GDP and is performing better than other
parts of the economy. The sector is driven by real estate, financial services and
business process outsourcing. More than 600,000 are presently employed in call
centres and related activities and the industry is adding jobs. The real value of
tourist receipts grew by 8.6% in 2016 and gains of 5.8% are expected in 2017.
Manila hopes to lure gamblers away from Macau with several huge new casinos.
Retail sales are steadily rising thanks to strong private consumption.
The Philippines has valuable mineral deposits of copper, gold and chromate. Several
major mining projects had been planned but have been postponed as world prices
have fallen. The real value of mining output fell by 0.2% in 2016.

Overview of the Economy

The Philippine economy grew strongly in 2012 as buoyant investment, particularly in
construction, and robust consumption propelled the economy. In 2013, the
economy continued its impressive performance despite a major earthquake and the
effects of Typhoon Yolanda. The main drivers were strong gains in consumption and
services, supported by investment in manufacturing. The pace of growth slipped

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only slightly in 2014-2016 but the Philippine economy still had one of the strongest
economies in the region, thanks largely to robust gains in domestic demand and a
rise in private investment.

The Philippines is a major supplier of workers to other parts of the world. The main
reason for the continued exodus is the many Philippines who live in poverty. More
than a quarter of all Philippines were in poverty in 2012. Manila's Development Plan
aims to cut the poverty rate to less than 20%.

Foreign Trade
Exports remain an important contributor to growth but their share in GDP has
declined in recent years. In 2016, exports amounted to 18.4% of GDP, down from
28.3% in 2008. Exports (in dollar terms) fell by 4.8% in 2016 and growth of 2.2% is
expected in 2017. Port congestion and an inefficient Philippine shipping industry
push up costs while overseas demand for manufacturers (particularly in China and
Japan) is weak. Implementation of the ASEAN Economic Community could provide a
boost to exporters in the medium term.

Machinery and electrical equipment accounted for 58.2% of all exports in 2016.
Other important exports include mineral products, vegetable products and wooden
products. In 2016, most of the Philippines' exports went to China (19.6%), the USA
(14.1%) and Japan (13.3). A problem for the Philippines is that most exporters
(including carmakers and producers of electronic products) depend predominately
on imports. Few domestic suppliers exist.
The current account surplus was 0.2% of GDP in 2016 and it will widen to 0.4% in
2017. Imports have risen as the reconstruction effort proceeds but higher
remittances help to offset this increase. The Philippines has maintained a current
account surplus for a number of years, buttressed by strong worker remittances
and robust exports of services.

Chart 3 Total Foreign Trade: 2011-2017

Source: Euromonitor International from national statistics/OECD/IMF

Note: Data for 2017 is forecast.

Economic Prospects
The Philippines is one of the world's fastest-growing countries. Real GDP should
increase by 6.3% in 2017 after gains of 6.9% in 2016. Robust growth in private final
consumption and an increase in public spending on infrastructure (predicted to be

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5.8%) are the main drivers. Improvements in investor confidence and rising FDI
provide additional support. Saddled by weaknesses in external demand, exports
continue their anaemic performance. Uncertainty over pledged investments from
China is a risk.
Inflation should be 3.3% in 2017, up from 1.8% in 2016. Food and utility prices are
rising. Monetary policy is being tightened but is expected to remain supportive of
growth, meaning a continued expansion of credit. The central bank's target range is
2-4%.

The real value of private final consumption rose by 6.5% in 2016 and an increase of
6.4% is expected in 2017. Steady growth in employment and public sector spending
provide support. Remittances - which are crucial for consumer spending - are
estimated to be about a tenth of GDP but are expected to grow only moderately.
The Philippines lags behind its regional peers in terms of FDI inflows but is trying to
boost this funding. There are concerns that US-based investors will cut back owing
to deteriorating relations with Manila and policies of the new US administration.
However, China currently has investment commitments of US$24 billion but it is not
clear that all these commitments will be fulfilled.

Low interest rates and a reduction in down payment requirements are driving a
boom in housing construction. According to government estimates the housing
shortfall reached 5.8 million homes in 2016, up from 3.6 million in 2010.

Unemployment was 5.7% in 2016 and it will rise to 5.8% in 2017. Underemployment
is nearly 20% and more than 40% of the employed work in the informal sector. The
country must generate about 800,000 jobs annually to absorb new entrants. Most
new jobs are created by SMEs but these firms have limited financing opportunities A
quarter of young adults are neither working nor in training. The ILO estimates that
establishment of the ASEAN Economic Community (AEC) could add an additional 3.1
million jobs.

Chart 4 Real GDP Growth: 2011-2017

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Note: Data for 2017 is forecast

Evaluation of Market Potential

The Philippine Development Plan calls for more spending on infrastructure, the
encouragement of more public-private partnerships and the creation of one million
new jobs. Priority industries include agri-business, manufacturing, construction,

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information technology, business process management, logistics and tourism.
According to government officials, the investment rate must be increased to around
40% of GDP in order to achieve sustained growth of about 7%. The government's
commitment to increasing public infrastructure investment should sustain the
growth momentum for several years and reinforce business and consumer
confidence. However, such spending will also require the generation of additional
revenues, presumably through tax reforms.
The economic outlook is bright. Growth of real GDP will be about 7.1% per year in
the medium term. The administration has allocated Ps8.2 trillion to fund
infrastructure in 2017-2023. A number of large projects have already been
approved by the National Economic and Development Authority. The possibility of
diminished political stability under President Duterte is a risk.
The country's demographics should boost consumer spending in the medium term.
Well-educated Philippines between 25 and 34 years account for just 3% of the
population but more than 20% of discretionary consumption - that is, spending on
categories other than basic needs. By 2020, this particular demographic group is
expected to contribute 50% of the country's discretionary expenditure. Robust
growth in credit should also fuel growth of consumption over the next several
years.

BUSINESS ENVIRONMENT
Manila has made the elimination of corruption a centrepiece of its administration.
International economists estimate that officials collect less than 20% of the VAT
taxes that are due. This is one reason why tax revenues amount to less than 14%
of GDP - a much lower figure than in other Asian countries. Officials intend to push
collection rates up to 16-17% of GDP over the next few years. Taxes will be raised
to meet new spending plans. Pensions are being increased; social contributions of
workers are also being hiked to finance the additional spending.
Improvements in the investment climate are urgently needed. Manila currently has
more than 60 potential projects in the pipeline, covering highways, railways, light
rail mass transit, classrooms, and hospitals. However, delays in the country's
public-private partnership programme prevent implementation of many projects.
Investors also complain of inefficient bureaucracy and weak land rights
Businesses complain about delays in the implementation of key infrastructure
projects (particularly port improvements) and the costs of complying with
regulations related to customs, trade, and labour markets. Small and medium-sized
enterprises (SMEs) are underperforming. Too much of the economy is concentrated
in the hands of larger groups (or government) while SMEs lack sufficient financing.
Table 1 Indicators of Business Environment: 2017
Ease of Doing Business Rank (out of 190) 99

Starting a Business
Time (days) 28
Procedures (number) 16.0

Dealing with Construction Permits

Time (days) 98

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 Procedures (number) 24

Getting Electricity
Time (days) 42
Cost (% of income per capita) 25.7

Tax Rate
Total tax rate (% profit) 42.9

Protecting Minority Investors

Strength of minority investor protection index (0-10) 4.2

Enforcing Contracts
Time (days) 842
Cost (% of claim) 31.0
Source: Euromonitor International based on the World Bank

Note: Data is sourced from the World Bank's Doing Business 2017. Doing Business
presents quantitative indicators on business regulations and the protection of
property rights - and their effect on businesses, especially small and medium-size
domestic firms. The data for all sets of indicators in Doing Business 2017 are from
June 2015 until June 2016 (except for paying taxes data which refers to January-
December 2015). Rankings are based on data sets across 190 countries.

ENERGY
The Philippines has negligible reserves of oil. The country produced 0.8 million
tonnes of oil equivalent in 2016.

The Philippines's reserves of natural gas are also negligible. Production of natural
gas totalled 3.1 million tonnes of oil equivalent in 2016.
Manila has been pushing exploration in the South China Sea in areas claimed by
China but under the current government it is unclear that the policy will be
continued.

The Philippines' energy efficiency (defined as GDP in dollars per tonne of energy
supplied) was about 30% higher than the regional average in 2016. The indicator
rose at an average rate of 2.9% per year in 2011-2016. This was slower than the
regional rate of growth.

Chart 5 Primary Energy Supply (% of total): 2016

Source: Euromonitor International from International Energy Association (IEA)

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SOCIETY

Population
Total population reached 102 million in 2016 - more than double the figure for 1980.
In 2030, total population will stand at 124 million. The Philippines also has a much
"younger" population than most other Asian countries. The median age was just
24.4 years in 2016 - much lower than that of other countries in the region. In 2030,
median age will still be only 27.7 years
Fertility has been dropping but it was still 2.9 births per female in 2016. This is far
above replacement level and significantly greater than the regional average. In
2030, fertility is expected to be around 2.5 births per female.

The Philippines is the second largest labour-exporting country in the world after
Mexico. Approximately 7.5 million Philippines, or almost 9% of the total population,
are classified as "Overseas Philippine Workers" scattered in 182 foreign countries.
This number does not include the estimated 3 million migrant workers who are
undocumented and illegally working abroad.

Chart 6 Age Pyramid in 2016 and 2030

Source: Euromonitor International from national statistics/UN

Income and Expenditure

The Philippines' savings ratio has been very low for a number of years. In 2016, it
amounted to 2.4% of disposable income and it will fall to 2.3% in 2017.
Consumer expenditure per capita amounted to Ps104,915 (US$2,209) in 2016. In
2017, the indicator will grow by 4.9% in real terms. Expenditure on hotels and
catering will be the fastest growing category in 2017-2030. .Education will also see
rapid gains, driven by a soaring demand for private education.

For the period 2017-2030, total consumer expenditure will grow at an average
annual rate of 7.1%. It will increase by a cumulative value of 143% during that
period. Total consumer expenditure will represent 74.3% of GDP in 2017 - a much
larger share than the regional average.

Disposable income per capita totalled Ps106,701 (US$2,247) in 2016. In 2017, the
indicator will grow by 4.7% in real terms.

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During the period 2017-2030, total disposable income will increase by a cumulative
138% in real terms - growing at an average annual rate of 6.9%.
Income inequality remains high despite some improvements, resulting in a
fragmented consumer market.

Chart 7 Per Capita Annual Disposable Income, Spending and Savings Ratio:
2011-2017

Source: Euromonitor International from national statistics/trade sources/OECD

Note: Data for 2017 is forecast. Per capita income and spending are in constant 2016 prices

Statistical Summary
2011 2012 2013 2014 2015 2016
Inflation
(% 4.7 3.1 3.0 4.2 1.4 1.8
change)
Exchange
rate (per 43.32 42.22 41.74 44.40 45.51 47.49
US$)
Lending
6.7 5.7 5.8 5.5 5.6 5.6
rate
GDP (%
real 3.7 6.7 7.1 6.1 6.1 6.9
growth)
GDP
(national
9,708,333.0 10,561,089.0 11,538,410.5 12,634,186.8 13,322,041.3 14,480,720.0
currency
millions)
GDP (US$
224,129.7 250,115.0 276,466.5 284,565.0 292,755.8 304,902.9
millions)
Birth rate
24.3 24.0 23.8 23.6 23.3 23.1
(per '000)
Death rate
6.5 6.6 6.7 6.7 6.8 6.8
(per '000)
No. of
households 20,712.1 21,253.9 21,797.3 22,346.0 22,899.9 23,459.2
('000)
Total
exports
48,305.2 52,100.0 56,698.0 62,129.3 58,826.8 55,977.8
(US$

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 millions)
Total
imports
60,380.0 62,128.9 62,410.5 65,398.1 68,051.6 81,153.8
(US$
millions)
Tourism
receipts
3,152.0 3,483.9 4,282.9 - - -
(US$
millions)
Tourism
spending
3,646.0 4,076.6 4,723.5 - - -
(US$
millions)
Urban
population 43,679.1 45,210.2 46,755.8 48,293.7 49,814.5 51,320.1
('000)
Urban
population 46.2 47.1 47.9 48.7 49.5 50.2
(%)
Population
aged 0-14 33.1 32.7 32.4 32.2 31.9 31.7
(%)
Population
aged 15-64 62.6 62.9 63.1 63.3 63.5 63.6
(%)
Population
aged 65 4.3 4.4 4.4 4.5 4.6 4.7
(%)
Male
population 50.6 50.6 50.5 50.5 50.5 50.4
(%)
Female
population 49.4 49.4 49.5 49.5 49.5 49.6
(%)
Life
expectancy
64.6 64.7 64.8 64.9 65.0 65.2
male
(years)
Life
expectancy
71.3 71.5 71.6 71.8 71.9 72.1
female
(years)
Infant
mortality
(deaths per 9.7 9.6 9.5 9.3 9.1 9.0
'000 live
births)
Adult
literacy 95.8 95.9 96.0 96.2 96.3 96.3
(%)

Imports and Exports

2016 2016
Major export destinations Share (%) Major import sources Share (%)

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 Exports (fob) to Asia Imports (cif) from Asia
62.6 68.0
Pacific Pacific
Exports (fob) to North Imports (cif) from North
15.5 8.9
America America
Imports (cif) from Other
Exports (fob) to Europe 11.8 8.2
Countries
Exports (fob) to Latin
3.7 Imports (cif) from Europe 8.1
America
Exports (fob) to Other Imports (cif) from Africa
3.1 4.5
Countries and the Middle East
Exports (fob) to Africa and Imports (cif) from
2.1 1.5
the Middle East Australasia

Euromonitor International 2017

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