The administration of President Benigno S. Aquino III aims to implement stable economic policies, substantially reduce red tape and level the playing field. It is of the belief that government is an enabler and not an impediment to business. Its “Daylight” strategy is to move forward, in unison, in broad daylight where business transactions are clear, swift and transparent. Transparency takes precedence to ensure a level playing field.
It is the Aquino administration's thrust during its six-year term to reach for high growth, providing equal opportunities to Filipinos and foreigners alike, with an annual average of 7 to 8% from 2011 to 2016. This means more jobs and new opportunities to improve employment and, in the process, reduce poverty incidence.
RESILIENT AND FAST-GROWING ECONOMY
The Philippines, one of the few countries that avoided a recession in 2009, staged a strong recovery in 2010 as the economy grew 7.3%. Healthy economic growth is expected to be sustained in the medium term. Better conditions in the global economy and economic outperformance in the Philippines’ key export markets in North Asia, which make up 36% of total exports, and ASEAN, at 16% of total exports, should pave the way for sustainable growth performance. The structure of the Philippine economy is similar to those of advanced economies, with consumption accounting for more than 70% of gross domestic product, a structure that investment-led economies are trying to emulate.
GROWTH DRIVERS FOR 2011 AND RISKS AND CHALLENGES TO GROWTH
The Aquino Administration’s thrust to improve governance and the implementation of right policies will provide impetus for high sustained economic growth.
Supply Side: Agriculture, fishery and forestry are expected to benefit from the government’s modernization program. Expansion in mining, acceleration in construction and full recovery of housing, biofuels and the Halal food market are anticipated. Services are expected to continually improve driven by retail trade, finance and private services.
Demand Side: Foreign remittances are expected to provide momentum for increase in household spending. National Expenditure Program for 2011 is anticipated to increase by 6.8 percent due to the expansion of coverage of the conditional cash transfer program. Total cumulative investment outllok of all investment promotion agencies are at PhP3.8 trillion from 2011 to 2016. Boost from construction, agro-industry, electronics and semiconductors, tourism and business process outsourcing are also anticipated. Total export forecast are 13% year-on-year growth target for 2011 to 2013, and will increase to 14% for 2014 to 2016. For 2016 only, targets for merchandise and services exports are expected to reach US$92 billion and US25 billion, respectively.
Risks and Challenges to Growth: There is uncertainty of external demand brought on by a slow recovery scenario for global growth in the USA and other advanced economies. Surge in large capital inflows could pose challenges to liquidity and exchange rate management. Commodity price pressures threaten the strong recovery of private demand and large capital inflows. Increases in toll and transport fare in the short term, petitions for cost recovery in electricity prices, and wage hikes could exert domestic price. Natural calamities, a known fact in the Philippines, may dampen economic growth. As well, there may be narrowing global sources of investments and a protracted resolution of European debt crisis.
A CLEAR POLITICAL COMMITMENT TO FISCAL SUSTAINABILITY
The new administration has made fiscal sustainability a top priority. The administration has a clear fiscal strategy for the medium term, which includes the following: a stringent tax enforcement to achieve national government tax effort of 18.1% by 2016; tight expenditure discipline to use public resources in the most efficient manner; sustainable deficits and healthy public finances; and prudent debt management.
In just a few months, the Aquino administration’s commitment to enforce tax collection is paying dividends:
- The Philippines was removed from the Organisation for Economic Cooperation and Development (OECD) tax haven “grey list”, a recognition that it is now compliant with accepted tax standards.
- The country also received a US$434million Millennium Challenge Corporation grant to provide additional funding for tax administration efforts and other initiatives such as infrastructure.
- The Philippines contained the damage of the global financial crisis with respect to its fiscal accounts; deficits are manageable and debt level is sustainable.- Proactive debt management reduced rollover risk and increased debt carrying capacity while minimizing foreign exchange risk and increasing self-sufficiency of funding.
FORTIFIED EXTERNAL POSITION AND A SOUND BANKING SYSTEM
Over the last decade, the Philippines has transformed itself into a country with sustained structural current account surpluses and rapid reserve accumulation. Gross international reserves expanded to a record US$62.4 billion at the end of 2010. This large stockpile of international reserves provides a healthy buffer against external shocks—reserve holdings can cover close to 11x the country’s short-term external debt on original maturity.
Remittances continue to contribute greatly to the Philippine current account, up by 10.5% in the first 11 months of 2010. The Philippines’ banking system is sound, characterized by low NPLs (non-performing loans) and very strong prudential ratios.
A MORE STABLE POLITICAL AND INSTITUTIONAL ENVIRONMENT
The uncontested outcome of the last elections was widely regarded as a positive development for the Philippines; it could signal a structural change in political dynamics ushering in a more stable political transition.
ENSURING ENABLING BUSINESS ENVIRONMENT REFORMS
The new administration aims to make the business environment ever more predictable, reliable and efficient, thereby improving the country’s international competitiveness to attract more investments. Among the focus areas are entrepreneurship and infrastructure development. In particular, it is important to ensure ease of doing business and improve infrastructure through enhanced implementation of the Public-Private Partnership (PPP) Programs.
Ease of Doing Business
DTI aims to streamline and simplify business registration requirements and procedures in the country. The Business Name Registration System (BNRS) drastically reduced business name registration time to within 15 minutes. The Philippine Business Registry (PBR), a web-based information technology system, aims to enable applicants to automatically obtain numbers from four other agencies: Bureau of Internal revenue (BIR), Social Security System (SSS), Home Mutual Development Fund (Pag-Ibig Fund) and Philippine Health Insurance Corporation (Philhealth). The Business Permits and Licensing System (BPLS) is reformed at the local government level to improve the business permits and licensing systems of Local Government Units (LGUs) and reducing the steps, time, and signatories involved by adopting a unified business application form.
Public-Private Partnerships: Cornerstone Strategy of National Development
PPP programs help provide the foundations for growth. Infrastructure support facilities for tourism, agriculture, social services and growth centers are among the emphases of the Aquino administration. Incentives to stimulate private resources, ensuring competition, fairness and transparency, and providing assistance in business feasibility, a fast-track project approval process eliminate much of the guesswork in the business process. Ten
projects are expected to be rolled out in 2011, and another 73 in 2012 and beyond.
For more information on the Aquino administration's proposition for growth and opportunity in business, contact any of the Philippine trade offices in the United States: