2018: A banner year for the Philippines

2018 is undoubtedly going to be a great year for the Philippines. This upbeat perspective is borne out by the latest SWS survey that showed more Filipinos are optimistic that their lives will improve and that the economy will get better.  

The hopeful and expectant sentiment of Filipinos regarding the economy is hardly surprising, considering the many positive developments that happened in 2017, among them the credit rating upgrade from “BBB-“ to “BBB” by Fitch Ratings because of the continued economic expansion of the country as well as the comprehensive tax reform program being undertaken by the administration of President Rodrigo Duterte, and the massive infrastructure agenda of the government. President Duterte also enjoyed another unbelievable spike in his approval ratings.

We conducted a year-end briefing at the Romulo Hall of the Philippine Embassy in Washington, D.C. for officials of the US government, representatives from the private sector, members of the Filipino community and the media (see photos in “This Week on PeopleAsia” at the Allure section of the Philippine STAR today) to give them a summary of the developments in 2017 and recount the accomplishments of the first full year of the administration of President Duterte. 

The Philippines is one of the principal engines of growth in the Asian region, so naturally a major highlight of our briefing was the economy, with our embassy’s Minister for Economic Affairs JV Chan-Gonzaga putting in a lot of good work for our report. The Philippine economy expanded by an average of 6.7 percent in the first three quarters, with GDP growth surging to an impressive 6.9 percent in the third quarter. With the Christmas season driving high domestic consumption in the 4th quarter of 2017, the performance of the economy may well be on track to meet the government’s target growth rate of between 6.5 percent and 7.5 percent. 

The IMF and the World Bank both forecast the country’s economy to grow at 6.7 percent in 2018. In its  Asian Development Outlook 2017 report, the Asian Development Bank also upgraded its growth forecast for the Philippines to 6.8 percent in 2018.  

A number of factors contributed to the impressive growth rate: strong growth in exports, improved public spending, and the increased performance in sectors that have traditionally performed well, like the manufacturing subsector and the services sector. The latter continued to be one of the leading drivers of the economy with a 7.1 percent year-on-year growth. 

The Business Process Management sector, which has experienced tremendous growth in recent years, will remain competitive in the region, thanks in large part to our educated and English-speaking workforce. The BPM industry in fact is projected to generate between $40 billion and $55 billion by 2020, and open up opportunities for direct and indirect employment for up to 1.5 million Filipinos. 

The robust economic growth combined with the Duterte administration’s push for reforms to improve the investment climate has made the Philippines a very attractive investment destination. The president’s order to ease foreign ownership limits is certainly encouraging to many potential investors. According to National Economic and Development Authority chief Ernie Pernia, the NEDA board will be discussing the proposed new foreign investment negative list in early 2018 to ramp up FDI inflows.

The United States is our third largest investor, and over the past five years, US foreign investment to the Philippines amounted to $3.3 billion. In 2016, US investments reached an estimated $660 million largely in the manufacturing and real estate sectors as well as ICT services.

I absolutely agree with the assessment of our good friend, US Ambassador Sung Kim, that our country has a lot of potential and can do even better in terms of economic performance especially with its young and dynamic workforce. He also cited President Duterte’s focus on infrastructure as an “important initiative” – knowing fully well the very crucial role of infrastructure in boosting growth and development. 

As I mentioned during the briefing, the government’s “Build, Build, Build” agenda is one of the boldest and most ambitious infrastructure programs ever in the history of the Philippines. The administration of President Duterte is set to invest over $170 billion in six years to redevelop the country’s physical infrastructure in a massive way, with 75 flagship projects to be rolled out all over the country. As noted by Budget Secretary Ben Diokno, infrastructure spending in the last few decades has been, on the average, only 2.6 percent of GDP. The administration has already allocated 5.4 percent of GDP for infrastructure spending, and by 2022, government is planning to spend close to $38 billion or 7.4 percent of GDP on infrastructure alone.

The passage of the Tax Reform for Acceleration and Inclusion (TRAIN) bill and the signing into law of the P3.7 trillion national budget for 2018 have built investor confidence on the Philippines even more. About 25 percent of new revenues to be generated by the TRAIN bill will go to the “Build, Build’ Build” program, while a big portion of the 2018 budget has been earmarked for infrastructure development.

As President Duterte noted, the two bills he signed into law are “the fulfillment of a campaign promise to institute fiscal reforms that will be felt by every Filipino,” adding that the TRAIN is just an initial step by the government to cut the poverty rate by 14 percent and transform the Philippines into a middle class society by 2022.

I can honestly say that in all my years observing the country’s economic and political situation, I have never seen so many Filipinos upbeat about their country.

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