Following a successful election, the Philippines is welcoming a new government that is expected to maintain continuity with the long-term economic plans and policies established by the previous administration; with a raft of economic liberalisation measures having set the stage for further growth in 2022. The incoming government is already planning to prioritise infrastructure, digitalisation, and retail, among other sectors, which will provide significant opportunities for foreign investors and businesses.
Exceeding a median analyst forecast of 6.6 per cent in Q1 2022, the Philippines is currently the fastest-growing economy among its Asean peers.
According to the Philippine Statistics Authority (PSA), the country attained a strong gross domestic product (GDP) growth of 8.3 per cent in the first quarter of 2022, surpassing pre-pandemic levels. This figure is higher than the 7.8-per cent expansion in the final quarter of 2021 and is the highest in the Asean region.
As the country lowered its quarantine restrictions to Alert Level 1 beginning in March, reduced granular lockdowns, and shifted from a pandemic to an endemic outlook, its economy has recovered with businesses gradually reopening and more jobs being created.
In the same month, the unemployment rate fell to 5.8 per cent, the lowest number since the pandemic began. At present, job creation is at 4.4 million above the pre-pandemic level.
Overall investments also grew by 20 per cent in Q1 2022 from -13.9 per cent in the previous year. In the first quarter of the year, FDI (foreign direct investment) rose to US$2.4billion, 2 per cent higher than the same period last year. As for trade, exports rose by 10.3 per cent, while imports rose to 15.6 per cent.
The Philippines aims to achieve a growth target of 7 to 9 per cent this year, with its robust economic performance enabling it to be ready to take action against any external risks.
The Philippines’ Economic Development Cluster's (EDC) 10-point policy agenda has continued to align the country's economic recovery programmes and deliver policies focusing on driving more rapid, resilient, and inclusive growth.
The April 2022 IMF World Economic Outlook (WEO) report revealed a faster growth projection for the Philippines of 6.5 per cent for this year, up from the previous forecast of 6.3 per cent made in January. Meanwhile, the same report showed that global growth is to slow from an estimated 6.1 per cent in 2021 to 3.6 per cent in 2022 and 2023 due to the Russia-Ukraine crisis.
Focusing on recovering and sustainable inclusive growth
Amidst managing its emergency response to the pandemic, government reform work geared toward recovery and sustainable inclusive growth saw through.
From being an inward-looking economy, the Philippines has pushed for new laws and programmes to make the country an ideal destination for more foreign investments that promote sustainability, resilience, and digital innovation.
For instance, on top of the accelerated 5 per cent to 10 per cent Corporate Income Tax (CIT) cut, the incentives under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) enacted in March 2021 include an additional 100 per cent deduction on Research and Development (R&D) expenses for businesses to incentivise the creation of new knowledge and products. This aims to nurture a culture of R&D and innovation among Filipino enterprises and lead to the rise of more competitive companies in the years ahead.
The rationalised tax incentives system is also complemented by the amendments to the Retail Trade Liberalization Act (RTLA), which were successfully enacted in December 2021 together with the amendments to the Foreign Investments Act (FIA) and the Public Service Act (PSA), which were both signed into law in March 2022.
Furthermore, the Philippines has participated in the Asian Development Bank’s (ADB) Energy Transition Mechanism (ETM) facility. As a public-private finance vehicle, it aims to retire coal-fired power plants in favor of renewable energy (RE) sources. This in turn will attract investments in RE, create jobs locally, and promote sustainable growth.
The Philippines has also historically underinvested in infrastructure. This led to problems of congestion and inefficiency in the country’s ports, airports, bridges, and roads. In recent years, infrastructure spending has dramatically risen to an average of 5 per cent of GDP - double the level recorded by the four previous administrations. This was maintained amid the pandemic through fiscal discipline and financing via tax reforms, which encouraged the country’s development partners to support its Build, Build, Build (BBB) Program through concessional loans and grants, which has also provided 6.5 million jobs since 2016.
Compared with the 2.6 per cent of GDP expenditure seen during the previous administration, the BBB Program is projected to continue to accelerate public infrastructure expenditure to above 5 per cent. This will sustain a nationwide infrastructure modernisation programme to spur economic development.