Economic growth in the Southeast Asian nation grew at a rate of 6.1 percent, down from 7.2 percent in 2013. Still, the 2014 performance makes the Philippines the second fastest-growing Asian country behind China, and ahead of Vietnam, said the country's Socio-Economic Planning Secretary Arsenio Balisacan on January 29.
"Our country can no longer be called the sick man of Asia," he said, adding that the Philippines had avoided the dreaded boom-bust cycle that had hounded the nation's economy for decades, and that the government expected the economy to grow by between seven and eight percent in 2015.
In a DW interview, Rajiv Biswas, Asia-Pacific Chief Economist at the analytics firm IHS, explains how significant improvements in the fiscal deficit and gradual reforms over the past decade have transformed the Southeast Asian nation's economy.
DW: What do you make of the Philippine official's claims that the country is no longer the "sick man of Asia?"
Rajiv Biswas: The Philippines economy has undergone a remarkable transition from a pussycat into a tiger economy over the last decade. Prior to this, the Philippines had for several decades been performing poorly, with weak growth, low inward investment and a very uncompetitive business environment aggravated by high levels of corruption.
However, the Philippines economy has shown much more rapid growth over the last decade, helped by significant improvements in the fiscal deficit and gradual economic reforms. The Philippines economy now has the capacity for robust long-term economic growth of around 4.5 percent to 5.0 percent per year over the 2016 to 2030 time horizon. This will transform the Philippines economy from its current 280 billion USD economy to a 680 billion USD economy by 2024, with a projected GDP of 1.2 trillion USD by 2030.
IHS forecasts that total GDP per person in the Philippines will rise from around 2,800 USD in 2014 to around 5,800 USD by 2024. This has considerable implications for the size of the Philippines consumer economy. 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.
But the natural disasters have also taken a toll on the economy in the past few years. What is your take on this?
The Philippines is indeed very vulnerable to natural disasters, including earthquakes, tsunamis and typhoons, which can cause severe flooding. The super typhoon Yolanda, also known as Typhoon Haiyan, was one of the most severe typhoons to hit the region, resulting in the loss of an estimated 6,300 lives and causing tremendous economic damage.
The government has warned that climate change is likely increasing the severity and frequency of such typhoons, and that the vulnerability of the Philippines will increase further due to the impact of global warming.
The Philippines has also been plagued by decades of corrupt governments. How has this affected state finances?
One of the major negative factors that have harmed the competitiveness of the Philippines economy over the last three decades is the high level of corruption in the Philippines, as reflected in the very poor rankings for the Philippines in the annual Transparency International Corruption Perceptions Index.
However, President Aquino has mounted a campaign against corruption during his presidency, and there have been significant signs of improvement, although there is still a great deal of work needed to improve governance and reduce corruption levels in the Philippines.
While corruption is always a very negative factor for governance and results in large leakages of public funds that are desperately needed for economic and social development purposes, the overall fiscal position of the Philippines has been improving, due to much better budgetary management over the last decade that has cut fiscal deficits and reduced government debt levels as a share of GDP.
What are the country's major economic drivers at the moment?
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. The export revenue from the IT-BPO sector has more than doubled between 2008 and 2013, reaching an estimated 13.3 billion USD.
Meanwhile remittances from Filipino workers abroad rose to 25 billion USD in 2013, and are estimated to have reached 26 billion USD in 2014, providing a key source of strength for the Philippines balance of payments and helping to underpin consumer spending in the Philippines.
The rapid growth of the IT and BPO industry is also creating positive transmission effects for the rest of the economy, including rapid growth in demand for commercial floor space, underpinning the development of existing and new office parks in urban centers.
What are the major risks and uncertainties facing the economy at the moment?
A key political risk for the Philippines will come in June 2016 when President Aquino steps down from office as required by the national constitution after one term of office. So there is still uncertainty about the outcome of the next presidential elections, although current Vice President Jejomar Binay is still leading in the polls.
While a smooth post-election transition and economic policy continuity will help to support economic growth momentum, a key issue will be whether the next government will be able to drive forward further important economic reforms and improve the competitiveness of the Philippines economy.
A key political risk is also the threat to internal stability in the Mindanao region and Sulu Archipelago from the Muslim terrorist group Abu Sayyaf, which has declared its alliance to "Islamic State," and other Muslim separatist groups have also created instability and unrest in Mindanao for decades. Although President Aquino had been trying to negotiate self-rule for Muslim regions before the end of his term of office, public and parliamentary support for such a deal is likely to have been substantially eroded following the massacre of around 40 police officers.
What is your forecast for the Philippine economy for this and the coming year?
The near-term outlook for the Philippines economy remains very positive, with GDP growth forecast to rise from 5.9 percent in 2014 to 6.2 percent in 2015, and then maintaining a robust growth rate of around 5.5 percent over the 2016-17 period. The medium-term outlook for the Philippines is supported by strong growth in consumption, helped by the large annual remittance inflows from Filipino workers abroad sending money home to their families.
Other positives for the 2015-16 forecast horizon are the boost to GDP growth from the slump in oil prices, which reduces the cost of oil imports as well as boosting household disposable income by lowering household costs for petrol.
However, the Philippines continues to face other economic development challenges. Poverty and unemployment remain very high in the Philippines, with around 28 per cent of the population still living in poverty according to government estimates, while the total number of unemployed or underemployed workers exceeds ten million. Large numbers of new workers are also entering the workforce each year, with around 1.1 million new workers expected to join the labor force each year between 2014 and 2016.
Rajiv Biswas is Asia-Pacific Chief Economist at IHS, a global information and analytics firm. He is responsible for coordination of economic analyses and forecasts for the Asia-Pacific region.
The interview was conducted by Gabriel Domínguez.