January 2017

The Philippines is on par with the average of its regional peers when it comes to creditworthiness – it has in fact achieved an investment grade credit rating. It also has a more favourable business climate and growth outlook. But Philippines lags the regional average on incomes per capita.


Economic outlook

The Filipino economy has maintained growth of around 6% p.a. over the last 5 years, making it one of the strongest performers in South-East Asia. A highly competitive workforce, strong capital investment and robust domestic demand have driven robust growth.

The outlook is sanguine. The completion of several large public infrastructure projects, solid remittance inflows and significant social spending should continue to support the growth. But risks from the vulnerabilities in the agricultural sector, unresolved constraints on private investment, and a lack of competition in major sectors could stymie growth.


Encouragingly, per capita GDP is forecast to climb rapidly by the end of the decade, to reach a level at which countries like El Salvador and Fiji now sit. GDP per capita has risen 8.6% p.a since 2003, much higher than the historical average growth rate of 1.4% from 1950 to 2003.


Business climate

Rapid growth, a strong balance of payments, low and stable inflation, improving public finances, and resilience to setbacks (not just the emerging markets sell-off and Typhoon Yolanda, but the global financial crisis) — all these factors have buoyed investor confidence and prompted the credit rating agencies to promote the Philippines to investment grade in 2013.


The World Bank gives the Philippines an ease of doing business rank of 99 out of 190 countries. Getting electricity and resolving insolvency is easier in the Philippines relative to most other areas in emerging Asia.


The Philippines has made little progress over the past decade to improve its rankings on the World Bank’s governance indicators. Persistent weaknesses in business climate is a risk to sustained growth and hinders job creation. Foreign ownership restrictions, inadequate infrastructure and high costs of doing business are the chief hindrances. President Dueterte is open to reviewing investment laws. But his erratic comments, particularly around US-Filipino relations, could scare off investors.    


Bilateral relations

The Philippines was Australia's 24th largest trading partner in 2015-2016. Exports of goods and services were worth A$2.4b made up predominantly of precious metals (ex-gold), wheat and copper. Imports from the Philippines were worth A$1.6b, half of which were merchandise exports. An increasing number of Australians are visiting the Philippines with Australian arrivals growing 10% p.a over the last decade.


Philippine student enrolments in Australia have grown rapidly over the past decade — at an average annual rate of 25% over 2005-2015. Better still, the numbers have been increasing even as overseas enrolments declined. This is probably because the Philippine peso has been a strong currency in recent years.


The Philippines was the source of only 1% of tourists to Australia in 2015, but the numbers have been growing at a brisk pace of 13% p.a since 2011.


In terms of foreign investment stocks, the Philippines is a marginal direct investor in Australia, owning a portfolio of just $473m in 2015 (0.02% of total). Australia’s largest investors remain in traditional markets — the US, with $860b, and the UK with $500b.


Remittances from OFWs — overseas Filipino workers — have been growing in leaps and bounds over the past decade, and are now close to US$21b a year, equivalent to more than 9% of GDP. In actual fact, the IMF believes remittances are under-recorded by 50%, making them closer to 15% of GDP. The good aspect of the remittances is they provide ballast for the balance of payments, stabilising it against shocks. With about 10% of households receiving money transfers from an ‘OFW’, remittances also provide an important income supplement and source of capital. The bad aspect is, the economy doesn't create anywhere near enough jobs to cater for all the job seekers, so people are forced to venture abroad, leaving their families behind. The government says it wants working overseas to be a ‘choice rather than a necessity’, but for too many it is a necessity.

Another important aspect of the economy is BPO — business process outsourcing. The Philippines has become the world's largest BPO hub — overtaking India in 2010. However, the sector employs just ½ million workers out of a labour force of 41 million.


Useful links

Department of Foreign Affairs

ASEAN-Australia-New Zealand Free Trade Area

Republic of the Philippines country brief


Philippines Market Profile

Asialink Business

Market profile