IN THIS ISSUE:

Latest Economic Performance:

Strong Macroeconomic Fundamentals, On Being Investment
and Consumption Driven

State of the National Economy:

Net Foreign Direct Inflows, and Foreign Direct Investments

Recent Economic Studies:

Economic Freedom and Ease of Doing Business

economic
snapshots
QUICK FACTS AND FIGURES OF THE PHILIPPINE ECONOMY

QUARTERLY
 CURRENT
ECONOMIC
SITUATION
The Philippines is one of the macroeconomic stories that the rest of the
world watched for the past few years. With improving growth performance,
low inflation, strong exports and services, and robust remittances, not to
mention successive investment rating upgrades, the country was no longer
touted as the sick man of Asia.
As the Aquino administration nears its end, let us take a look at how far
the economy has come, the challenges that are still left to be addressed,
and the socio-economic development targets that are yet to be met.

picture credit: en. wikipedia.org

2 December 2015 4th QUARTER ECONOMIC SNAPSHOTS
Strong Macroeconomic Fundamentals
Figure 1: Average Gross Domestic Product and Gross National Income
This government has strongly rested on its platform (2009 2015)
good governance is good economics. From an improved
perception (e.g. in corruption and government bureaucracy)
of international creditors and even of the business sector to
an actual increased interest in investing in the country, the
Philippines is trying its best to catch up with its regional
neighbors.

The graph beside shows that in the past four years,

the Philippines gross domestic product (GDP) and gross
national income (GNI) have been steadily growing. The
Albert Del Rosario Institute (ADRI) believes that measuring
economic growth in the case of the Philippines is best Source: NSCB1
measured through the GNI. The latter takes into account
strong inflows of remittances of overseas Filipinos working
abroad and consequently, high savings generated by Figure 2: Headline inflation vs. Target, in percentage
these transfer payments. Using this genuinely reflects the (2007 August 2015)
economic activity of the Philippines, as strongly supported
by its current account.a

Inflation has also remained manageable. In the past few

years, the Bangko Sentral ng Pilipinas (BSP) has been able to
lower inflation to sustainable levels.

However, the BSP recently recorded that headline inflation

slightly increased to 1.1 percent in November. Nevertheless,
it was still within the BSPs range forecast of 0.4-1.2 percent
for the month and 3-5 percent for this year.2 Further, the
Philippine government noted that steady inflation also Source: Philippine Economic Briefing
reflected a stable credit and liquidity growth in the market.3

ECONOMIC SNAPSHOTS 4th QUARTER December 2015 3


Figure 3: Overall Consumer Outlook Index in the Philippines
(2007 2015)
Stable prices is one of the reasons seen to have
contributed to an overall optimistic consumer
outlook for this quarter. Overall confidence index (CI)
rose to -8.1 percent from -11.6 percent4 during the
previous quarter.6

The figure above shows an outlook even more

favorable for the next quarter and the next 12
months. BSP noted that consumers anticipated
lower unemployment, improvements in the countrys
economy and the election of new government
officials for the year ahead.7

Other reasons for the favorable outlook include

Source: BSP5 (a) more jobs and increase in the number of
working family members; (b) additional income/
higher salary due to receipt of Christmas bonus
Figure 4: Overall Business Confidence Index and 13th month pay...; (d) effective government
(Q1 2010 Q4 2015) policies; (e) improvements in infrastructure; and (f )
brisker business activity leading to higher household
income.

This is matched by a buoyant business sector

outlook on the Philippine economy. Figure 4 shows
that the overall CI improved to 51.3 percent from 41.4
percent from the previous quarter. BSP said that this
quarters CI is the highest in two years and indicates
businesses increased optimism about the countrys
economic prospects.

The following factors were cited for their more

Source: BSP8 optimistic outlook: (a) expected increase in

4 December 2015 4th QUARTER ECONOMIC SNAPSHOTS

consumer demand during the Christmas, main palay harvest and milling seasons; (b) sustained increase in sales,
orders and projects leading to higher volume of production; (c) expansion of businesses and new product lines;
(d) introduction of new and enhanced business strategies and processes; (e) steady flow of overseas Filipinos
(OFs) remittances, especially during the holiday season; and (f ) election-related spending in the run-up to the
2016 national elections.9

The countrys favorable macroeconomic conditions, manageable inflation, low interest rates, and a stable
peso10 are the paramount factors influencing the positive outlook on the countrys business environment. BSP
further noted that potential gains from Philippines hosting of the Asia-Pacific Economic Cooperation (APEC)
Summit and accelerated spending for the governments infrastructure and other development projects were
also considered.

However, there have been downgraded forecasts from the government, renowned economists and international
organizations on the countrys 2015 growth, primarily due to the lower-than-expected expansion in the previous
quarter. The National Economic Development Authority (NEDA) forecasts that the economy will expand by 6.9
percent, bringing a full-year 2015 GDP growth to 5.9 percent. But even that is way below the administrations
GDP growth target of 7-8 percent target or a midpoint target of 7.5%. The Asian Development Bank (ADB), in its
most recent outlook, revised its forecast to 5.9 percent, slightly lower than its initial 6 percent. Other economic
institutions pegged the growth rate to around 5.8 percent.

On Being Investment and Consumption-Driven

The government reports that foreign direct investments (FDI) improved relative to past performance. Despite its
FDI continuing to lag behind other economies in the region, the Philippines has made notable gains, particularly
in improving investor confidence.

In September 2015, FDI reached US$1.5 billion net inflows, a record high and more than double its year-ago
level of US$680 million.12 According to BSP data, investments were channeled mainly to manufacturing; financial
and insurance; construction; wholesale and retail trade; and real estate activities. Despite this surge, FDI inflows
in the period January-September 2015 at US$4.5 billion were still lower compared to those in the same period
last year.

ECONOMIC SNAPSHOTS 4th QUARTER December 2015 5


Figure 5: Net Foreign Direct Flows, in million US dollars
(January 2014 September 2014 & January 2015 September 2015)
It is also worthwhile to note that despite its
considerable fall after 2012, manufacturing
has registered one of the highest FDI inflows.
Agriculture, which has contributed menially in
the countrys GDP, likewise posted the smallest
growth among the sectors below. Meanwhile,
mining, ICT, financial and insurance and real
estate have been posting significant gains in
investments.

ADRI advocates an investment-driven

rather than a consumption-driven economy.
To diversify and at the same time sustain
economic growth, the Philippines needs to
grow its investments rather than solely depend
on remittances. Nonetheless, the latter is still
Source: BSP11 posting increases in an annual basis.

BSP recorded that personal remittances

Table 1: Net Foreign Direct Investment, in million US dollars
(2012 2014)
expanded by 4.3 percent in September 2015
and reached US$2.4 billion.b This totaled to
US$20.4 billion in the first nine months of
2015, an increase of 3.9 percent from the level
registered in the same period a year ago, added
BSP.14 Meanwhile, cash remittances coursed
through banks were also higher by 4.3 percent
than the level posted a year ago.

Consumption, a significant portion of the

Philippine economy, will continue to drive
growth in the XYZ term. However, diversifying
the sources of economic growth will allow the
Philippine economy to become competitive
and, consequently, boost growth overall. High-
value investments, especially in much-needed
Source: BSP13 geographic areas and sectors, will do that.

6 December 2015 4th QUARTER ECONOMIC SNAPSHOTS

Economic Reports: Economic Freedom
and Ease of Doing Business Table 2: Summary of Economic Freedom Ratings for ASEAN

The latest report from the Fraser Institute on economic

freedom ranks the Philippines 67th out of 157 countries at
7.14 points in 2013, a 12-rank jump from its ranking in 2012.
It has scored even higher than Indonesia and Thailand.

According to the 2015 Economic Freedom of the

World Report, the country has markedly improved on the
following areas: legal system and property rights, freedom Source: BSP13
to trade internationally-foreign ownership/investment
restrictions and freedom of foreigners to visit-and-
regulations.

Beside is the summary of the Reports findings on the

Philippines.

The Report showed that the country has been making

strides in openness, an important factor in economic
growth. However, much can still be improved. The Report
says that in order to get a high rating in this area, a
country must have low tariffs, easy clearance and efficient
administration of customs, a freely convertible currency,
and few controls on the movement of physical and human
capital. 16 The proposed Customs Modernization and Tariff
Act and amendments to the foreign restrictions in the
economic provisions of the 1987 Constitution are some
of the structural reforms that will contribute to improving
economic freedom.

In the meantime, the Philippines ranked worse in World

Banks Doing Business Report for 2016. The country slipped
to 103rd place out of 189 countries, from its 97th rank
last year. Regionally, the country was in the bottom half,
ranking even below Vietnam and Brunei. Source: Fraser Institute15

ECONOMIC SNAPSHOTS 4th QUARTER December 2015 7

 Source: Fraser Institute15

Table 3: Ease of Doing Business Ranking for ASEAN

Source: BSP13

8 December 2015 4th QUARTER ECONOMIC SNAPSHOTS

 Despite reforms in the procedures to start a
business, much can still be done in streamlining these
procedures and expediting processes. To date, opening Table 4: Summary of the Philippines Ease of Doing Business Ranking
a business in the country still takes 16 steps and 29 days.
Compared to our neighbors, Singapore, Malaysia and
even Vietnam, theirs take 2.5 days, 4 days and 20 days,
respectively. Further, in terms of protecting minority
investors and enforcing contracts, the Philippines was
ranked [in the region] just right above Laos.

Just like in improving economic freedom, it should

be stressed that regulatory reforms would improve the
countrys investment climate. The World Bank likewise
remarked that in spite of a decline in its ranking the
Philippines experienced a slight improvement in the
Distance to Frontier (DTF) baseline to 60.07 from 59.94
last year.c

Compared to several years ago, the current state of

economic freedomwhen individuals are permitted
to choose for themselves and to engage in voluntary
transactions that do not harm others18provides a
better opportunity for the country to maximize its
Source: World Bank17
economic strengths and even economic cooperation
through ASEAN integration and Asia-Pacific Economic
Cooperation (APEC).

ECONOMIC SNAPSHOTS 4th QUARTER December 2015 9

 The recently-held APEC Economic Leaders Meeting
last November caused many complaints from the
general public and the private sector owing to road
closures, traffic disruptions, flight cancellations, and
extended holidays that affected productivity. There
may nevertheless be positive effects from hosting
the summit as well. For instance, hosting the summit
is an indicator of international confidence about our
economy and served as an opportunity to showcase
the countrys competitiveness. For the Philippine
government, hosting expenses can be considered as
an investment in wooing prospective investors and
securing bilateral and multilateral partnerships.

Aside from this, there have been bilateral

agreements forged, commitments reaffirmed and
new areas for cooperation vowed to be explored
during the Summit.

110 December 2015 4th QUARTER ECONOMIC SNAPSHOTS

ECONOMIC SNAPSHOTS 4th QUARTER December 2015 11

Of course, gains will not be made overnight.
Rather, the countrys strengths must be sustained so
that said gains may be maximized in the future. For
the Philippine Chamber of Commerce and Industry
(PCCI), there are specific areas of reformlegislative,
energy, environment, industry, education, logistics,
transportation infrastructure, information and
communication technology and services, intellectual
property, capital market, small and medium enterprises
development, and taxationthat the government
needs to focus on.
These resolutions are what PCCI proposes to the
current and incoming administrations to improve the
business and economic conditions in the Philippines.
This was submitted during the two-day 41st Philippine
Business Conference and Expo (Oct 26-27).
1. PCCI recommends the enactment of several
bills such as on customs modernization and tariffs.
2. For electricity rate reduction, PCCI
recommends more public discussions on the
competitive selection process along with the
objectives of the Electric Power Industry Reform Act
(EPIRA) to establish a reasonable electricity rate.
3. PCCI supports the proposed bill that will
adjust the income-tax brackets and lower individual
and corporate income taxes to arrive at a more
progressive income-tax system.
4. For the environment, PCCI calls for a review
on the implementation of the Ecological Solid Waste
Management Act, together with the Clean Air Act
112 December 2015 4th QUARTER ECONOMIC SNAPSHOTS
(the use of incinerators for waste management) and
proposes water conserving initiatives, like rain water
harvesting facilities in municipalities and in building
designs.
5. PCCI supports the creation of the Department
of Information and Communications Technology
(DICT).
6. PCCI supports the creation of an inter-agency
task force headed by a Cabinet official to assess
regulations and programs to improve doing business
in the Philippines.
7. PCCI recommends the Department of
Educations K-12 Program and the adoption of
technical or vocational courses by more schools as
well as the dual training program in coordination
with the Technical Education and Skills Development
Authority (TESDA) and the Labor and Science &
Technology Departments.
8. PCCI advocates a shift in cargo traffic from
Manila ports to Subic and Batangas to prevent traffic
congestion.
9. PCCI recommends the creation of a multi-
airport at the Ninoy Aquino International Airport, Clark
and a future airport to serve the countrys current and
prospective aviation requirements.
10. PCCI urges the Department of Trade and
Industry (DTI) to speed up the e-commerce roadmap
and the Intellectual Property Office of the Philippines
to sign an agreement on the IP Depot Initiative, a
digital platform where IP owners can promote their
assets for potential commercialization.
11. For Small and Medium-sized Enterprises (SME)
development, the group proposed increased budget
for the Food and Drug Administration (FDA) to enable
it to employ more technical people and acquire
additional equipment for more efficient application
processes.
According to NEDA, the Philippines remains one
of the fastest growing economies in Asia. Sustaining
and institutionalizing these gains are only possible by
strengthening institutions, improving the provision
of services for health, education, and disaster-risk
reduction, continuously addressing key infrastructure
constraints, fostering innovation culture, investing in
disaster resiliency, and promoting more sustainable
production and consumption patterns.23
The Philippine government has proven that good
governance is indeed good economics. But, it should
not stop there. Poverty reduction and inclusive growth
do need good governance, but the latter should
translate to more income-generating opportunities
for increased per capita income and standards of
living.
The next challenge is how remaining targets can
be achieved and how these gains can be sustained.
Given that government has yet to achieve its socio-
development targets, more employment generation,
primarily through these investments, is still needed to
meet its objectives. ADRI has always argued that being
investment-driven, balanced with social spending on
basic services like education, is the best way for the
government to achieve its target of poverty reduction
and inclusive growth. A lot can still be improved,
especially on the attractiveness of the countrys
investment climate and the reduction of transaction
costs.
ENDNOTES:

1
National Statistical Coordination Board. (November 2015). 12
Ibid. 20
Ibid.
Retrieved from: http://www.nscb.gov.ph/secstat/d_accounts.
asp 13
Bangko Sentral ng Pilipinas. (2015). Net foreign direct in- 21
Ibid.
vestment. Retrieved from: http://www.bsp.gov.ph/statistics/
2
Bangko Sentral ng Pilipinas. (December 2015). November In- spei_new/tab9_fdi.htm 22
Adel, R. (2015, November 21). INFOGRAPHIC: Agreements,
flation Rises to 1.1 Percent. Retrieved from: http://www.bsp.gov. commitments made during APEC. Philippine Star. Retrieved from:
ph/publications/media.asp?id=3937 14
Bangko Sentral ng Pilipinas. (November 2015). Personal http://www.philstar.com/news-feature/2015/11/21/1524366/
Remittances Rise to US$2.4 Billion in September 2015 January- infographic-agreements-commitments-made-during-apec
3
Ibid. September Level Reaches US$20.4 Billion. Retrieved from: http://
www.bsp.gov.ph/publications/media.asp?id=3927&yr=2015 23
NEDAs presentation during the Philippine Economic Brief-
4
Consumer expectations survey: Fourth quarter 2015. (De- ing
cember 2015). Bangko Sentral ng Pilipinas. Retrieved from: http:// 15
Fraser Institute. (2015). Economic Freedom of the World
www.bsp.gov.ph/downloads/Publications/2015/CES_4qtr2015. 2015 Annual Report. Retrieved from: https://www.fraserinstitute.
pdf org/sites/default/files/economic-freedom-of-the-world-2015. a
According to the Bangko Sentral ng Pilipinas, the current ac-
pdf count covers trade in goods, services, primary income, and sec-
5
Ibid. ondary income.
16
Fraser Institute. (2015). Economic Freedom of the World
6
Ibid. 2015 Annual Report. Retrieved from: https://www.fraserinstitute. b
As defined in the Balance of Payments Manual, 6th Edition
org/sites/default/files/economic-freedom-of-the-world-2015. (BPM6), BSP says that personal remittances represent the sum of
7
Ibid. pdf net compensation of employees, personal transfers, and capital
transfers between households.
8
Business expectations survey: Fourth quarter 2015. (Decem- 17
World Bank. (2015). Doing Business Report 2016. Re-
ber 2015). Bangko Sentral ng Pilipinas. Retrieved from: http:// trieved from: http://www.doingbusiness.org/~/media/GIAWB/ c
DTF represents the best performance observed in each of
www.bsp.gov.ph/downloads/Publications/2015/BES_4qtr2015. Doing%20Business/Documents/Annual-Reports/English/DB16- the indicators across all economies in the report since 2005. It is
pdf Full-Report.pdf graded on a scale of 0-100, with a higher number indicating im-
provement.
9
Ibid. 18
Mangahas, M. (2015, November 21). The Economic Freedom
index. Philippine Daily Inquirer. Retrieved from: http://opinion. d
These are chemical substances that affect brain function,
10
Ibid. inquirer.net/90507/the-economic-freedom-index primarily in cognition, perception, mood, and even conscious-
ness.
11
Bangko Sentral ng Pilipinas. (December 2015). FDI Net In- 19
Adel, R. (2015, November 20). LIST: Agreements, vows made
flows Rise to US$1.5 Billion in September 2015; First 9 Months with Philippines on APEC sidelines. Philippine Star. Retrieved
Level Reaches US$4.5 Billion. Retrieved from: http://www.bsp. from: http://www.philstar.com/headlines/2015/11/19/1523691/
gov.ph/publications/media.asp?id=3946 list-agreements-vows-made-philippines-apec-sidelines

ECONOMIC SNAPSHOTS 4th QUARTER December 2015 13

ABOUT
economic
snapshots
is a quarterly publication that presents the current economic situation
of the Philippines through various economic indicators as monitored by local and
international financial institutions. This includes the countrys most recent data
on Gross Domestic Product, Foreign Direct Investments and Remittances,
among others. In addition, studies on the economic performance and
financial forecasts for the Philippines are included in this report.

Stratbases Albert Del Rosario Institute

is an independent international and strategic research
organization with the principal goal of addressing the
issues affecting the Philippines and East Asia
9F 6780 Ayala Avenue, Makati City
Philippines 1200
V 8921751
F 8921754
www.stratbase.com.ph

picture credit: en. citizendaily.net