Monday, 30 September 2024 – In this webinar, Dr Jan Carlo Punongbayan reviewed core developmental and macroeconomic indicators in the Philippines. He articulated some of the major concerns, and commented on their likely causes which are rooted both in recent major events and the Philippines’ economic history.
REGIONAL ECONOMIC STUDIES PROGRAMME WEBINAR
Dr Jan Carlo Punongbayan, Assistant Professor at the University of the Philippines School of Economics (UPSE) discussed the evolving developmental trajectory of the Philippines. The discussant for the webinar was Professor Hal Hill, H.W. Arndt Professor Emeritus of the Southeast Asian Economies at the Crawford School, College of Asia and the Pacific, Australian National University The session was moderated by Dr Cassey Lee, Senior Fellow and Coordinator of the Regional Economic Studies Programme at ISEAS.
Dr Punongbayan began with a comprehensive account of the Philippines’ economic history, covering the major shock arising from COVID-19 and the structural development of the Philippine economy. First, Dr Punongbayan argued that the scars of the pandemic have become permanent as it not only resulted in a temporary shock where the Philippines lost 10% of its GDP – the deepest in ASEAN – but also knocked it onto a completely different and lower growth trajectory compared to the pre-pandemic Philippine economy. The Philippines’ growth will need to hit at least 10.3% annually to revert to its pre-pandemic growth trend as its ASEAN neighbours have done.
Dr Punongbayan called attention to the core structural drivers of growth aside from the pandemic. Historically, the Philippine economy has been consumption-driven. However, consumption was and continues to be severely damaged by inflation, which reached a 14-year high of 8.7% in 2023. While inflation has declined on paper from its levels in 2022-23, prices of commodities remain sticky, and is mostly felt through persistently high rice prices. Consequently, inflation has had a pronounced impact on the bottom 30% of Philippine society.
Dr Punongbayan noted that the Philippines has transitioned quickly to a service-driven economy. Services accounted for more than 60% of GDP in 2023. Services jobs also accounted for 60.2% in January 2024 as compared to 29.8% in 1970. With some economists questioning if this de-industrialisation was premature, there are discussions over whether the economy should remain services-driven or revive manufacturing. While the Philippines has a record-low unemployment rate of 3.1% in June 2024, underemployment, which sat at 12.1% in June 2024, continues to be a significant issue.
Dr Punongbayan then highlighted three key aspects of the government of President Marcos Jr that are concerning. Firstly, President Marcos’ policies seem to centre around the rehabilitation of the Marcos family’s legacy rather than economic concerns; this applies to his poverty reduction, price ceiling, infrastructure investment and other policies.
Secondly, President Marcos Jr has sought to attract foreign investments but appears to have limited unsuccessful thus far. This has led to a push to amend the Philippines’ constitution to open the heretofore closed sectors of education, public services and advertising for foreign investment. Dr Punongbayan argued that this does little to address the structural factors discouraging foreign investments such as a poor business environment, bureaucratic red tape and the perception of corruption.
Thirdly, the flagship sovereign wealth fund project under President Marcos’ government, the Maharlika Investment Fund (MIF), is viewed by many economists as counterproductive, and an overall representation of fiscal mismanagement. While fiscal mismanagement is not new in the Philippines’ economic history, the introduction of the MIF has the potential to crowd out loanable funds and negatively affect the operations of developmental institutions. Dr Punongbayan also noted a concerning increase in ‘unprogrammed funds’ that appropriate budget surpluses from other programmes.
In his comments, Professor Hill offered a cautiously optimistic view by positing that the Philippines has managed to solve two key structural obstacles since the lost decade of the 1980s. Firstly, the closed nature of the Philippine economy at the time caused it to miss out on the major benefits of the wave of globalisation, and the opening up of the Philippines has led to major growth in sectors like Business Process Outsourcing (BPO). Secondly, while macroeconomic mismanagement remains an issue, it has been much improved. With the normalisation of technocratic appointments to key economic portfolios across governments, the Philippines has not faced a serious macroeconomic issue since the 1990s and has been able to uplift many citizens from poverty.
While major challenges remain, Professor Hill noted that the Philippines is still growing faster than most developed economies. Dr Punongbayan agreed, noting that the biggest dip in poverty was in Mindanao. However, he remained primarily concerned with whether the Philippines could also be a recipient of the substantial foreign direct investments (FDI) inflows going into neighbouring ASEAN economies.
Questions raised at the seminar revolved around two major issues. The first set of questions focused on whether the economic inefficiencies of the Philippine economy could be said to be perpetuated by a focus on remittances and a continued reliance on a policy of labour export. The second asked for more details on efforts to improve the productivity of the services sector as well as for links between the services and manufacturing sectors.