Given Indonesia’s 2016 performance, in which fiscal reform, accommodative monetary policy and key market factors…
Economic Outlook 2017: Philippines
Increased infrastructure spending could help alleviate flooding in Manila, a common occurrence in the Philippine capital
This article is part of a series of economic forecasts for 2017 addressing the major Asia-Pacific economies
A weakening currency was not enough to stop the Philippines posting gross domestic product growth of 7.1%, one of the fastest in the world.
The peso fell 5%, hitting a seven-year low in September 2016. However, this has been widely seen as a strength, boosting revenue from overseas workers’ remittances and making the country’s outsourcing sector more attractive. According to the central bank, domestic demand, pushed by “supported by solid private household spending, higher government expenditure, and adequate domestic liquidity,” will offset rising external global risks. The World Bank expects 6.9% GDP growth in 2017.
The government of President Rodrigo Duterte announced in November 2016 that annual infrastructure spending would rise to 5.4% of GDP, up from an average of 3.2% in recent years. “This administration would like to raise the bar and address the deficit,” Public Works and Highways Secretary Mark Villar told the Manila Bulletin. “It is the only way we could solve both traffic and flooding,” he said, citing a International Monetary Fund study indicating sustained increase in public infrastructure spending to 5% of GDP would add 5-6% to overall growth over 15 years.
Duterte’s first budget, approved in December 2016, received a generally positive response. “The 2017 budget proposal contributes to the optimism in growth,” said Birgit Hansl, lead economist for the Philippines at the World Bank. “The raises [for] pensions, and higher allocation of social protection programs will mean more money in Filipino houses, complementing wages and raising consumer demand.”
Outlays totaled 3.35 trillion pesos (US$67.4 billion), a rise of 11.6% over 2016, reflecting priorities for law-and-order spending. The police budget rose 24.6%, with the money to be spent on hiring more officers, raising salaries and buying more firearms, according to a government statement. Spending on the judiciary rose 21.5% to help them handle more cases, it said.
The Philippines last year saw increasing tensions with the United States in relation to extrajudicial killings of drug users and dealers, and its appeasement of Beijing over South China Sea expansion policies. During 2016, foreign funds pulled US$536 million out of the Philippines. US-Philippine relations are expected to more or less normalize under the administration of Donald Trump and US companies are considering re-investing in Philippines, although questions remain over the possible impact of protectionist US trade policies.
The Duterte government is actively courting other countries with Swedish furniture retailer IKEA and defense contractor Saab mulling investment deals after a trade delegation visited last year.