Economic Outlook and Opportunities in the Philippines
Arsenio M. Balisacan, PhD
Secretary
National Economic and Development Authority

The Manila Times Midyear Economic Forum 2023
“The Financial Play after the Halftime Replay”
Ascott Hotel, Bonifacio Global City
27 June 2023 | 10:25 AM

 

BSP Governor Felipe Medlla,

Chairman Dante “Klink” Ang II,

Colleagues in government,

Friends and partners in the media, business sector, and civil society,

Good morning.

I would like to express my gratitude to Chairman Ang for inviting me to speak at this highly anticipated forum.

Alongside the members of the Economic Team, I am delighted to discuss the economic outlook and opportunities that our country presents in the near and medium term. As President Ferdinand R. Marcos, Jr. completes his first year in office, I would like to incorporate some highlights from the past year into my presentation, taking note of the key developments in our socioeconomic landscape and policy environment.

Let me begin with the country’s recent economic performance.

The slide illustrates our country’s growth performance since 2010. As many of you know, the Philippines performed remarkably over the past decade, with GDP growth posting between 6% to 7%. Unfortunately, this streak was interrupted in 2020 by mobility restrictions and policy response challenges during the height of the pandemic, resulting in a sharp contraction of 9.5%.

Nevertheless, the economy demonstrated remarkable resilience. In 2022, the full-year growth reached 7.6%, surpassing the government’s official target of 6.5% to 7.5%. The first quarter of 2023 also brought good news, as growth remained strong at 6.4%, indicating a continued recovery and a return to the high-growth trend observed before the pandemic.

In 2022, all 17 regions of our country experienced output expansion, with growth rates ranging from 5.9% to 9.3%. Notably, six regions grew at a faster pace, exceeding 8.0%: the Cordillera Administrative Region (CAR), Cagayan Valley, Central Luzon, the Bicol Region, Western Visayas, and the Davao Region.

What has been driving our solid performance amid the pandemic?

As depicted in this table, two main factors have played a significant role: consumption on the demand side and services on the supply side. The reopening of our economy, largely facilitated by the relaxation of mobility restrictions, provided a boost to household spending, particularly as people eagerly resumed travel. The services sector, which includes retail, tourism, transportation, and education, benefited the most from the reopening, as it encompasses high-contact industries. This, in turn, had a multiplier effect on micro, small, and medium enterprises (MSMEs) located in economic centers and tourist destinations.

While strong consumption growth has anchored our economy during this period of weak global demand, the Economic Team of the Marcos Administration seeks to diversify our sources of growth and prioritize drivers such as investment.

The recent performance of our labor market reflects a vibrant reopening and promising recovery. In April 2023, both the unemployment and underemployment rates decreased year-on-year.

Unemployment has steadily declined, from 17.6% in April 2020 to 8.7% in April 2021, further dropping to 5.7% in April 2022, and reaching a low of 4.5% in April 2023, even below pre-pandemic levels (unemployment was recorded at 5.1% in April 2019).

Similarly, underemployment has shown significant improvements. Underemployment stood at 18.9% in April 2020, gradually decreasing to 17.2% in April 2021, and further declining to 14.0% and 12.9% in April 2022 and April 2023, respectively. The latest figure is also lower than the underemployment rate of 13.4% in April 2019.

In fact, the underemployment rate of 11.2% in March 2023 marked the lowest recorded figure for this indicator since 2005. While there is still much work to be done to enhance job quality, these encouraging signs indicate an improvement in the quality of employment over time.

As Governor Medalla mentioned, high inflation was a challenge in 2022, peaking at 8.7% in January 2023. However, it has now moderated, bringing us closer to the government target. Initially caused by global supply bottlenecks in key food and energy commodities due to the Ukraine-Russia war, inflation became a policy issue on the domestic front. Issues related to domestic supply, including importation, animal diseases, natural calamities, competition, and a weak logistical system, contributed to the problem.

Recognizing the urgent need for supply-side interventions to combat inflation, the Marcos Administration established the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO). This committee closely monitors the supply and demand situations for key commodities, anticipates critical developments and issues in the value chain, and provides timely policy recommendations to the President and the Cabinet to effectively manage inflation in conjunction with the efforts of the Bangko Sentral ng Pilipinas (BSP).

In summary, we anticipate sustained and robust growth, promising employment figures, and a positive trend towards reaching our inflation target.

Multilateral institutions project that the country will outpace many of its regional peers amid external challenges. The Economic Team has set a growth target of 6.0% to 7.0% for 2023. Furthermore, we aim to raise the economy’s growth to a range of 6.5% to 8.0% from 2024 to 2028, in an ambitious push to significantly reduce poverty rapidly and sustainably.

To achieve this, we must address the following question: What will it take to fulfill these objectives? In other words, what is the strategy for the remainder of the year and the years to come?

To achieve sustainable improvements in living standards, high levels of investment are crucial. This was the key to success for the East Asian tiger economies and China. As demonstrated, they consistently maintained high levels of investment, ranging from 30.0% to 40.0% of GDP, for several decades. This involved developing roads, ports, bridges, railways, energy and water infrastructure, telecommunications, logistics, and more, to enhance their economic potential. By doing so, they reduced costs and risks for businesses. Efficiency-seeking and export-oriented firms that produced higher value-added goods heavily invested in these economies, leading to significant spillover effects such as improved employment opportunities, strong supply chain linkages with domestic sectors, technological and skills transfer, enhanced export competitiveness, and access to larger markets as they climbed the technological ladder.

The Philippines has much to learn from its East Asian neighbors and must catch up with its dynamic Southeast Asian counterparts. Unfortunately, decades of neglect have resulted in significant infrastructure deficits. Nevertheless, over the past decade, investments have been on the rise, facilitated by improved macroeconomic fundamentals and a concentrated effort to prioritize infrastructure development.

The Philippine government is committed to fostering a favorable investment climate, including within the public infrastructure sector.

Between 2023 and 2028, the Philippine government aims to sustain annual spending on infrastructure at 5.0% to 6.0% of GDP through the medium-term infrastructure program. This initiative will be supported by a rapidly growing economy, continued reforms to improve fiscal space, and coordinated efforts to create an enabling regulatory and investment policy environment for business partners interested in contributing to the nation’s infrastructure development. By addressing the fundamentals, such as physical and digital connectivity, water resources, and agriculture, we anticipate attracting better-quality jobs with higher wages and incomes for Filipino workers.

Since assuming office in July 2022, the Marcos Administration has built upon previous reform efforts and aims to further enhance the country’s investment regime. This includes the proper implementation of game-changing structural reforms initiated by the Duterte Administration, issuing or amending rules and frameworks to address investor concerns, improving predictability, transparency, and competition, as well as significant initiatives to expand markets, such as joining the Regional Comprehensive Economic Partnership (RCEP). These endeavors are intended to enhance our competitiveness in relation to our Asian neighbors, who are our primary competitors for job-generating investments.

Under the Marcos Administration’s Build-Better-More Infrastructure Flagship Projects (IFPs), we prioritize the fundamentals, including physical and digital connectivity, water resources, and agriculture, among other sectors. Nearly half of these IFPs are ongoing and approved for implementation, while the remainder require project preparatory activities.

These IFPs will primarily be financed through official development assistance (ODAs), public-private partnerships (PPPs), and the national budget.

In terms of timelines, out of the 93 ongoing and approved IFPs, 19 projects are expected to be completed within this year, while 61 projects are projected to be completed by 2028. Of the 101 projects awaiting government approval and undergoing project preparation, 35 are expected to be completed by 2028. The National Economic and Development Authority (NEDA) is responsible for monitoring the progress of these projects and highlighting challenges and constraints to the President and the Cabinet to ensure prompt resolution.

The government recognizes the crucial role of the private sector as the engine of growth. Therefore, public-private partnerships (PPPs) will play a key role in financing physical and social infrastructure projects. The private sector will be a valuable partner, bringing managerial expertise and new technologies for production and operation. As of April 30, the PPP pipeline primarily consists of transport and road projects, with opportunities also available for partnerships in property development, health, water and sanitation, ICT, solid waste management, energy, and tourism.

While we aim to expedite infrastructure development, the Economic Team is committed to ensuring that these projects undergo rigorous scrutiny and evaluation. This is to ensure alignment with our socioeconomic plans and frameworks and to protect and promote public interest.

In conclusion, I hope I have provided a clearer picture of our current status and the government’s gameplan as we work towards achieving our country’s development goals.

To summarize, the past year witnessed sustained and robust growth, promising employment figures, and a positive trend towards reaching our inflation target.

The key to sustaining and accelerating rapid and inclusive growth lies in increasing investment and addressing critical constraints to high-quality job creation.

Lastly, the public sector is dedicated to establishing an enabling investment and regulatory environment that improves the ease of doing business and stimulates greater private sector activity in job creation and innovation.

Once again, I express my gratitude for the invitation to speak at this economic forum, and I look forward to the enlightening discussions ahead.

 

Thank you, and have a good day.

-END-