There is current consensus among leading economists both locally and abroad that the Philippines is now in a very good position for an economic take-off. The country is being given a lot of positive names lately, the “New Asian Tiger” is one of them.
I was at the Philippine Investment Summit last 30 January 2013, where Dr. Nouriel Roubini (who has earned for himself the monicker, Prophet of Doom, for having predicted the 2007-2008 global financial crisis with pinpoint accuracy) was the key speaker among a panel of industry leaders and economists. In this forum, the Prophet of Doom became the Prophet of Boom. Dr. Roubini spelled out his reasons for believing that the Philippines is a bright spot in Asia. And below are some information that I can recall from his talk, and from the other panelists that included Finance Secretary Cesar Purisima and business mogul Manny Pangilinan.
The country’s Debt to GDP ratio is best in the region at 26%, compared for instance to Indonesia’s 27% and South Korea’s 36%. The economy had been growing steadily in the last few years, with GDP at 6.7% in 2012. It has very strong economic fundamentals, with the right policies in place to curb possible over-heating. Its engine of growth is more focused on the private sector, as opposed to the strategy adopted by BRIC countries (Brazil, Russia, India and China), where state capitalism and protectionism is slowly taking the center stage, thereby crowding out private sector initiatives. Budget deficit now stands only at 2% of GDP and falling. Revenues to GDP ratio is 15%, and planned to be increased to 18% by 2016. Tax revenues to GDP may be low but budget deficit is very low anyway. And in terms of governance, the President and his Economic Team are well recognized in their strong stance to curb corruption and tax evasion/avoidance.
The Philippines also has about 8 million OFWs remitting foreign currency back to the country, high literacy rate, rising middle class, strong consumer society (domestic consumption is 7% of GDP), rising fixed investments (e.g. in residential condos), infrastructure spending is 3% of GDP now and believed to rise to 5% in the near future, falling external debts while international reserves rise, and foreign assets outstripping foreign debts, thereby taking a net creditor position.
The country has now become attractive in the eyes of foreign investors. Even Japan business tycoons might be looking at the Philippines as a result of rising geopolitical issues with China.
The challenge now is to ensure that the rising Peso does not crowd out exports and the BPO sector. Moreover, any excess liquidity should be managed and channeled to PPP programs, because if such excess will have no productive channels to flow into, it might end up inflating the stock market and/or lead to an asset bubble.
Another challenge is that investments still make up below 20% of GDP. A rock-steady economy should rest on a good balance of consumption and investments. Per capita income also still remains low. But where it stands now there is a good chance it will grow fast as trickle-down effects are achieved.
Other areas that will have to continue to improve on include the aspect of rule of law and our ability to protect the sanctity of contracts, our climate change adaptation efforts, and our ability to give the young population the right skills in order to enhance their productivity and ability to absorb technological innovations. Roubini also stressed that more can be done to improve governance and deal with the difficulty of doing business.
Repeatedly, it was highlighted in the forum that a key factor in the country’s current status as Asia’s rising tiger its sophisticated business community. It is very hard to disagree.
Rodolfo “Ozone” T. Azanza Jr.
Vice President External Affairs
Philippines Norway Business Council
Image courtesy of Kaotika via vecteezy