Economic analysis The Philippines has shown resilience to the global economic crisis.

The country saw its GDP growth rebound to nearly 8% in 2010, from just 1.1% in 2009. The economy posted impressive growth in 2010 supported by gains in the agriculture, industry, and services sectors. The country has also witnessed a decline in the debt to GDP ratio. However, its reduction in spending to cut the fiscal deficit is a cause for concern, as it could prove counterproductive for the economic and social development of the country. Current strengths Robust economic growth in 2010 GDP growth jumped to a high of 7.6% in 2010, after plunging to 1.1% in 2009. High GDP growth in 2010 was driven by election-related expenditure, the formation of a new government, and a strong monetary policy. Agricultural growth improved to 4.6% in 2010 from 4.0% in 2009. In value terms, agricultural output was PHP1.24tn ($27.3bn) in 2010, an increase from PHP1.18tn ($24.8bn) in 2009. Industrial growth decreased to 0.5% in 2009, but rebounded to 15.7% in 2010. In terms of value, industrial output in the Philippines stood at PHP2.78tn ($61.5bn) in 2010, an increase from PHP2.41tn ($50.5bn) in 2009. Services output came down to 7.4% in 2009 before increasing to 11.4% in 2010. Services output reached a value of PHP4.89tn ($108bn) in 2010, up from PHP4.4tn ($92bn) in 2009. Revenue from the BPO sector increased 26% in 2010 to $9bn, creating around 100,000 jobs. The government also used privatization revenues to counter the shortfall in tax revenues. The balance of payments surplus increased from $6.4bn in 2009 to $14.4bn in 2010. Decline in debt to GDP ratio The debt to GDP ratio decreased from 57.3% in 2009 to 55.4% in 2010 due to higher economic growth and a lower budget deficit. The 2010 ratio was well below the 2000 ratio of more than 70%. The countrys fiscal deficit widened to 3.9% of GDP in 2009. The budget deficit in 2010 was PHP314bn ($6.9bn) or 3.7% of GDP, slightly higher than the 2009 deficit of nearly PHP300bn ($6.3bn). The government plans to narrow the fiscal deficit to PHP290bn ($6.7bn) or 3.2% of GDP in 2011. In the first seven months of 2011, the government narrowed its budget deficit by nearly 81% due to strong revenue collection and lower expenditure. The Aquino

administration plans to reduce its debt to GDP ratio to 43% by 2016 by meeting its budget deficit target of 2% of GDP in 2013. Current challenges Spending cut to reduce fiscal deficit The countrys fiscal position is the most immediate challenge faced by the Aquino government. The budget deficit in 2010 was PHP314bn ($6.9bn) or 3.7% of GDP, slightly more than the 2009 deficit of nearly PHP300bn ($6.3bn) or 3.9% of GDP. The government plans to narrow the fiscal deficit to PHP290bn ($6.7bn) or 3.2% of GDP in 2011. In the first seven months of 2011, the government narrowed its budget deficit by nearly 81% due to strong revenue collection and lower expenditure, which stood at PHP699bn ($16.1bn) compared to the expected PHP839bn ($19.4bn). The budget deficit for the seven month period ending July 2011 was PHP43.7bn ($1bn), significantly less than the period ending July 2010, when the figure stood at PHP229.4bn ($5.1bn). During the same period, revenue grew 13.5% to PHP788.6bn ($18.2bn), up from PPH695bn ($14.6bn) collected in 2010. In 2011 the government has tried to cut spending in order to reduce its deficit, but this could prove counterproductive for the economic and social development of the country, which faces the critical issues of poverty, increased crime, and poor infrastructure. Delay in public-private partnership program The public-private partnership program, a major initiative of the Aquino administration, is yet to take off. Under the program, the president plans to upgrade infrastructure in the country through 80 partnerships, with an aggregate investment of PHP740bn ($17bn) by 2016. None of the projects that the government planned to execute in 2011 have been put out to tender; many have been pushed back to 2012, and some could even be scrapped. Although the government has tried to improve the regulation, financing guarantees, transparency, and credibility of the program, undue delays could have an adverse impact. The government is banking on this program to provide a major fillip to infrastructure development in the country, as well as support its medium-term goals for economic development. Therefore, any delays represent a major challenge.

Future prospects Benefits from the ASEAN and Australia and New Zealand free trade agreement Philippine exporters will now be able to benefit from the opportunities presented by the free trade agreement between the ASEAN and Australia and New Zealand. The agreement took effect on February 10, 2010, and will provide improved market access to the Australian and New Zealand economy. Beginning in January 2010, most of the countrys exports to Australia have enjoyed zero tariffs; by 2020 nearly all sectors will benefit, with Australia and New Zealand set to eliminate tariffs on all products. Through the agreement, most companies will be able to take advantage of these preferential tariff rates. Future risks Impact of the Japanese crisis The nuclear crisis in Japan due to the earthquake and tsunami in March 2011 could have a serious impact on Philippine exports in 2011. A slowdown in the Japanese economy could seriously impact the Philippines, as Japan was the countrys biggest export market in 2010 (valued at $7.8bn and equivalent to 15.2% of total exports), as well as its biggest import market (valued at $6.7bn and equivalent to 12.2% of total imports). According to the central bank, Filipino workers in Japan sent home remittances worth $883m in 2010. Japan was also the leading source of direct investments in the country in 2010, accounting for around 34% of total investment at a value of PHP196.1bn ($4.5bn). According to the central bank, foreign direct investment (FDI) inflows into the country declined 15.1% to $552m during the first four months of 2011 compared to the figure of $650m recorded during the same period of 2010 due to poor growth in the US and Japan. Slowdown of remittances from overseas Filipinos Earnings from Filipinos working overseas have long been a strong contributor to the Philippines' current account surplus, which has provided a substantial boost to private consumption. The country registered growth rates of more than 10% in remittances for several years. Remittances from overseas Filipino workers increased 8.2% in 2010 to $18.7bn. According to the central bank, Filipino workers in Japan sent home remittances worth $883m in 2010, equivalent to around 5% of total remittances during the year. However, political unrest in the Middle East and North Africa, as well as the economic fallout of the Japanese crisis, is expected to affect

remittances in 2011. A decline in remittance inflows is likely to negatively affect consumer spending in the Philippines.

Performance GDP and growth rate The Philippine economy experienced a slowdown after the country recorded robust growth of 6.9% in 2007, the fastest expansion in 31 years. The countrys GDP growth came down to 4.2% in 2008. After plunging to 1.1% in 2009, GDP growth jumped to a high of 7.6% in 2010. Datamonitor estimates suggest that GDP growth for 2011 will drop to 4.3%. GDP composition by sector The services sector is the largest in terms of contribution to GDP. Services output accounts for 54.8% of GDP and employs around 52% of the workforce. The industry sector contributes around 31.3% of GDP and employs around 15% of the countrys labor. The agriculture sector contributes around 13.9% of GDP while providing employment to around 33% of the workforce. Agriculture Agricultural output in the country recorded a growth rate of 10.2% in 2007, which rose to 19.4% in 2008. However, growth slowed to 4.0% in 2009, before improving to 4.6% in 2010. In value terms, agricultural output totaled PHP1,236.1bn ($27.3bn) in 2010, an increase from PHP1,181.2bn ($24.8bn) in 2009. The country is one of the leading producers of rice and coconuts in the world, but the agricultural sector generally suffers from low economies of scale, poor productivity, and inadequate infrastructural support. Fishing contributes 3% to the country's GDP. Industry In the industrial sector, electronics and food processing are the two most important activities. The country has rich mineral resources, and its untapped mineral wealth is estimated to be worth more than $800bn. The countrys industrial output grew at healthy rates of 9.5% and 14.3% in 2007 and 2008 respectively. Growth decreased to 0.5% in 2009, but rebounded to 15.7% in 2010. In terms of value, industrial output in the Philippines stood at PHP2,784.4bn ($61.5bn) in 2010, an increase from PHP2,406.1bn ($50.5bn) in 2009.

Services The Philippines registered robust services output during 200108, with average growth of 10.6% during the period. A growth rate of 14% was recorded in 2005, which came down to 7.4% in 2009 but increased to 11.4% in 2010. Services output reached a value of PHP4,878.7bn ($108bn) in 2010, up from PHP4,381.0bn ($92bn) in 2009. Telecommunications, call centers, and the financial sector have grown substantially in the past few years, and the services sector accounts for more than 50% of GDP in the country.

Reference: Datamonitor, (November 2011) country analysis report of

Philippines