A Brief
The Philippines is poised for robust economic growth, with its total GDP projected to double from USD 400 billion in 2022 to USD 800 billion by 2030. Forecasts indicate that by 2033, the country is set to join the select group of Asia-Pacific economies exceeding one trillion dollars, aligning with regional giants like China, Japan, India, South Korea, Australia, Taiwan, and Indonesia. This impressive expansion is not only expected to elevate the nation’s stature but also contribute to a significant rise in per capita GDP, surging from USD 3,500 in 2022 to an estimated USD 6,200 by 2030. Such economic vitality is anticipated to fuel growth in the Philippines’ domestic consumer market, attracting both foreign and domestic investments across various sectors.
An essential factor complementing this economic surge is the notable decline in the country’s inflation rate, reaching 4.1 percent in November 2023 from 8.7 percent at the beginning of the year, well within the projected range of 4.0 to 4.8 percent set by the Bangko Sentral Pilipinas (BSP). Fiscal indicators also underscore the Philippines’ sound financial management, with the fiscal deficit standing at 1 trillion Philippines pesos as of October 2023, marking an 8.5 percent reduction compared to the same period in the previous year. The National Government deficit-to-GDP ratio for the first three quarters of 2023 remained below the full-year target, reaching 5.7 percent against the 6.1 percent goal. Revenues have seen an impressive uptick, surpassing the target by 5.2 percent, with expectations set for revenues to reach 3.85 trillion Philippines pesos, equivalent to 15.7 percent of GDP in 2023. Notably, credit rating agencies S&P Global and Fitch Ratings affirmed the country’s BBB+ and BBB ratings with a Stable outlook in November 2023, reflecting confidence in its economic resilience. Additionally, the unemployment rate, averaging 4.6 percent for the first 10 months of the year, outperforms the same period in the previous year and aligns with the targets outlined in the Philippines Development Plan (PDP) 2023-2028, showcasing a positive trajectory for the Philippines’ economic landscape.
Philippines economic performance 2023
The Philippines has also shown a much-improved economic growth performance over the past decade, apart from during the peak period of the COVID-19 pandemic during 2020-21 when there was widespread global disruption to economic activity. During the period from 2012 to 2019, real GDP growth in the Philippines each year ranged between 6% to 7%. The economic rebound in 2022 pushed real economic growth to the highest pace recorded since 1976, with household final consumption expenditure growing by 8.3% year on year while gross capital formation grew by 16.8%. The recent economic data has continued to show expansionary conditions in the Philippines’ economy during the fourth quarter of 2023. The headline S&P Global Philippines Manufacturing PMI rose from 52.4 in October to 52.7 in November 2023, signaling continued expansionary operating conditions that were the strongest reading since February.
A trillion-dollar economic dream of the Philippines
The Philippines is expected to enjoy a continued growth spurt in the next decade with economic output hitting $1 trillion by 2033, buoyed largely by expanding private consumption. The Philippines may experience rapid economic growth in the next decade with gross domestic product (GDP) hitting $1 trillion or P51.1 trillion by 2033. This will allow the Philippines to join the ranks of China, Japan, India, South Korea, Australia, Taiwan, and Indonesia in the group of largest economies in Asia-Pacific. The nominal GDP of the Philippines as of 2021 was $379 billion or P19.387 trillion. The key growth driver is the rapid growth in private consumption spending, buoyed by strong growth in urban household incomes. The Philippines’s economy is also expected to drive per capita GDP from $3,300 to $6,500. The rise in per capita GDP will help underpin the growth of the domestic consumer market, catalyzing foreign and domestic investment into many sectors of the economy. This will help to drive foreign direct investment inflows into the Philippines, as multinationals build up their local presence in a wide range of 2033.
Opportunities for the Philippines in 2024
Positive GDP Projections
The recent economic data shows that the Philippines economy has continued to show robust expansion, with GDP growth of 5.9% year-over-year in the third quarter of 2023. The latest S&P Global Purchasing Managers Index survey results for November 2023 also showed that the Philippines’ manufacturing sector is one of the fastest growing among the major economies worldwide. Sustained remittance inflows from workers abroad, fast-growing IT, BPO sector exports, and the continued recovery of the tourism sector are also expected to support economic growth momentum during 2024. International visitor arrivals are estimated to have doubled in 2023 compared to 2022, driving a significant rebound in international tourism revenues.
The Philippines is amongst the world’s fastest-growing emerging markets
The Philippines economy has continued to show a strong recovery from the COVID-19 pandemic during 2023, with GDP growth strengthening to a pace of 5.9% in the third quarter of 2023
The Development Budget Coordination Committee (DBCC) narrowed the Philippines’ growth target to 6.5 to 7.5 percent for 2024, taking into account the risks posed by the possible global economic slowdown, El Niño, and other natural disasters, as well as geopolitical and trade tensions.
Growth in 2024 will be driven by private consumption as inflation is expected to return within the target range; falling oil prices; robust public spending; greater investments lured by the country’s sound macroeconomic fundamentals, investment-grade credit ratings, and the implementation of structural reforms; and increased demand for Philippines exports as supply chain bottlenecks ease.
BPO Sector: The Philippines is the BPO capital of the world
Total estimated BPO export revenues, consisting of computer and other business services, amounted to USD 21.3 billion for the first three quarters of 2023, 7.6 percent higher than the USD 19.8 billion total revenues registered in the same period in 2022. It can be noted that in 1992, the Philippines BPO industry was born, employing nearly a million workers, thus creating a ripple effect. In 2005 alone, it accounted for an average of 2.4% increase in the Philippines’ GDP. The succeeding year drew another milestone as the domestic economy grew by 5.4%. All these are due to the emerging BPO industry.
As years passed by, foreign investors moved into the Philippines. The Philippines Economic Zone Authority (PEZA) paved the way for lower area and tax requirements to start such a business.
In 2010, the country was named the BPO capital of the world–beating other countries such as India – one of the leading names in the industry. This can be attributed to the notion that Filipino BPO employees are good communicators and can easily capture the interest of customers from all over the globe. From medical transcription down to selling all other services, Filipino workers rake in monumental figures. There is nothing that a Filipino BPO worker will do to help his company prosper. His being value and purpose-driven is the vital element that makes the Philippines BPO industry boom.
The Philippines BPO industry contributes nearly $30 billion to the economy each year. It is estimated that 1.3 million Filipinos were employed in over 1000 BPO companies in 2019.
It is estimated that the country holds 10-15% of the global BPO market. Its services are oriented to its former colonial power, the USA, and also serve Europe and nearer neighbors, such as Japan, New Zealand, and Australia. The I.T. BPO industry plays a major role in the country’s economic growth. I.T and Business Process Association of the Philippines (IBPAP) reported that the market’s revenue grew by 10.3% to $32.5 billion in 2022, citing that the main drivers of this annual growth were healthcare, finance, tech, retail, and telecommunications.
Foreign Workers Remittances
The Philippines is projected to be the fourth top recipient of remittances this year, a report released by the World Bank said. The World Bank’s Migration and Development Brief, report said the top five recipient countries for remittances this year are India ($125 billion), Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion), and Egypt ($24 billion).
Tourism Sector Growth
The tourism industry is a known key contributor to the Philippines economy. The Bangko Sentral Philippines recognizes this sector as one of the biggest contributors to local employment. Last year, the Department of Tourism (DOT) reported that international tourism arrivals rose to 2.6 million in 2022, surpassing its full-year target of 1.7 million arrivals. This also translated to a 2,465-percent jump in government revenues at 208.96 billion Philippines pesos. The United States remained the top tourist market, followed by South Korea, Australia, Canada, the United Kingdom, Japan, Singapore, India, Malaysia, and China. Meanwhile, more than 628,000 were returning Filipinos.
Albeit still lower than the 8 million level before the pandemic, the jump in figures speaks good news to the economy. As a country heavily relies on tourism, the surge in the number of arrivals will be a blessing to employment and revenue generation for the country.
Just last month, the president approved a proposal to refund taxes for foreign travelers and roll out electronic visas highly prioritizing the Chinese and Indian markets, both to boost foreign tourist arrivals. He also removed the One Health Pass entry requirement for travelers as well as the mandatory inclusion of travel tax on booking airfares to lessen the hassle of queueing up at travel tax booths inside airport facilities. The tourism industry is noticeably up for a boost, but the biggest challenge now hinges on how we can compete with our global peers to lure more tourist arrivals.
Improved Positive ratings
Economic expansion remained broad-based as all major production sectors posted positive year-on-year growths in the first three quarters of the year, led by services (7.0 percent), industry (3.7 percent), and agriculture (1.1 percent). Multilateral organizations recognize the strong economic performance of the Philippines and expect the country’s expansion to be one of the fastest among its regional peers in 2023 with the Asian Development Bank (ADB) forecasting a growth of 5.7 percent, the ASEAN+3 Macroeconomic Research Office (AMRO) and World Bank (WB) at 5.6 percent, and the International Monetary Fund (IMF) at 5.3 percent. Meanwhile, the Philippines’ external performance remains strong with gross international reserves (GIR) increasing to $102.7 billion as of the end of November 2023, from $101 billion at the end of October.
The peso-dollar exchange rate settled at 55.38 pesos per US dollar on December 27, 2023, averaging 55.63 Philippines pesos year-to-date (YTD). This remains within the peso-dollar exchange rate assumption for 2023, which is PHP 55.50 to 56.00 per US dollar. In addition, total cash remittances from Overseas Filipinos (OFs) also continue to increase. On a YTD basis, cash remittances coursed through banks in the first 10 months of 2023 amounted to USD 27.5 billion, up by 2.8 percent from USD 26.7 billion recorded in the same period a year ago.
Navigating Challenges for the Philippines in 2024
Geopolitical uncertainty
The Philippines and Indo-Pacific states are confronted by geopolitical challenges that range from traditional, non-traditional, and evolving security threats. The collective concern to manage these security challenges pushes states to cooperate in multilateral, multilateral, and bilateral approaches.
The administration of President Ferdinand Marcos Jr. is expected to maximize the country’s diplomatic relations while remaining independent and free from external pressure in the exercise of its foreign and security policies. This is tested in the latest diplomatic engagements of the administration. Recognizing the limitations in the country’s resources, he also advised that the Philippines must work with the United States, Australia, and other security partners to implement a maritime security strategy. He said that this would convey a message of solidarity.
Weak Governance indicators
The Philippines has an ESG Relevance Score of ‘5’ for Political Stability and Rights as well as for the Rule of Law, Institutional and Regulatory Quality, and Control of Corruption, as is the case for all sovereigns.
Infrastructure Back lags
Infrastructure, by definition, undergirds a country’s socioeconomic development. The more strategically distributed it is – both sectoral and spatially – the better it is for inclusive growth and sustainable development. With a growing economy, the Philippines requires more and better-selected infrastructure investments, given its archipelagic landscape, expanding population, and rapid urbanization. To support a higher growth trajectory and improve the quality of life in both urban and rural communities, infrastructure development will remain among the top priorities of the government over the medium term. Spending on infrastructure has to be intensified while addressing persistent issues and challenges hampering implementation so that the so-called “Golden Age of Infrastructure†will form part of a solid foundation for reaching the country’s Long-Term Vision in 2040.
Demographic dividends viz a viz challenges
The Philippines economy is poised to undergo accelerated growth as a result of demographic dividends as early as 2025 if it can moderate population growth and invest in human capital. The National Economic and Development Authority (NEDA) cited the Philippines Development Plan (PDP) 2017-2022 emphasizing the need for a sustained universal healthcare program and reproductive health policies to reduce mortality and fertility rates.
The Philippines is expected to be the last major Asian economy to benefit from the demographic dividend between the years 2025 and 2070. If not properly addressed, the country would need to wait until at least 2050 to benefit from the demographic dividend, or possibly miss it altogether.
Low Industrial outputs
During March 2023, Philippines manufacturing continued its growth trajectory, albeit at a slower pace compared to the previous year and month. The value of production index (VaPI), an indicator of factory output, recorded a 4.9 percent year-on-year (YoY) growth rate in March, as per the Philippines Statistics Authority (PSA).
The VaPI figure for March, though positive, represents a slowdown from the 9 percent expansion in February and a staggering 370.3 percent growth rate observed in March 2022, according to a report by a news agency. Similarly, the volume of production index (VoPI) saw a 2.2 percent increase, less robust compared to the 5.2 percent growth in February and 346.2 percent in March 2022.
What the Philippines must do?
The Philippines must manage its youth bulge
The Philippines today has the largest generation of young people in its history. 30 million young people between the ages of 10-24 account for 28 percent of the Philippines population. Developing policies and investments for the future of young people could lead the Philippines to reap the benefits of a ‘demographic dividend’ – the economic growth potential that can result from households having fewer children and a larger number of young people who now have better health, better education, and decent jobs who can save and invest for their future.
Invest and harness its tourism sector
The tourism sector is a key contributor to the resilience of the Philippines’ external payments position and overall economic development, alongside overseas Filipino (OF) remittances and business process outsourcing. As one of the country’s biggest employers, it provides various opportunities for businesses and individuals from all segments of society and supports sustained structural foreign exchange (FX) inflows. But given the contact-intensive nature of the tourism sector, it has been significantly hit by the COVID-19 pandemic. Nonetheless, prospects for recovery in travel services are improving amid the waning of the pandemic and easing of travel restrictions. Travel services are one of the main sources of FX inflows in the country’s balance of payments (BOP). It accounts for about 20 percent of total services exports reflecting an average of 15 percent sustained growth over the past decade (from 2010 to 2019, pre-pandemic).
Infrastructure investments
The Philippines is one of the fastest-growing economies in Asia and is the second fastest-growing economy in the Association of Southeast Asian Nations (ASEAN). Increasing urbanization, a growing middle class, and a young, English-speaking population continue to drive the local economy, thanks to strong consumer demand supported by a burgeoning labor market and steady remittances from overseas Filipinos.
Of the 3,770 infrastructure projects in the Philippines with an indicative total investment requirement of CAD 432.5 billion over the medium term, 194 projects are listed as high-impact Infrastructure Flagship Projects (IFPs). These projects are aimed to spur and accelerate economic growth across the Philippines archipelago as spearheaded by the economic team of the current administration.
Filipino President Ferdinand Marcos Jr., has been actively advocating for public-private partnerships (P3s) as a favorable financing model for infrastructure projects.
Defense and Security enhancement
Recognizing the paramount importance of safeguarding its national security, the Philippines has embarked on a 15-year modernization program, Horizon 3 (H3), to fortify its defense capabilities amid evolving geopolitical dynamics.
Also, in light of the escalating challenges posed by a resurgent and assertive China, the strategic alliance with the United States emerges as a linchpin in the Philippines’ defense strategy.
The enduring U.S.-Philippines relationship, rooted in shared democratic values and historical ties, is exemplified by the designation of the Philippines as a ‘Major non-NATO Ally’ (MNNA). This alliance, the oldest in Asia, presents a strategic opportunity for the Philippines to bolster its self-defense capabilities through collaboration with U.S. defense and security equipment manufacturers. With an average annual contribution exceeding $120 million in Foreign Military Financing (FMF), the United States has expressed a heightened commitment, allocating over $200 million this year due to regional security concerns, and an additional $100 million for the armed forces’ modernization programs.
Against the backdrop of maritime disputes with China in the West Philippines Sea, the Department of National Defense (DND) underscores the critical role of air power in territorial defense. Aligning with current technological trends, the enhancement of the Philippines Air Forces’ capabilities is pivotal. The incorporation of unmanned aerial systems, artificial intelligence, and space capabilities becomes imperative in this pursuit. As the Philippines seeks to maintain regional stability, the DND, a key player in the Indo-Pacific region, emphasizes the significance of bolstering capabilities under Horizon 3. The focus on C4ISTAR, air defense systems, air and surface interdiction systems, anti-tank systems, and ground rocket systems underscores the commitment to a modernized defense apparatus, pending approval by the DND. In the face of a dynamic geopolitical landscape, the symbiotic U.S.-Philippines partnership stands as a cornerstone, offering crucial support for the Philippines’ defense endeavors.
