School of Business Management, NMIMS Mumbai

Macroeconomics Group Assignment

THE UNLIKELY ASIAN TIGER

A Macroeconomic Analysis of the Philippines Economy

FT MBA, Trimester 2

Group 7 - Division E

80512100342 E007 Amit Kumar Sah

80512100387 E017 Yashika Thukral

80512100281 E027 Diggaj Bhandari

80512100701 E037 Amika Kumawat

80512100797 E047 Dhrumin Patel

80512100571 E057 Arihant Mookim

1. TITLE: The Unlikely Asian Tiger - A Macroeconomic Analysis of the Philippines Economy

2. INTRODUCTION:

In recent years, the Philippines has surfaced as one of the more dynamic countries in Asia-Pacific,
defying stereotypes with some outstanding economic fundamentals. It is the world's 34th largest
economy and Asia's 13th largest in terms of nominal GDP, with significant room for additional
expansion. It is classified as a "newly industrialised" country, meaning that its economy is shifting
faraway from agriculture and toward services and manufacturing.

The average annual growth rose from 4.5% between 2000-2009 to 6.4% between 2010-19. The
economy also made strides in delivering inclusive growth as indicated by a decline in its poverty
levels - from 23.3% in 2015 to 16.6% in 2018 and a decline in its Gini coefficient - from 44.9 in
2015 t0 42.7 in 2018.

Business activities have thrived led by the services sector in business process outsourcing, real
estate, and tourism. The onslaught of Covid-19 severely impacted the Phillipinian economy with
sharp declines in consumption and investment, made worse with fall in exports, revenues from
tourism and remittances. However, the economy has begun its path to recovery with 3.7% year on
year expansion in the first half of 202, and it is on its way to become an upper middle-income
country from a lower middle-income country.

The future looks promising for the country has a young, growing English speaking workforce -
50% of its population is below the age of 25, and 68% of its total population is proficient in the
English language. Growing infrastructure and policy endeavours supported by an increasing
recognition for cleaner governance and stronger leadership have helped catapult Philippines on a
journey of faster economic growth.

3. OBJECTIVE:

The objective of this report is to:

● Analyse the development of the economy over the years through various macroeconomic
indicators
● Study the various macroeconomic policies undertaken and understand how these policies
have affected the economic performance of the economy
● Understand the significant challenges the economy faces
● Critically analyse the policies and understand why or why not were they effective in
overcoming the challenges
● Suggest recommendations to improve economic performance
4. MACROECONOMIC SCENARIO:

GDP

One of the most dynamic economies, the Philippines' average yearly growth grew to 6.4 percent
between 20010-2019, up from 4.5 percent between 2000 and 2009. The Philippines' economic
vitality is anchored in strong consumer demand supported by a vibrant labour market and
significant remittances, owing to increased urbanisation, a growing middle class, and a huge young
population. Despite significant fluctuations throughout those years, the country fared better than
most economies in the region following the 2008 Global Financial Crisis. The economy began to
take off in 2010 as a result of robust anti-corruption initiatives, although this was slightly
dampened in 2011 (Figure 1). A number of variables contributed to the slowdown in growth.
Internally, the new government's cautious attitude resulted in underspending on public
infrastructure and low government consumption. External shocks included an increase in oil prices
due to political upheaval in the Middle East and North Africa, natural disasters in Asia that affected
the global supply chain (the earthquake and tsunami in Japan, as well as flooding in Thailand), and
weak demand from the US and European economies.

Aggregate Supply Side

The Philippines' economy has steadily transitioned from agrarian to industrial and service-
oriented. Agriculture accounted for roughly one-fourth of the country's GDP in 1980, but that
figure has dropped to 8.82 percent in 2018 (Figure 2). The deterioration of the agricultural
industry, which has suffered from bad infrastructure and low levels of investment, is mostly due
to a lack of government efforts. These difficulties were further worsened by the country's extended
drought seasons.

Over time, the industrial sector has produced a fair and consistent contribution to the Philippines'
GDP. The Philippine government is working to improve the country's infrastructure in order to
attract foreign direct investment. The country has established a number of economic zones that
have attracted a large number of foreign businesses.

In the early 1980s, the Philippines' service sector overtook the industrial sector in terms of GDP
contribution, rising from 36 percent in 1980 to 60 percent presently. Business process outsourcing
(BPO) has had an immense influence in the growth of the service sector. Because it had specialists
who spoke the languages required, the Philippines was able to expand its BPO business. Tourism
is the second important part of the service industry, with a long history of steady growth. Overseas
Filipino remittance is another major source of financial inflow into the country as close to $30
billion was transferred in 2020. Half of this remittance was from the USA and the rest were from
Asia, Middle East and Europe.
Aggregate Demand Side:

The Philippine economy is heavily reliant on consumer spending, with household consumption
expenditure accounting for 74.6% of GDP in 2019, which is in line with the average over the years.
Government consumption spending has increased over the years and now accounts for 12.7% of
GDP in 2019. The remainder is attributed to the economy's gross domestic capital formation and
net exports (Figure 3). Over the years, the economy’s imports have risen considerably from $45.88
billion in 2009 to $112.91 in 2019 and its major partners include China, Japan, South Korea and
the USA; Exports have risen from $38.44 billion in 2009 to $70.93 billion in 2019 and the major
partners are Japan, USA, Hong Kong and China.

Unemployment

Job creation has long been an element of the Philippines' development goals. In 2019, the
Philippines employed 41.9 million people across all sectors of the economy, accounting for nearly
40% of the country's total population. In terms of industry and agriculture, services employed the
most people, accounting for around 60% of all workers, while industry and agriculture each
employed about 20%.

The increase in total employment was accompanied by a decrease in the unemployment rate.
According to data, the Philippines has been able to reduce its unemployment rate over time. From
a peak of 4% in 2006 to 2.24 percent in 2019 (Figure 4), the unemployment rate has decreased.
However, while the Philippines has achieved headway in terms of expanding employment and
reducing unemployment, the data on underemployment remains worrisome. Over the last decade,
it has declined by only 3.3 percentage points (from 19.3 percent in 2011 to 16.1 percent in 2020)
and is still in the double digits. (Figure 5)

Inflation

The rate of change in the CPI, which is a measure of the average price of a standard basket of
goods and services consumed by a typical family, is referred to as headline inflation. The CPI
basket in the Philippines is made up of numerous consumer commodities as defined by the
Philippine Statistics Authority's nationwide Family Income and Expenditure Survey (FIES), which
is done every three years (PSA). Core inflation, on the other hand, assesses the change in average
consumer prices after eliminating goods with volatile price changes from the CPI. Core inflation
helps us to see the broad underlying trend in consumer prices by excluding the volatile components
of the CPI.
In the Philippines, factors such as disruptions in agricultural food supplies and fluctuations in
worldwide oil prices have contributed to inflation volatility. As a result, the headline inflation rate
may reach double digits, despite very minor rises in the prices of other CPI components.

Over the last two decades, inflation has usually remained between the 2-4% target of the central
bank, climbing to a high of 9% in 2008 due to the financial crisis and the external shock of high
and volatile oil prices. During the COVID-19 crisis, favourable inflation dynamics allowed the
Central Bank to gradually lower policy interest rates in order to maintain financial stability and
support the economy. (Figure 6)

5. MACROECONOMIC POLICIES:

Monetary Policy of Philippines:

The Bangko Sentral ng Pilipinas commonly known as BSP is the Central Bank of Philippines.It
was established on 3rd July 1993 as per the New Central Bank Act of 1993. Its role is to manage
the supply and cost of money and credit, to influence overall demand for goods and services and
to attain price stability.

Evolution of BSP’s Monetary Policy Framework over the years:

Stage 1 : 1985 - Q2 1995 : Monetary Aggregate Targeting

1. BSP announces an annual growth target of monetary aggregates

2. It determines the level of money supply needed to achieve desired level of inflation
- M3 (domestic liquidity) is the money supply
- Base money is the operating target
3. Assumptions
- There is a stable/predictable relationship between money, output, inflation
- Change in money supply triggers change in price or inflation
- Velocity of money is stable
- BSP controls M3

Stage 2 : Q3 1995 - 2001 : Modified Monetary Aggregate Targeting

1. Greater emphasis is laid on price stability instead of strictly attaining set targets for
monetary aggregates
2. Monetary Policy is complemented with some form of Inflation Targeting to increase
effectiveness of Monetary Policy
3. Monetary targets could be exceeded as long as inflation targets are met
 4. Monetary Policy decision making is broadened to include a larger set of economic variables
that need to be monitored

Stage 3 : 2002 - Present : Inflation Targeting

1. Government sets inflation targets after consulting with BSP, which announces the targets
2. BSP assesses monetary conditions and forecasts inflation
3. If the inflation target falls in line with the target, no change is made in policy settings, else
BSP adjusts the settings

Notable change in the Policy of the Central Bank of Philippines in March 2019

The New Central Bank Act became effective on 1st March 2019. It strengthened the BSP by
increasing its regulatory power. As highlighted above, the role of the BSP since 2001 had been to
maintain price stability to ensure balanced and sustained growth of the economy. After the
amendment and as per the new law, the BSP will yield regulatory and examination powers not
only over quasi-banking operations of non-bank financial institutions but also over money service
businesses, credit granting businesses, and payment system operators, thereby ensuring balanced
and sustained growth of employment.

Therefore, the Monetary Board is now empowered to authorize entities or persons to engage in
money service businesses and the BSP’s responsibilities now include promoting financial stability,
overseeing the payment and settlement systems in the Philippines, and promoting broad and
convenient access to high quality financial services keeping in consideration the interest of the
general public.

Fiscal Policy of Philippines:

1. In 2018 the government undertook an expansionary fiscal policy, with significant spending
on infrastructure and personnel services, that resulted in it exceeding its programmed fiscal
deficit target of 3 percent. The fiscal deficit widened from 2.2 percent of GDP in 2017 to
3.2 percent of GDP in 2018 (Figure 7).

2. Public expenditure grew from 17.9 percent of the GDP in 2017 to 20.7 percent in 2018.
This was fueled by increased spending on public infrastructure (mainly through small scale
projects) whose share in the total GDP rose from 3.5 percent in 2017 to 4.6 percent in 2018.

3. Personnel services expenditure as a share of total GDP increased from 5.2 percent in 2017
to 5.7 percent in 2018. This was a result of the adjustment in the salary standardization law,
 an increase in the pay for military and uniformed personnel, and faster rate of filling of
vacant positions in many national governmental organizations.

4. Despite the rising fiscal burden, revenue growth was tremendous - with notably, the tax
ratio reaching its highest level in more than 2 decades. The tax revenue grew from 13.6
percent, y-o-y (nominal) in 2017 to 14 percent y-o-y (nominal) in 2018. Significant growth
was also recorded in the non-tax revenue, registering a massive y-o-y increase of 27.8
percent in 2018 (compared to 3.2 percent in 2017). This was a result of increase in Bureau
of Treasury income and proceeds that came in from the privatization of Coco Levy fund.

5. The national government’s debt to GDP ratio has remained healthy owing to better
management practices. The figure fell from 42.1 percent of GDP in 2017 to 41.9 percent
of GDP in 2018. Two-third of this debt is in peso - the national currency and one-third is
in foreign currency.

Foreign Exchange Policy of Philippines:

Currently, the country's currency rate policy favours a freely floating exchange rate system in
which the BSP defers to market forces in determining the exchange rate. The BSP does not set the
foreign exchange rate in a market-determined exchange rate system; instead, the supply and
demand for foreign exchange decide the value of the peso.
As a result, the BSP's involvement in the foreign exchange market is confined to reducing sharp
exchange rate movements. The BSP joins the market in such instances of excessive movement
primarily to maintain order and stability.
To maintain order and mitigate destabilising swings in the exchange rate, the BSP participates in
the foreign exchange market by buying and selling foreign exchange. It also uses monetary policy
measures, such as altering key policy rates or the interest rates it charges for its borrowing and
lending activities, if exchange rate movements threaten to push inflation outside its target range.
To ensure foreign exchange market stability, the BSP has blended foreign exchange intervention
and monetary policies with market-based foreign exchange regulations.

Trade Policy of Philippines:

Trade agreements that Philippines is a part of -

● ASEAN Trade in Goods Agreement

● Philippines – Japan Economic Partnership Agreement
● Philippines – European Free Trade Association Free Trade Agreement
● Regional Comprehensive Economic Partnership
Trade barriers include -

For sensitive agricultural items such as rice, corn, pig, chicken meat, sugar, and coffee, the
Philippines maintains a two-tiered tariff regime. A tariff rate quota (TRQ) applies to these
products, and all imports that exceed the minimum access volume are taxed at a higher out-of-
quota rate. In-quota and out-of-quota tariff rates have been unchanged since 2005, averaging 36.5
percent and 41.2 percent, respectively. The structure of excise duty on alcohol products increases
excise taxes every year.

6. CONNECTING POLICIES TO ACTUAL PERFORMANCE:

As the current monetary policy is focused on inflation targeting, we will try to understand why
interest rates were increased in 2018 (Figure 7). The BSP tightened its monetary policy stance in
2018 to combat increasing inflation, resulting in higher interest rates and a slowing of credit and
money supply growth. Year-on-year, the headline inflation rate increased from 2.9 percent in 2017
to 5.2 percent in 2018. It rose for the majority of 2018, reaching a high of 6.7 percent in the third
quarter before progressively falling in the final two months of the year.

Inflation was primarily driven by increases in food, energy, and transportation costs. Food inflation
rose mostly due to a scarcity of important commodities such as fish, rice, meat, and vegetables in
the Philippines, which was caused by typhoons and severe rainfall, as well as mishandling of rice
imports. Furthermore, increased global crude oil prices, an increase in the gasoline excise tax,
upward adjustments in power rates, and a weaker peso all contributed to the increase in energy and
transportation prices. In 2018, both the headline and core inflation rates exceeded the BSP's 2.0-
4.0 percent inflation target range. As a result, the BSP lifted its key policy rates by a total of 175
basis points, from 3.00% in the first quarter to 4.75% in the second.
As credit growth moderated due to tightening of monetary policy, crude oil prices reduced and
supply side bottlenecks of commodities were removed, inflation started creeping back into its
territory of 2-4% within the next year, reaching a low of 2.48%, which allowed the BSP to start
reducing the interest rates gradually.

Despite the inflation level, a faster increase in household income has allowed poverty levels to
decline. The continuous transition of the workforce to non agricultural jobs also suggests that
household incomes have become more sustainable. Further, it is worthy to note that in addition to
the key macroeconomic indicators we discussed above, Philippines has an HCI score (Human
Capital Index) of 0.55, which is higher than that of other lower middle income countries. Here, the
government’s initiatives to improve the country’s education standards (through initiatives like the
Philippines Professional Standards for Teachers), tackle childhood stunting (through interventions
like Philippines’ Plan of Action for Nutrition) and improve the quality of health care (through the
Health Coverage Law) have been instrumental. However, in order to increase the HCI and bring
it closer to the average figure of countries in East Asia and Pacific (much higher), greater and more
strategic investments are required in human capital formation.

7. CONCLUSION:

After being dubbed the "sick man of Asia'' for having poor growth while its Asian neighbours
prospered, the Philippines has shown tremendous economic growth and is gaining speed in recent
years. In the second quarter of 2021, the Philippine economy grew by 11.8 percent, ending a five-
quarter pandemic-induced recession. Officials are optimistic about a gradual economic rebound in
the second half of the year and a return to pre-pandemic economic growth rates by late-2022.

Several international organisations have reduced the Philippines' economic estimates for 2021,
predicting that the country will be a laggard in Asia as a result of a slow-moving COVID-19 mass
vaccination programme. Despite this, they agree that the Philippines still has strong
macroeconomic fundamentals, including controllable external debt, a strong public balance sheet,
and a sizable foreign currency reserve, all of which are sufficient to support the country's post-
pandemic recovery.

Due process, checks and balances, systemic corruption, poor supervision and regulatory agencies,
and an overworked criminal justice system noted for sluggish court procedures are all challenges
facing the Philippine government.

Based on our analysis of the macroeconomic variables and policies in the Philippine economy, the
following are some policy recommendations that we can highlight. Some of them have also been
based on our understanding of the Philippine Development Plan 2017-22.

1. Improve revenues through reforms in tax policy and administration - by simplifying and
creating a more efficient tax system.
2. Encourage the private sector to participate in public-private partnership schemes, in order
to free up fiscal space for the government to allocate on other key needs.
3. Continue its emphasis on infrastructure projects, for they have been the major reason
behind the fast growth of the economy.
4. In order to prevent the economy from any external shocks, maintaining market determined
exchange rate along with sufficient reserves of foriegn exchange is important.
5. Strengthening financial inclusion of all Filipinos through efficient delivery of micro-
finance and micro-insurance products and services.
6. Explore new markets for Philippine exports and intensify market intelligence (use of
analytics in trade related processes) to enhance earnings from the trade sector.
8. REFERENCES:

https://www.worldbank.org/en/country/philippines/overview#1

https://www.bsp.gov.ph/Media_And_Research/Learning%20Materials/Q32019.pdf

https://www.imf.org/external/pubs/ft/wp/2011/wp11288.pdf

https://data.worldbank.org/country/philippines

https://www.statista.com/search/?q=PHILIPPINES&Search=&qKat=search

https://platonmartinez.com/articles/expanding-bsps-regulatory-power-under-the-new-central-
bank-act-as-amended

https://documents1.worldbank.org/curated/en/442801553879554971/pdf/Philippines-Economic-
Update-Safeguarding-Stability-Investing-in-the-Filipino.pdf

https://pdp.neda.gov.ph/wp-content/uploads/2021/08/8312021_Updated-PDP-2017-2022.pdf

https://www.bsp.gov.ph/Media_and_Research/Primers%20Faqs/inflation.pdf

https://www.ey.com/en_gl/assurance/how-the-philippines-is-planning-for-a-brighter-future

https://www.trade.gov/country-commercial-guides/philippines-market-overview
APPENDIX

Figure 1: GDP Growth Rate over the years

Figure 2: Share of sectors in GDP

Figure 3: Trade balance

Figure 4: Unemployment Rate

Figure 5: Underemployment Rate

Figure 6: Inflation Rate along with forecasts

Figure 7: Fiscal Balance of the Philippines National Government (2013-18)

Figure 8: Interest rate tracking

 Page 1

PLAGIARISM SCAN REPORT

Words 962 Date November 24, 2021

Characters 6402 Excluded URL

0% 100% 0 45
Plagiarized Unique
Plagiarism Unique
Sentences Sentences

Content Checked For Plagiarism

TITLE: The Unlikely Asian Tiger ­ A Macroeconomic Analysis of the Philippines Economy
INTRODUCTION:
In recent years, the Philippines has surfaced as one of the more dynamic countries in Asia­Pacific, defying stereotypes
with some outstanding economic fundamentals. It is the world's 34th largest economy and Asia's 13th largest in terms
of per capita income, with significant room for additional expansion. It is classified as a "newly industrialised" country,
meaning that its economy is shifting faraway from agriculture and toward services and manufacturing. 
The average annual growth rose from 4.5% between 2000­2009 to 6.4% between 2010­19. The economy also made
strides in delivering inclusive growth as indicated by a decline in its poverty levels ­ from 23.3% in 2015 to 16.6% in
2018 and a decline in its Gini coefficient ­ from 44.9 in 2015 t0 42.7 in 2018. 
Business activities have thrived led by the services sector in business process outsourcing, real estate, and tourism.
The onslaught of Covid­19 severely impacted the Phillipinian economy with sharp declines in consumption and
investment, made worse with fall in exports, revenues from tourism and remittances. However, the economy has begun
its path to recovery with 3.7% year on year expansion in the first half of 202, and it is on its way to become an upper
middle­income country from a lower middle­income country.
The future looks promising for the country has a young, growing English speaking workforce ­ 50% of its population is
below the age of 25, and 68% of its total population is proficient in the English language. Growing infrastructure and
policy endeavours supported by an increasing recognition for cleaner governance and stronger leadership have helped
catapult Philippines on a journey of faster economic growth. 
OBJECTIVE:
The objective of this report is to:
Analyse the development of the economy over the years through various macroeconomic indicators
Study the various macroeconomic policies undertaken and understand how these policies have affected the economic
performance of the economy
Understand the significant challenges the economy faces
Critically analyse the policies and understand why or why not were they effective in overcoming the challenges
Suggest recommendations to improve economic performance
MACROECONOMIC SCENARIO: 
GDP 
One of the most dynamic economies, the Philippines' average yearly growth grew to 6.4 percent between 20010­2019,
up from 4.5 percent between 2000 and 2009. The Philippines' economic vitality is anchored in strong consumer
demand supported by a vibrant labour market and significant remittances, owing to increased urbanisation, a growing
middle class, and a huge young population. Despite significant fluctuations throughout those years, the country fared
better than most economies in the region following the 2008 Global Financial Crisis. The economy began to take off in
2010 as a result of robust anti­corruption initiatives, although this was slightly dampened in 2011 (Figure 1). A number
of variables contributed to the slowdown in growth. Internally, the new government's cautious attitude resulted in
underspending on public infrastructure and low government consumption. External shocks included an increase in oil
prices due to political upheaval in the Middle East and North Africa, natural disasters in Asia that affected the global
supply chain (the earthquake and tsunami in Japan, as well as flooding in Thailand), and weak demand from the US
supply chain (the earthquake and tsunami in Japan, as well as flooding in Thailand), and weak demand from the US
Page 2
and European economies. 
Aggregate Supply Side: 
The Philippines' economy has steadily transitioned from agrarian to industrial and service­oriented. Agriculture
accounted for roughly one­fourth of the country's GDP in 1980, but that figure has dropped to 8.82 percent in 2018
(Figure 2). The deterioration of the agricultural industry, which has suffered from bad infrastructure and low levels of
investment, is mostly due to a lack of government efforts. These difficulties were further worsened by the country's
extended drought seasons. 
Over time, the industrial sector has produced a fair and consistent contribution to the Philippines' GDP. The Philippine
government is working to improve the country's infrastructure in order to attract foreign direct investment. The country
has established a number of economic zones that have attracted a large number of foreign businesses. 
In the early 1980s, the Philippines' service sector overtook the industrial sector in terms of GDP contribution, rising from
36 percent in 1980 to 60 percent presently. Business process outsourcing (BPO) has had an immense influence in the
growth of the service sector. Because it had specialists who spoke the languages required, the Philippines was able to
expand its BPO business. Tourism is the second important part of the service industry, with a long history of steady
growth. Overseas Filipino remittance is another major source of financial inflow into the country as close to $30 billion
was transferred in 2020. Half of this remittance was from the USA and the rest were from Asia, Middle East and
Europe. 
Aggregate Demand Side: 
The Philippine economy is heavily reliant on consumer spending, with household consumption expenditure accounting
for 74.6% of GDP in 2019, which is in line with the average over the years. Government consumption spending has
increased over the years and now accounts for 12.7% of GDP in 2019. The remainder is attributed to the economy's
gross domestic capital formation and net exports (Figure 3). Over the years, the economy’s imports have risen
considerably from $45.88 billion in 2009 to $112.91 in 2019 and its major partners include China, Japan, South Korea
and the USA; Exports have risen from $38.44 billion in 2009 to $70.93 billion in 2019 and the major partners are Japan,
USA, Hong Kong and China. 
UNEMPLOYMENT 
Job creation has long been an element of the Philippines' development goals. In 2019, the Philippines employed 41.9
million people across all sectors of the economy, accounting for nearly 40% of the country's total population. In terms of
industry and agriculture, services employed the most people, accounting for around 60% of all workers, while industry
and agriculture each employed about 20%. 
 Page 1

PLAGIARISM SCAN REPORT

Words 982 Date November 24, 2021

Characters 6359 Excluded URL

0% 100% 0 47
Plagiarized Unique
Plagiarism Unique
Sentences Sentences

Content Checked For Plagiarism

The increase in total employment was accompanied by a decrease in the unemployment rate. According to data, the
Philippines has been able to reduce its unemployment rate over time. From a peak of 4% in 2006 to 2.24 percent in
2019 (Figure 4), the unemployment rate has decreased. However, while the Philippines has achieved headway in terms
of expanding employment and reducing unemployment, the data on underemployment remains worrisome. Over the
last decade, it has declined by only 3.3 percentage points (from 19.3 percent in 2011 to 16.1 percent in 2020) and is still
in the double digits. (Figure 5)
INFLATION:
The rate of change in the CPI, which is a measure of the average price of a standard basket of goods and services
consumed by a typical family, is referred to as headline inflation. The CPI basket in the Philippines is made up of
numerous consumer commodities as defined by the Philippine Statistics Authority's nationwide Family Income and
Expenditure Survey (FIES), which is done every three years (PSA). Core inflation, on the other hand, assesses the
change in average consumer prices after eliminating goods with volatile price changes from the CPI. Core inflation
helps us to see the broad underlying trend in consumer prices by excluding the volatile components of the CPI. 
In the Philippines, factors such as disruptions in agricultural food supplies and fluctuations in worldwide oil prices have
contributed to inflation volatility. As a result, the headline inflation rate may reach double digits, despite very minor rises
in the prices of other CPI components.
Over the last two decades, inflation has usually remained between the 2­4% target of the central bank, climbing to a
high of 9% in 2008 due to the financial crisis and the external shock of high and volatile oil prices. During the COVID­19
crisis, favourable inflation dynamics allowed the Central Bank to gradually lower policy interest rates in order to
maintain financial stability and support the economy. (Figure 6)
MACROECONOMIC POLICIES:
Monetary Policy of Philippines:
The Bangko Sentral ng Pilipinas commonly known as BSP is the Central Bank of Philippines.It was established on 3rd
July 1993 as per the New Central Bank Act of 1993. Its role is to manage the supply and cost of money and credit, to
influence overall demand for goods and services and to attain price stability.
Evolution of BSP’s Monetary Policy Framework over the years:
Stage 1 : 1985 ­ Q2 1995 : Monetary Aggregate Targeting
BSP announces an annual growth target of monetary aggregates
It determines the level of money supply needed to achieve desired level of inflation
M3 (domestic liquidity) is the money supply
Base money is the operating target
Assumptions
There is a stable/predictable relationship between money, output, inflation
Change in money supply triggers change in price or inflation
Velocity of money is stable
BSP controls M3
Stage 2 : Q3 1995 ­ 2001 : Modified Monetary Aggregate Targeting
Greater emphasis is laid on price stability instead of strictly attaining set targets for monetary aggregates
Greater emphasis is laid on price stability instead of strictly attaining set targets for monetary aggregates
Page 2
Monetary Policy is complemented with some form of Inflation Targeting to increase effectiveness of Monetary Policy
Monetary targets could be exceeded as long as inflation targets are met
Monetary Policy decision making is broadened to include a larger set of economic variables that need to be monitored
Stage 3 : 2002 ­ Present : Inflation Targeting
Government sets inflation targets after consulting with BSP, which announces the targets
BSP assesses monetary conditions and forecasts inflation
If the inflation target falls in line with the target, no change is made in policy settings, else BSP adjusts the settings
Notable change in the Policy of the Central Bank of Philippines in March 2019
The New Central Bank Act became effective on 1st March 2019. It strengthened the BSP by increasing its regulatory
power. As highlighted above, the role of the BSP since 2001 had been to maintain price stability to ensure balanced
and sustained growth of the economy. After the amendment and as per the new law, the BSP will yield regulatory and
examination powers not only over quasi­banking operations of non­bank financial institutions but also over money
service businesses, credit granting businesses, and payment system operators, thereby ensuring balanced and
sustained growth of employment. 
Therefore, the Monetary Board is now empowered to authorize entities or persons to engage in money service
businesses and the BSP’s responsibilities now include promoting financial stability, overseeing the payment and
settlement systems in the Philippines, and promoting broad and convenient access to high quality financial services
keeping in consideration the interest of the general public.
Fiscal Policy of Philippines:
In 2018 the government undertook an expansionary fiscal policy, with significant spending on infrastructure and
personnel services, that resulted in it exceeding its programmed fiscal deficit target of 3 percent. The fiscal deficit
widened from 2.2 percent of GDP in 2017 to 3.2 percent of GDP in 2018 (Figure 7).
Public expenditure grew from 17.9 percent of the GDP in 2017 to 20.7 percent in 2018. This was fueled by increased
spending on public infrastructure (mainly through small scale projects) whose share in the total GDP rose from 3.5
percent in 2017 to 4.6 percent in 2018. 
Personnel services expenditure as a share of total GDP increased from 5.2 percent in 2017 to 5.7 percent in 2018. This
was a result of the adjustment in the salary standardization law, an increase in the pay for military and uniformed
personnel, and faster rate of filling of vacant positions in many national governmental organizations.
Despite the rising fiscal burden, revenue growth was tremendous ­ with notably, the tax ratio reaching its highest level
in more than 2 decades. The tax revenue grew from 13.6 percent, y­o­y (nominal) in 2017 to 14 percent y­o­y (nominal)
in 2018. Significant growth was also recorded in the non­tax revenue, registering a massive y­o­y increase of 27.8
percent in 2018 (compared to 3.2 percent in 2017). 
 Page 1

PLAGIARISM SCAN REPORT

Words Date November 25, 2021

Characters 5117 Excluded URL

0% 100% 0 34
Plagiarized Unique
Plagiarism Unique
Sentences Sentences

Content Checked For Plagiarism

The national government’s debt to GDP ratio has remained healthy owing to better management practices. The figure
fell from 42.1 percent of GDP in 2017 to 41.9 percent of GDP in 2018. Two­third of this debt is in peso ­ the national
currency and one­third is in foreign currency.
Foreign Exchange Policy of Philippines:
Currently, the country's currency rate policy favours a freely floating exchange rate system in which the BSP defers to
market forces in determining the exchange rate. The BSP does not set the foreign exchange rate in a market­
determined exchange rate system; instead, the supply and demand for foreign exchange decide the value of the peso.
As a result, the BSP's involvement in the foreign exchange market is confined to reducing sharp exchange rate
movements. The BSP joins the market in such instances of excessive movement primarily to maintain order and
stability. 
To maintain order and mitigate destabilising swings in the exchange rate, the BSP participates in the foreign exchange
market by buying and selling foreign exchange. It also uses monetary policy measures, such as altering key policy
rates or the interest rates it charges for its borrowing and lending activities, if exchange rate movements threaten to
push inflation outside its target range. To ensure foreign exchange market stability, the BSP has blended foreign
exchange intervention and monetary policies with market­based foreign exchange regulations. 
Trade Policy of Philippines:
Trade agreements that Philippines is a part of ­ 
ASEAN Trade in Goods Agreement
Philippines – Japan Economic Partnership Agreement
Philippines – European Free Trade Association Free Trade Agreement
Regional Comprehensive Economic Partnership
Trade barriers include ­ 
For sensitive agricultural items such as rice, corn, pig, chicken meat, sugar, and coffee, the Philippines maintains a two­
tiered tariff regime. A tariff rate quota (TRQ) applies to these products, and all imports that exceed the minimum access
volume are taxed at a higher out­of­quota rate. In­quota and out­of­quota tariff rates have been unchanged since 2005,
averaging 36.5 percent and 41.2 percent, respectively. The structure of excise duty on alcohol products increases
excise taxes every year. 
CONNECTING POLICIES TO ACTUAL PERFORMANCE:
As the current monetary policy is focused on inflation targeting, we will try to understand why interest rates were
increased in 2018 (Figure 7). The BSP tightened its monetary policy stance in 2018 to combat increasing inflation,
resulting in higher interest rates and a slowing of credit and money supply growth. Year­on­year, the headline inflation
rate increased from 2.9 percent in 2017 to 5.2 percent in 2018. It rose for the majority of 2018, reaching a high of 6.7
percent in the third quarter before progressively falling in the final two months of the year. 
Inflation was primarily driven by increases in food, energy, and transportation costs. Food inflation rose mostly due to a
scarcity of important commodities such as fish, rice, meat, and vegetables in the Philippines, which was caused by
typhoons and severe rainfall, as well as mishandling of rice imports. Furthermore, increased global crude oil prices, an
increase in the gasoline excise tax, upward adjustments in power rates, and a weaker peso all contributed to the
increase in energy and transportation prices. In 2018, both the headline and core inflation rates exceeded the BSP's
increase in energy and transportation prices. In 2018, both the headline and core inflation rates exceeded the BSP's
Page 2
2.0­4.0 percent inflation target range. As a result, the BSP lifted its key policy rates by a total of 175 basis points, from
3.00% in the first quarter to 4.75% in the second. 
As credit growth moderated due to tightening of monetary policy, crude oil prices reduced and supply side bottlenecks
of commodities were removed, inflation started creeping back into its territory of 2­4% within the next year, reaching a
low of 2.48%, which allowed the BSP to start reducing the interest rates gradually. 
Despite the inflation level, a faster increase in household income has allowed poverty levels to decline. The continuous
transition of the workforce to non agricultural jobs also suggests that household incomes have become more
sustainable. Further, it is worthy to note that in addition to the key macroeconomic indicators we discussed above,
Philippines has an HCI score (Human Capital Index) of 0.55, which is higher than that of other lower middle income
countries. Here, the government’s initiatives to improve the country’s education standards (through initiatives like the
Philippines Professional Standards for Teachers), tackle childhood stunting (through interventions like Philippines’ Plan
of Action for Nutrition) and improve the quality of health care (through the Health Coverage Law) have been
instrumental. However, in order to increase the HCI and bring it closer to the average figure of countries in East Asia
and Pacific (much higher), greater and more strategic investments are required in human capital formation.
 Page 1

PLAGIARISM SCAN REPORT

Words 343 Date November 25, 2021

Characters 2425 Excluded URL

0% 100% 0 15
Plagiarized Unique
Plagiarism Unique
Sentences Sentences

Content Checked For Plagiarism

CONCLUSION:
After being dubbed the "sick man of Asia'' for having poor growth while its Asian neighbours prospered, the Philippines
has shown tremendous economic growth and is gaining speed in recent years. In the second quarter of 2021, the
Philippine economy grew by 11.8 percent, ending a five­quarter pandemic­induced recession. Officials are optimistic
about a gradual economic rebound in the second half of the year and a return to pre­pandemic economic growth rates
by late­2022. 
Several international organisations have reduced the Philippines' economic estimates for 2021, predicting that the
country will be a laggard in Asia as a result of a slow­moving COVID­19 mass vaccination programme. Despite this,
they agree that the Philippines still has strong macroeconomic fundamentals, including controllable external debt, a
strong public balance sheet, and a sizable foreign currency reserve, all of which are sufficient to support the country's
post­pandemic recovery. 
Due process, checks and balances, systemic corruption, poor supervision and regulatory agencies, and an overworked
criminal justice system noted for sluggish court procedures are all challenges facing the Philippine government. 
Based on our analysis of the macroeconomic variables and policies in the Philippine economy, the following are some
policy recommendations that we can highlight. Some of them have also been based on our understanding of the
Philippine Development Plan 2017­22.
Improve revenues through reforms in tax policy and administration ­ by simplifying and creating a more efficient tax
system.
Encourage the private sector to participate in public­private partnership schemes, in order to free up fiscal space for the
government to allocate on other key needs.
Continue its emphasis on infrastructure projects, for they have been the major reason behind the fast growth of the
economy.
In order to prevent the economy from any external shocks, maintaining market determined exchange rate along with
sufficient reserves of foriegn exchange is important.
Strengthening financial inclusion of all Filipinos through efficient delivery of micro­finance and micro­insurance products
and services.
Explore new markets for Philippine exports and intensify market intelligence (use of analytics in trade related
processes) to enhance earnings from the trade sector.