The Philippine economy is expected to “take off” thanks to the strength of its workforce, the pursuit of key reforms and continued growth in services exports, HSBC Global Research said in a report.
“The Philippines is reaping the benefits of two decades of hard-earned reforms. In terms of liberalization, fiscal and institutional reforms, we believe the Philippines has one of the strongest reform stories in ASEAN, giving the economy the stability it needs to take off,” said HSBC economist for ASEAN Aris D. Dacanay.
Mr. Dacanay said the Philippines has “established a solid fiscal and economic foundation that could finance the long-term investments needed to enhance economic potential.”
It cited reforms such as the Rice Tariff Act, the Public Service Act and the recent 12% Value Added Tax (VAT) on digital services.
“These reforms have given the economy the space and resources to respond accordingly and soften the impact of these shocks,” he added.
“While most ASEAN states face declining tax revenues relative to their GDP, the Philippines has improved the efficiency of its revenue base.”
The Treasury Department reported that revenue rose 16.04% to P3.29 trillion in the nine-month period, exceeding the P3.15 trillion target for the period by 4.53%.
“This increase in revenues has allowed the Philippines to invest in its long-term potential – and it has. While some ASEAN states are shifting their government spending from investment to consumer subsidies and welfare, the Philippines is expanding its economic potential through infrastructure and physical capital.”
HSBC also noted the country’s favorable demographic situation.
“Reforms have built the launch pad for take-off, but demography is the fuel of the economy. The Philippines has delivered despite the tailwinds, with the labor market performing better than the demographic trend would suggest.”
It expects the Philippines’ share of the labor force to peak in 2035, the latest among ASEAN countries, making the demographic tailwind “long-lasting.”
“Across ASEAN, the Philippines has the most favorable demographic characteristics. From 2025 to 2035, the Philippines’ labor force is expected to grow by as much as 15%, which will be the fastest pace in the region.”
“This demographic dividend should in turn boost GDP per capita and increase the absolute savings available for further investment,” it added.
HSBC expects average incremental savings in the economy to increase by $17.7 billion annually through 2029.
Meanwhile, HSBC also noted the opportunities of services exports.
“Beyond strength in numbers, the Philippines has found a niche in the export of light-asset services,” the report said.
“In the era of digitalization, this presents an opportunity for the Philippines. The advancement of the digital space has made services more tradable, creating the possibility for services to expand into larger markets and grow. If international transportation has led to a surge in production, data is the service sector’s freighter to the world.”
“Service exports have surpassed overseas remittances as the main current account driver of the Philippine economy, despite continued growth in overseas remittances,” the report said.
“From physically exporting labor to exporting services… digitalization has helped the Philippines move up the global value chain. And with global trends moving toward services, we believe the Philippines and ASEAN are best positioned to ride the wave.” — Luisa Maria Jacinta C. Jocson