CLASS: BBA ‘A’ CLASS ROLL: 2013 EXAM ROLL: 20PBBA046682 CONTENT 1 ACKNOWLEDGEMENT 2 INTRODUCTION 3 GROWTH RELATED ISSUES 4 THE ISSUES OF BUSINESS CYCLE 5 THE ISSUE OF INFLATION 6 THE ISSUE OF UNEMPLOYMENT AND POVERTY 7 THE ISSUE OF BUDGETARY DEFICITS 8 THE INTERNATIONAL ECONOMIC ISSUE 9 BIBLIOGRAPHY ACKNOWLEDGEMENT • I would like to express my special thanks of gratitude to my teacher Mr. Anurag Denis Tete, as well as our Head of Department Mr. Abhijit Dey, who gave me the excellent opportunity to do this wonderful assignment on the topic “THE ECONOMY OF PHILIPPHINES”.
• They have helped me in doing a lot of Research and I
came to know about so many new things.
• Secondly, I would also like to thank my family and my
friends for constantly encouraging me during the course of this assignment, which I could not have completed without their support and continuous encouragements. INTRODUCTION •The Economy of the Philippines is the world's 32nd largest economy by nominal GDP according to the International Monetary Fund 2021 and the 12th largest economy in Asia, and the 3rd largest economy in the ASEAN after Indonesia and Thailand. The Philippines is one of the fastest- growing emerging markets, and the 3rd highest economy in Southeast Asia by nominal GDP, following Thailand and Indonesia. •The Philippines is primarily considered a newly industrialized country, which has an economy in transition from one based on agriculture to one based more on services and manufacturing. As of 2021, GDP by purchasing power parity was estimated to be at $1.47 trillion, the 18th in the world. •The country's primary exports include semiconductors and electronic products, transport equipment, garments, copper products, petroleum products, coconut oil, and fruits. It is currently one of Asia's fastest growing economies. However, major problems remain, mainly having to do with alleviating the wide income and growth disparities between the country's different regions and socioeconomic classes, reducing corruption, and investing in the infrastructure necessary to ensure future growth. •The Filipino economy is projected to be the 4th largest in Asia and 19th biggest in the world by 2050. By 2035, the Filipino economy is predicted to be the 25th largest in the world. GDP nominal: $433.2 billion (2021 est.) GDP per capita: $3,853 (2021 est.) GDP – composition by sector: o Economy by Sector (2018) Agriculture: 7.4% Industry: 34% Services: 58.6% •Exchange rates: Philippine pesos (PHP) per US dollar – 50.4 (2017 Est) GROWTH RELATED ISSUES •In the present decade, the Philippines emerged as one of the fastest growing economies in the world with a GDP growth rate of 7.3% which was achieved by a drastic expansion in the business of outsourcing market. As the economy develops, there will be a reduction in the poverty rate. Employment and business opportunities are growing in terms of both number and quality. The industrial sector took a hit with a growth of 7.2% at the end of 2017, and it is responsible for the contribution of 34.8% to the total GDP of the Philippines in 2018. With the increase in the number of employment opportunities, the poverty rate declined to 21.7% in 2018-19 from being 27% in the year 2015, and the quality of human resource developed accordingly. It is estimated that every year almost a million Filipinos are crossing out of poverty with employment opportunities in the best business sectors. The industry sector is responsible for the employment of 16% of Philippine’s workforce. The country has always been welcoming with the foreigners and their business setup in the Philippines. The government is focusing more on the foreign direct investment to expand the market territory to even further distance. Agriculture and manufacturing are leading business in the industrial sector. Among the pharmaceutical manufacturers, the Philippines is one of the largest markets in the Asian continent. The country is home to a lot of metallic resources so, it exports, construction purposes, mining, electronics for shipbuilding. With more than 7000 islands in the region, the Philippines is ranked 4th among the most significant shipping countries in the world. With more foreign investors in their land, the shipbuilding business has been growing. NATURAL RESOURCES: CHALLENGES Deforestation and Indigenous Rights Conflicts Small-scale gold and copper mining efforts have drawn criticism from biologists and ecologists due to the fact that the mining has promoted deforestation. In 2021, gold mining on Mt. Busa on the island of Mindanao has caused outcry from Filipino scientists, who fear that this region, with 53 endemic Filipino species and 15 species found only on Mindanao, will lose its biodiversity due to habitat loss (Sarmiento 2021). Indigenous communities, whose cultures persisted through colonialism, have tangled with the government due to land disputes, fighting for tribal access to the natural resources being harvested (Fabro 2021). Chinese Hegemony and Resources of the South China Sea •China’s encroachment on Filipino fishing waters in the South China Sea is also a point of conflict. Filipino President Duterte drew criticism for taking loans from China to fund the nation’s “Build, Build, Build” infrastructure program, using access to the Philippines’ marine resources as both a bargaining chip and collateral, should the Philippines fail to meet its financial obligations (Guzman 2021). Duterte’s relaxing of Filipino control over the South China Sea has been met with controversy by Filipinos who fear that autonomy is being sacrificed, or will be sacrificed, in favor of Chinese influence and dependency. This map displays the location of resources in the South China sea, and territorial claims to those areas. INFRASTRUCTURAL CHALLENGES Natural Disasters in the Philippines •The Philippines’ vulnerability to the impact of natural disasters is a risk for its economy. The Philippines is one of the most natural disaster-prone regions in the world. Situated on the Ring of Fire in the western Pacific, the Philippines is at high risk of earthquakes, volcanic eruptions, and mudslides and landslides. According to the U.S. Embassy in Manila, the Philippines is one of the “most storm-exposed countries on Earth,” experiencing between 18 and 20 typhoons annually, though this number appears to be increasing over time (“Philippines Disaster Preparedness” 2021). In 2020, the archipelago experienced over twenty natural disasters, with over 60% of its land mass and 70% of its total population impacted by natural disasters (Mina 2021). This image displays the aftermath of the destructive Typhoon Vanco of 2020, one of the aforementioned natural disasters common in the region. Natural Disasters: Economic Impacts •Most disaster relief focuses on building critical infrastructure and issuing relief payments through the government’s natural disaster relief “Calamity Loan Program.” However, limited funding for disaster relief, paired with the large population percentage affected by natural disasters and the particular vulnerability of Filipinos’ agricultural livelihoods to natural disasters, means that a significant number of Filipinos are still waiting for relief. Average income in the Philippines is low, with 57% of Filipinos claiming monthly household incomes between 1,000 and 10,000 PHP ($20 and $200 USD, respectively) (Bollettino et. al 2018). Because of low incomes, the vast majority of Filipinos do not have savings allocated for natural disaster preparation, leaving the population dependent on government disaster relief, and vulnerable to its inadequacies (Bollettino et. al 2018). •This means that with each major disaster, the government is to some extent playing “catch up,” still mitigating the impacts of the last disaster while dealing with the next, which can stifle economic growth. Furthermore, this vulnerability can be off putting to investors, who may fear that their infrastructure or workforce will be harmed and not properly protected by current state precautions in the event of a force majeure.
THE ISSUE OF BUSINESS CYCLE
•The business cycle is the cyclical fluctuation in economic activity that an economy experiences for a certain period. Business cycles vary in duration from more than 1 year to 12 years, and contain a boom (or expansionary phase) and a recession (or contractionary phase) (Leitner 2005). Expansions are characterized by economic growth in real terms, which is evident in the increases in employment, real income, industrial production, and output. Inversely, recessions are characterized by economic contraction, as measured by decreases in the indicators. The expansion is measured from the trough (or bottom) of the previous business cycle to the peak of the current cycle, while a recession is measured from the peak to the trough. •Consequently, for the past few years, the international economic community has developed a growing interest on documenting stylized features of international business cycles to explain these cycles. The empirical literature on business cycles has rapidly expanded during the last decade: Christodulakis, Dimelis, and Kollintzas (1995) studied the features of business cycles in the Euro Zone countries and found out that there are similarities in the business cycle dynamics across these countries. Backus, Kehoe, and Kydland (1992, 1995) examined the stylized characteristics of business cycles in the major industrialized countries. Kose (1999a) examined the cyclical regularities observed in several developing countries in the context of a small open economy Dynamic Stochastic General Equilibrium model and found that the bulk of business cycle fluctuations in aggregate output is explained by world price shocks. Similarly, Aguiar and Gopinath (2007) and (Muñoz 2017) built a Dynamic Stochastic General Equilibrium model with shocks to trend growth to replicate the stylized facts of business cycles in emerging market economies (EMEs). Muñoz (2017) studied the interaction between short run business cycle fluctuations and economic growth at the empirical level and was able to identify a measure of potential output with that rate of growth consistent with a constant unemployment rate in 13 Latin American and 18 Organization for Economic Co-operation and Development member countries. •There are also studies focusing on the emerging economies and Asian countries. In 1997, a study showed the sources of macroeconomic fluctuations in Asian economies using a vector autoregressive model and found that the domestic supply shocks account for a significant fraction of the business cycle fluctuations in aggregate output in the Asian countries. Ahmed and Loung ani (1998) also examined the sources of macroeconomic fluctuations in Asian economies using a vector–error correction model. Their results suggested that external shocks, foreign output shocks, and oil price shocks play an important role in inducing cyclical fluctuations in output in these countries. Selover (1999) employed bivariate vector autoregressive models and found partial evidence supporting transmission of business cycles among member countries of the Association of Southeast Asian Nations (ASEAN). A study conducted by Calderon and Fuentes (2014) documented the properties of business cycles of 65 countries—22 industrial countries and 43 emerging market economies —using the Harding and Pagan (2002) dating algorithm and found out that recessions are deeper, costlier, and more pronounced; however, recovery for EMEs is swifter and stronger compared to industrialized countries. Duncan (2015) reformulated the model proposed by Aguiar and Gopinath (2007) and employed the simplified model for qualitatively explaining facts such as the highly counter-cyclicality of the trade balance and the higher volatility of output and consumption of EMEs compared with those observed in advanced countries. •Literature in this area of research have primarily focused on business cycle features of major developed economies and a limited number of developing countries. However, only a few studies have examined the stylized features of business cycles of Asian countries, especially the Philippines in which strong growth performance over the last 3 decades has been the subject of intensive research. •Emerging market economies (EMEs) like the Philippines are largely characterized by their macroeconomic volatility in a sense that fluctuations in output, exchange rates, and current account balances are normally more recurrent, sharper, and abrupt compared to industrial economies (Calderon and Fuentes 2014). Excess volatility in output fluctuations in EMEs, as compared with industrial countries, has typically been attributed to country-specific factors that amplify external shocks and have led to a higher incidence of banking, currency, and external debt crisis (The World Bank 2007). These factors include EMEs’ excessive dependence on few volatile sectors, a narrow tax base, fragile financial systems, weak institutions, and poor economic policies (Calderon and Fuentes 2014). •Thus, business cycles in emerging markets are more pronounced than in advanced economies. The average decline in output during recessions is smaller in advanced countries compared to emerging markets, while recoveries in advanced countries are weaker compared to those experienced in emerging markets (Kose, Prasad, and Terrones 2006). However, there is no noticeable difference between advanced and emerging market countries in terms of duration of recessions. THE ISSUE OF INFLATION •Inflation rates rose sharply in 2018 in the Philippines. Measured on a year-on-year (y/y) basis, headline inflation rates were above the 2-4 percent inflation target band from March 2018 (4.3 percent) to January 2019 (4.4 percent), peaking at 6.7 percent in September and October 2018.
•Many factors have likely contributed to the rise in
inflation in the Philippines in 2018, and they can be largely divided between supply- and demand- driven. Supply factors include the rise in international oil prices, the disruptions to rice inventories, and the changes to excise taxes on selected “sin” items imposed in the Philippines. Demand factors are largely associated with the “overheating” risks of the economy, partly fueled by the lumpy public infrastructure investment (IMF (2018)). Understanding the source of the inflation pressures is important for monetary policy decisions. The common view is that a tighter monetary policy stance is generally suitable if the rise in inflation rates is demand-driven. The case for tightening monetary policy would be less certain, however, if inflation pressures are supply-driven. MONETARY POLICY FRAMEWORK IN THE PHILIPPINES •The Philippines moved to an IT regime in 2002.3 The inflation target is defined in terms of the average change in the consumer price index (CPI) or headline inflation over the calendar year. In the initial setup period during 2002-2010, inflation targets were changed frequently. The targets were subsequently set at 4 percent during 2011-14 and within a 3 percent +/- 1 ppt tolerance band during 2015-18 (Figure 2) by the National Government, with the same targets imposed for 2018-2020. The primary objective of the BSP’s monetary policy is “to promote price stability conducive to a balanced and sustainable growth of the economy. It also aims to promote and preserve monetary stability and the convertibility of the national currency.” The IT regime successfully lowered the inflation rates and growth volatility. Average annual inflation decreased from 8.7 percent in the 1990s to 5.1 percent and 3.3 percent during 2002-09 and 2010-18 respectively. Episodes of inflation outside the band have generally been short- lived. Historically, inflation in the Philippines has been highly affected by oil prices. Energy and energy-intensive items (electricity, gas, fuel) account for about 15 percent of the consumption basket in the Philippines. The oil-price hikes in 2005, 2008 and 2018 were all associated with notable pickups in inflation. This also poses challenges to policymakers, especially when it becomes difficult to disentangle the impact of oil prices (a typical supply shock) with demand factors when both oil prices and headline inflation move in the same direction.
THE RISE IN INFLATION IN 2018
Inflation dynamics The Philippines experienced a sharp rise in inflation in 2018. Headline inflation increased from 2.9 percent (y/y) on average in 2017 to 5.2 percent (y/y) in 2018, with rates staying above the BSP’s inflation target of 2-4 percent, during March 2018-January 2019. Several supply-side factors contributed to the rise in inflation in 2018 in the Philippines, including: (1) World oil prices. Brent oil price increased from US$46 per barrel in June 2017 to US$81 per barrel in October 2018. Oil prices are not subsidized in the Philippines, and the increase in world oil prices have a direct impact on domestic prices. (2) Excise taxes. As part of the broader tax reform, excise taxes on selected "sin" items and oil products were raised in January 2018. The Department of Finance estimates that the total impact of tax reform on inflation is about +0.4 to +0.7 percent in 2018. (3) Rice prices. The share of rice consumption in the CPI basket is 9.6 percent in the Philippines. Rice prices rose and peaked at 10.7 percent y/y in October 2018, owing to domestic food supply issues with restrictive rice import quotas. As a result, energy and food, inflation increased for most part of 2018 THE ISSUE OF UNEMPLOYMENT AND POVERTY UNEMPLOYMENT •In 2012, 10 million Filipinos were either unemployed (three million) or underemployed (seven million). In October 2013, unemployment rate was 6.5% in comparison to 6.8% in 2012. According to the Labor Force Survey, the unemployment rate was 6% and 6.6% in October 2014 and January 2015, respectively. •Only one-fourth of the Filipinos that enter the labor force are able to find good jobs in the country, and the rest of them find jobs overseas, leave the labor force, or end up becoming unemployed/underemployed. Thus, three-fourth of the workers are unemployed or informally employed, with lack of opportunities to find good jobs. Though jobs are being generated, there’s a need to generate jobs at much faster rate, to be able to bring down the unemployment rate. Many of the unemployed individuals are college graduates. Many waits for job opportunities abroad, and many families depend on remittances from family members who are staying abroad. POVERTY •Despite the talk about economic growth, the poverty rates have not changed significantly since 2006. As per the National Statistical Coordination Board (NSCB), poverty incidence of the population improved from 26.3 percent in 2009 to 25.2 percent in 2012. •Even though Philippines is a fast-growing economy, there’s been just a minor decline in the incidence of poverty. Poverty is very much linked to unemployment. Unfortunately, the growth is restricted to the BPO, retail, and real estate sector, and a large number of Filipinos remain without jobs. On top of that, natural calamities further push people below the poverty line. Thus, economic disparity is a common feature. In general, the gains from higher economic growth have not really trickled down to the poor. •Philippines was the third-highest recipient of migrant remittances in 2013, after India and China. According to the Philippine Central Bank, remittances from overseas Filipino workers (OFWs) reached USD 25.1 billion in 2013. It was 7.6% higher than the remittances from the last year, and accounted for 8.4 % of Philippine gross domestic product (GDP) in 2013. THE ISSUE OF BUDGETARY DEFICIT The budget deficit in 2021 is 21.8% higher than in 2020. • The national government’s full-year budget deficit reached P1.7 trillion, data from the Bureau of the Treasury showed on Tuesday, March 1. • The budget deficit in 2021 was 21.8% higher or P298.7 billion more than the figure posted in 2020, as expenses jumped 10.6% amid the pandemic. • A budget deficit occurs when a government’s expenses exceed revenues. The gap is filled in by borrowing from domestic and foreign sources. • State economic managers program the deficit in relation to gross domestic product (GDP) to maintain the country’s fiscal health. Set the gap too wide or too narrow and it may have negative impacts on the overall economy. • For 2021, the programmed deficit was 9.3% of GDP, while the actual figure stood at 8.6%. Revenues • Government revenues reached P3 trillion in 2021, an improvement of 5.4% or P149.6 billion more than the revenues posted in 2020. • Revenues were also P124 billion better than the P2.9- trillion program, as the economy gradually reopened. • The government said 91% of revenues were from taxes, while non-tax sources comprised the remaining 9%. • The Bureau of Internal Revenue collected P2.1 trillion in 2021, a 6.5% improvement from 2020 and just 0.15% short of its full-year target. Expenditures • Full-year disbursements reached P4.7 trillion, 10.6% higher due to infrastructure and other capital expenditures, as well as pandemic-related expenses. • Expenditures were still lower by 1.3% or P61.5 billion compared to the full-year program, mainly due to lower- than-programmed interest payments. • Meanwhile, interest payments stood at P429.4 billion, up by 12.9%. However, this is 19.2% lower compared to the programmed P531.5 billion. This generated P102.1 billion in savings. THE INTERNATIONAL ECONOMIC ISSUE •Economic Problems of the Philippines Economic problems of the Philippines are very similar to those being battled by other underdeveloped and developing nations. After a long tryst with colonization, the nation is now grappling with increased imports and a mixed economy that is still to stabilize. The Republic of the Philippines is located in Southeast Asia and Manila is its capital city. The country comprises 7,107 islands and ranks as the 12th most populous country in the world. Like most other southeast Asian regions, the Philippines too has a history of European colonization. •It was a colony of Spain and the USA. The country is now home to multiple cultures and traditional ethnicity. It is also looked upon as a perfect example of a 'mixed economy'. Industrialization is a new development in the Philippines. Traditionally, the economy stabilized on the agrarian contributions and the manufacture of garments, pharmaceutical products and semiconductors. In the last decade, electronic exports added to the exports, including various products obtained by mining. The economy of the nation also largely depends on the remittances from Filipinos seeding overseas and investing in the homeland. •However, exports are not evenly balanced by the imports that include heavy electronics, garments, various raw materials, intermediate goods and fuel. The influence of the Manila galleon on the nation's economy during the Spanish period, and bilateral trade when the country was a colony of the United States has resulted in the preference of a mixed economy over a centrally planned or market based one. It is very important to understand the shift during the Ferdinand Marco's leadership, from a market economy to a centrally landed economy, to relate to the economic recession that the country is now facing. •With adverse global trends and the world economy entering a protracted depression, in 2011, the Philippines faced another economic downturn. The country's lack of internal economic strength due to the absence of core manufacturing sector and an absence of firm and bold domestic policy initiatives have led the economy to be dependent on the state of the global economy. Thereby making it vulnerable to external shocks. Here we try to look at three possible challenges posed to growth and real velveteen of the economy in 2012, based upon the insights provided by the economic policy-making and decisions by the Aquinas administration in 2011. •Major Financial Problems of the Philippines Over- dependence on Global Economy The growth of the Philippines economy drastically slowed to Just 3. 6% in the first three quarters of 2011, which is significantly less than the 7%-8% growth targeted by administration's Philippine Development Plan (Though the slowdown may have been due to the ongoing global crisis, it was markedly slower in comparison to other South-East Asian neighbors. Economic performance figures indicated a contraction in exports and a drop in FAD. •Though the remittances from overseas Filipinos to the country grew in the first ten months of 2011, however the compensation that overseas Filipinos received actually fell, in peso terms, due to an appreciating peso. In 2011 the Aquinas administration sought a FAT (Free Trade Agreement) with the EX. and Join the Trans-Pacific Partnership (TAP). The administration further allowed the US to even more directly influence Philippine economic policy making in its self- interest, by entering in a Partnership for Growth (Peg). BIBLIOGRAPHY
The following sites have been used for the completion of
this assignment:
• Economy of the Philippines - Wikipedia
• Pinterest - India • Global Times • Investopedia: Sharper insight, better investing. • And many more blogs and studied analysis.