Population 97.737 million
GDP 240.664 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
1.4 |
2.7 |
2 |
2.7 |
|
Inflation (yearly average) (%)
|
1.8 |
2.8 |
3.4 |
2.9 |
|
Budget balance (% GDP)
|
-4.1 |
-4.8 |
-3.3 |
-1.5 |
|
Current account balance (% GDP)
|
-4.5 |
-2.6 |
-1.6 |
-1.9 |
|
Public debt (% GDP)
|
22.6 |
28.8 |
30.3 |
29.4 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Strengthened banking sector: greater supervision, and improved capitalisation and profitability ratios
- High level of education
- Highly productive and adaptable workforce
- Significant and stable inflows of expatriate worker remittances providing support for consumption and external accounts
WEAKNESSES
- Growth limited by low savings and investment rates
- Persistent shortcomings in the business environment
- Insecurity associated with the Islamist rebellion localised in the south of the archipelago
Risk assessment
Consumption supported by remittances from expatriates
The Philippines economy slowed in 2011 because of the reduction in public sector spending and the decline in exports, a consequence of breakdowns in supply chains following the earthquake in Japan in March 2011. Growth will remain at a satisfactory level in 2012. It will mainly be driven by private consumption and investment. Private consumption will benefit from lower unemployment, greater household disposable income and a high level of remittances from expatriate workers (11% of GDP). Investment will be robust because of the high level of capacity utilisation in manufacturing (80%). However, sluggish external demand from developed countries will affect exports of intermediate goods which are used in Asian production chains. Thus, net exports are likely to contribute negatively to growth. Moreover, low investment levels and infrastructure shortcomings form bottlenecks for growth in the medium term.
On the supply side, the services sector (55% of GDP) will be very dynamic, and manufacturing output is likely to increase too owing to the good performance of the chemical and food industries. Growth will also be strong in construction and extraction sectors. Lastly, strong growth is expected in the farming sector after several droughts.
In this context, Coface monitoring records will likely continue to reflect stable payment behaviour in 2012, persistent shortcomings in transparency and debt collection notwithstanding. Financial statements provided by companies are often relatively unreliable. Debt collection is moreover handicapped by slow and costly legal procedures.
Solid financial position in 2012
Regarding public sector finances, the fiscal deficit is likely to fall further in 2012. Public sector debt, which is trending downwards, will remain at a sustainable level. Also, the successful issues of sovereign bonds between January 2009 and March 2011 – notably in the local currency and at relatively low spreads – confirm the soundness of sovereign risk.
Despite the decline in exports, the country has maintained a current account surplus thanks to private transfers. This trend is likely to continue in 2012 with the remittances expected to remain substantial in the medium term as a result of their varied geographic origins - Asia (11%), Middle East (15%), Europe (16%), and United States (52%) - and the types of jobs held by expatriate Philippine workers (notably skilled jobs in the health sector). The satisfactory level of foreign exchange reserves protects the country from sudden capital flight. Nevertheless, risks remain: although they have fallen, external debt ratios are still above the regional average with the debt held in large part by private creditors sensitive to political risk.
In terms of systemic banking risk, the stock of non-performing loans, albeit in decline, obliges banks to limit loans to companies in order to consolidate their balance sheet. Bank intermediation is therefore limited in comparison with other Asian countries.
Structural reforms since the May 2010 elections
Benigno Aquino, elected with a large majority in 2010, represents a source of political stability. The broad popular support he enjoys has enabled President Aquino to introduce structural reforms, notably a wide-ranging Development plan for 2011-2016 (investment in infrastructure and better access to public services). Nonetheless, the country is still suffering from serious governance deficiencies, in particular in the fight against corruption.
