Economy
The Philippines is one of the most dynamic economies in the East Asia Pacific region. The Philippines’ economic dynamism is rooted in strong consumer demand supported by a vibrant labor market and robust remittances from overseas Filipinos. The country is newly industrialized and has been transitioning from one based upon agriculture to an economy with more emphasis upon services and manufacturing. Like all the country around the world the economy of the Philippines was affected by the COVID-19 pandemic.
According to the World Bank the GDP (in current US$ prices) of the country in 2020 was US$361.489 Billion reduced compared to 2019 when it reached in current US$ prices US$376.823 Billion. According to the World Bank the GDP of the country in 2020 in constant 2010 US$ prices was US$326.553 Billion and in 2019 it was US$361.124 Billion.
Based on the data from the IMF (World Economic Outlook Database, October 2020) in constant 2010 US$ prices the GDP of the country in 2020 contracted by 9.57% due to the COVID-19 Pandemic. Consumption and investments growth declined significantly while exports tourism and remittances marked a sharp slowdown.
Nevertheless, according to the IMF estimate (January 2021) the GDP growth is expected to rise to 6.9% in 2021 ands to 6.5% in 2022. Of course, this estimate is subject to the post-pandemic global economic recovery.
Since mid-1980’s the economy of the Philippines has been recording a continues increase of the GDP both in current US$ prices and in constant 2010 US$ prices. The last 20 years the economy had sustained an average annual growth of the GDP of 4.5% between 2000-2009 and 6.4% between 2010-2019.
The Philippines’ economy is based on food processing production of cement iron, steel, telecommunication equipment, semiconductors, electronic products, transport equipment, copper products, petroleum products, coconut oil and fruits.
According to the World Bank the agricultural sector employed 22,5% of the labour force in 2020 and contributed to 8.8% of the GDP in 2019 a share that has been decreasing in recent years since the agricultural sector suffers from low productivity weak economies of scale and inadequate infrastructure.
Mining is also an important sector of the economy since the Philippines is one of the richest countries in the world in terms of minerals with an unexploited mineral wealth estimated at more than US$840 Billion. The Philippines reserves of copper, gold, and zinc are among the largest in the world.
The industry sector contributes 30.1% of the GDP and employs 19.8% of the workforce in 2020. One of the main manufacturing activities of the Philippines is industrial food processing but the big industries are dominated by production of cement glass chemical products and fertilizers iron, steel, and refined oil products.
The industry sector was the hardest hit by the COVID-19 Pandemic contrary to the agricultural sector that showed growth.
The tertiary sector represents 61% of the GDP and employs 57.6% of the workforce of the country’s workforce. This sector has developed substantially particularly in telecommunications call centers and finance. Government’s goal is to attract investments in human resources development, design, R&D, finance and infrastructure bolstering manufacturing derived devices and establishing ecosystems linked with manufacturing.
Like the industrial sector the tertiary sector was greatly impacted by the COVID-19 Pandemic.
According to the World Bank, the Trade Balance of the Philippines in 2020 was negative and had deficit of US$31.839 Billion (BoP, current US$). The value of the imported goods was US$79.25 Billion (BoP, current US$) and of the exported US$47.411 Billion (BoP, current US$).
According to the World Bank, the Trade Balance of the Philippines in 2019 was negative as well and have deficit of US$49.312 Billion (BoP, current US$). The value of the imported goods was US$102.788 Billion (BoP, current US$) and of the exported US$53.477 Billion (BoP, current US$).
According to the World Bank, Foreign Trade in 2020 represented 58.2% of the GDP of the Philippines and in 2019 it represented 68.6% of the GDP of the country.
Main export products included integrated circuit and micro assemblies (30.9%), automatic data processing machines and units (5.9%) wires and cables (3.7%) printing machinery (3%) and electrical transformers and static converters (2.8%).
Imports included electronic integrated circuits and micro assemblies (11.3%) petroleum oils (9.5%) electrical apparatus for line telephony (2.9%) motor vehicles (2.7%), and machinery parts and accessories (2%).
According to the IMF, Foreign Trade Forecasts the volume off the exports of goods and services of the country was decreased in 2020 by 20.2% and is expected to increase by 18.1% in 2021. Based on the same report the imports of goods and services of the Philippines was decreased by 21.5% in 2020 and is expected to increase by 29.6% in 2021.
The dramatic decrease of the imports and the exports was due to the COVID-19 Pandemic.
According to Comtrade the main export destination of the Philippines products in 2019 include:
- The U.S (16.3%),
- Japan (15.1%),
- China (13.8%),
- Hong Kong, (13.6%),
- Singapore (5.4%),
- Thailand (4.2%),
- Germany (3.8%)
- Netherlands (3.2%),
- Malaysia (2.6%)
The main imports of the Philippines arrive from
- China (22.8%),
- Japan (9.6%),
- South Korea (7.5%),
- The U.S (7.3%),
- Indonesia (6.2%),
- Singapore (5.9%),
- Malaysia (4.2%),
- Vietnam (3.3%),
- Hong Kong (3.2%)
State Budget, Deficit, Debt
The National Governments of the Philippines have been trying for the last 20 years to maintain a balance on the fiscal position of the country. Starting in 2003 the overall National Government fiscal deficit started to decline to 4.4% of the GDP compared to 2002 when the fiscal deficit was 5% of the GDP.
Between 2003 and 2007 the national Government fiscal balance improved and in 2006 the deficit reached 1% of the GDP and in 2007 it reached 0.2% of the GDP. This improvement was achieved during the period through expenditure compression and enactment of new tax measures.
The following years 2008 - 2010 a fiscal deterioration was recorded since the overall fiscal deficit dramatically grew from 0.2% in 2007, to 0.88% in 2008, to 3.7% in 2009 and to 3.5% in 2010 due to the global economic crisis of 2008. The fiscal balance posted a dramatic improvement for the period 2010-2015 due to Government’s underspending particularly during the first nine months of 2011.
As a result to this policy the overall deficit declined from 3.5% of the GDP in 2010 to only 0.9% of the GDP in 2015. This improvement was not sustained as the fiscal position deteriorated and the fiscal deficit reached to 2.4% of the GDP in 2016 and to 3.2% of the GDP in 2016 and eventually to 3.5% of the GDP in 2019.
Such deterioration of the fiscal balance was due to significant growth in the National Government expenditure from 16.7% of the GDP in 2015 19.6% of the GDP in 2018 and 20.4% of the GDP in 2019, while there was a concomitant reduction in the revenues when measured relative to GDP from about 16% in 2015, to about 15% in 2016 and 15.6% in 2017.
According to estimates, the National Government fiscal deficit in 2020 is going to reach 4.4% to 5.4% of the GDP, although the 2020 Presidential Budget had set the national deficit to 3.2% of the GDP. This increase is due to a number of reasons such as the COVID-19 Pandemic, the consequences of the eruption of Taal volcano and the typhoon Ambo
Regarding the National Government outstanding debt when measured relative to GDP rose from 53.9% in 2007 to 54.8% in 2009.
Previously the debt of the National Government significantly contracted from 74.4% of the GDP in 2004 to 53.9% in 2007 before it went up in 2009., In 2010 the National Government debt registered a lower debt-to-GDP ratio of 52.4% which declined further to 51.5% in 2012 45.5% in 2014 42.1% in 2016 and 41.5% in 2019.
The sustained declining of the National Government outstanding debt starting 2012 onwards is remarkable considering that the National Government incurred a primary deficit of 0.3% of the GDP in 2016, 0.25% in 2017 and 1.6% in 2019.
Including contingent liabilities the total outstanding debt dipped from a high of 90.7% of the GDP in 2004 to a low of 60.9% of the GDP in 2007 but rose to 62.4% in 2009 before declining again to 58.5%4 in 2010 and further to 54.4% in 2013, 45.6% in 2016 and 44.2% in 2019.
Regarding the State Budget, the projected revenues for 2021 is 13.2% of the GDP which is lower than the 2020 total revenue-GDP ratio which was 13.4% of the GDP. It is estimated that the tax revenues account for the bulk of the National Government revenues in 2021 and it is projected to be 93.5% of the total National Government revenues. The tax-to GDP ratio is expected to improve from 11.7% in 2020 to 12.31% in 2021. On average the tax revenues comprise about 90.4% of the total state revenues in 2019-2021.
The COVID-2019 Pandemic and its consequences forced the Government of the Philippines to promote for 2021 an expansionary State Budget in order to help the economy reset, rebound and recover. The 2021 State Budget focused on preserving lives and livelihoods while facilitating economic recovery after the healthy crisis. Fiscal resources directed to help the nation reset by urgently addressing the pandemic, rebound by boosting infrastructure development and generating job opportunities and rebuild by assisting communities to adapt to the post-pandemic life.
Based on these principles the Government of the Philippines approved on 28th of December 2020 the National Budget for Fiscal Year 2021 reached PhP4.506 Trillion (USD90.1 Billion) and was equivalent to 21.8% of the GDP larger by 10% than the FY 2020 State Budget.
The National Budget for Fiscal Year 2021 was allocated to 5 different Sectors as follows:
- Social Services sector PhP1,688 Billion (USD33.36 Billion)
- Economic services sector which includes the Administration’s flagship “Build, Build, Build” program received the second highest allocation with PhP1,323.1 Billion (USD24.462 Billion) or 29.4% of the State Budget.
- General Public Services sector received PhP747.8 Billion (USD 14.956 Billion) or 16.6% of the State Budget,
- The Debt Burden sector received PhP560.2 Billion (USD11.2 Billion) or 12.4% of the State Budget.
- The sector of the Defence received PhP206.8 Billion (USD4.136 Billion) or 4.6% of the State Budget.
According to the State Budget of 2021 the top 10 Departments were:
- Department of Education PhP751.7 Billion (USD15.03 Billion)
- Department of Public Works and Highways PhP695.7 Billion (USD13.91 Billion)
- Department of the Interior and Local Government PhP249.3 Billion (USD4.98 Billion)
- Department of Health PhP210.2 Billion (USD4.2 Billion)
- Department of National Defence PhP205.8 Billion (USD4.11 Billion)
- Department of Social Welfare and Development PhP176.9 Billion (USD3.53 Billion)
- Department of Transportation PhP87.9 Billion (USD1.75 Billion)
- Department of Agriculture PhP71 Billion (USD1.42 Billion)
- The Judiciary PhP45.3 Billion (USD906 Million)
- Department of Labor and Employment PhP37.1 Billion (USD742 Million)
On the 23rd of August 2021 the Government presented its proposal for the State Budget of 2022. The State Budget proposed is PhP5.024 Trillion is equivalent to 22.8% of the GDP and is higher by 11.5% than the 2021 State Budget.
According to the proposed State Budget of 2022 is allocated to the top 10 Departments as follows:
- Department of Education PhP773.6 Billion (USD15.31 Billion)
- Department of Public Works and Highways PhP686.1 Billion (USD13.58 Billion)
- Department of the Interior and Local Government PhP250.4 Billion (USD4.95 Billion)
- Department of Health and the Philippine Health Insurance Corporation PhP242 Billion (USD4.79 Billion)
- Department of National Defence PhP222 Billion (USD4.39 Billion)
- Department of Social Welfare and Development PhP191.4 Billion (USD
- Department of Transportation PhP151.3 Billion (USD3.78 Billion)
- Department of Agriculture and the National Irrigation Authority PhP103.5 Billion (USD2.04 Billion)
- The Judiciary PhP45 Billion (USD819 Million)
- Department of Labor and Employment PhP44.9 Billion (USD889 Million)
Furthermore, PhP1.116 Trillion was allocated to Local Government Units and PhP1.18 Trillion proposed to be spent for infrastructure which includes the following programs:
- Network Development Program PhP128.1 Billion (USD2.53 Billion)
- Flood Management Program PhP113.5 Billion (USD2.24 Billion)
- Rail Transport PhP110.9 Billion (USD2.19 Billion)
- Land Public Transportation Program PhP13.9 Billion (USD275.2 Million)