SUMMARY
Overall Score 22 - Stable
Political risk: Stable 8/10
Economic risk: Stable 7/10
Commercial risk: Stable 7/10
The risk assessment of a country is made up of 3 components, being Political, Economic and Commercial. Each component is scored out of 10 with 1 being the lowest risk and 10 the highest.
Political Risk - Stable 8
Although the government of the Philippines has been widely criticised for its failure to control the impact of the COVID-19 pandemic on the country, President Rodrigo Duterte enjoys strong parliamentary and public support. Many Filipinos credited Duterte for starting social-welfare policies such as universal healthcare, free college education and, during the pandemic, cash handouts. Duterte is entering the final leg of his six-year term, which ends in May 2022. Filipino presidents are allowed to serve one term only. Official campaigning for the presidential election began on 8 February. Ferdinand “Bongbong” Marcos Junior is the odds-on favourite to succeed Duterte according to the opinion polls. Marcos Junior is the only son of the late dictator Ferdinand Marcos, who ruled the Philippines for almost two decades until his 1986 overthrow. Filipinos have a history of favouring family dynasties. Two of the three most recent presidents, Benigno Aquino and Gloria Arroyo, were the children of previous presidents.
Duterte´s daughter, Sara Duterte-Carpio, is running for vice-president alongside Marcos. She is the clear favourite to win the separate vice-presidential election. The election of Duterte-Carpio would protect Duterte against potential legal action by the International Criminal Court, which is investigating thousands of killings since 2016 during his war on drugs. Duterte’s government has denied wrongdoing and has said it will not cooperate with the ICC. The election of either Marcos or Duterte-Carpio is unlikely to have any significant impact on economic or investment policy, or on the country’s overall political stability. The Philippines remains a robust democracy in which powerful families, rather than ideology, tend to dominate the political environment. Despite reports of vote-buying and some election-related violence, recent polls have been reported as fair and credible. Meanwhile, long-term violent insurgencies continue in parts of the country, although their threat to the state has diminished significantly in recent years.
Economic Risk – Stable 7
One of the most dynamic economies in the region, the Philippines was hit hard by the COVID-19 pandemic, but growth is now recovering strongly. Over the 10 years to 2019, economic growth averaged 6.3 per cent per annum, one of the highest rates in Asia. According to the IMF, “sustained reforms and prudent macroeconomic policies supported strong economic growth and helped contain external and macro-financial vulnerabilities”.
A failure to control the spread of COVID-19 and slow progress on the vaccine rollout means the Philippines’ economy has suffered more than other large Southeast Asian economies. Indeed, in 2020, the country experienced the largest recession since records began, with real GDP shrinking by 9.6 per cent. Frequent lockdowns hit business investment and consumer spending hard.
However, an expansionary fiscal program and accommodative monetary policy helped power an economic recovery in the second half of 2021. Government assistance to support employment and assist in sectors hard-hit by the pandemic, including agriculture and tourism, together with improving consumer confidence and progress in the national COVID-19 vaccination programme, supported the pickup in the economy.
Robust consumer spending ahead of the Christmas holidays helped bring full-year GDP growth to 5.6% in 2021, exceeding the government's 5.0%-5.5% target. The government anticipates growth of 7.0%-9.0% for 2022 and 6.0%-7.0% for both 2023 and 2024. The budget deficit is projected to fall from 8.2% of GDP in 2021 to 5.1% of GDP in 2024.
The IMF issued an upbeat assessment of the economy in its latest review, published in July 2021, arguing that “strong fundamentals and prudent macroeconomic policies” had helped to maintain macro-financial stability. It also welcomed the authorities’ emphasis on structural reforms to improve the business environment and foster more sustainable, inclusive, and greener growth.
Economic Risk – Stable 7
The business environment is improving significantly, according to the World Bank’s Ease of Doing Business (EODB) index. Its 2020 report ranked the Philippines in 95th place out of 190 economies, with a score of 62.8. But the country jumped 29 notches from 124th and a score of 57.68 in 2019. The World Bank uses 10 indicators to measure a country’s EODB performance: Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Getting Credit, Protecting Minority Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts, and Resolving Insolvency.
The Philippines made significant progress in the areas of Protecting Minority Investors, Getting Credit, and Dealing with Construction Permits during the year. In other indicators, the Philippines ranked 32nd in Getting Electricity, 120th in Registering Property, 95th in Paying Taxes, 113th in Trading Across Borders, 152nd in Enforcing Contracts, and 65th in Resolving Insolvency.
Corruption is a significant challenge. The Philippines ranks joint 115th out of 180 countries in Transparency International’s 2021 Corruption Perceptions Index – significantly lower than the likes of Thailand, Vietnam and Indonesia. According to the Philippines Corruption Report by GAN, high levels of corruption severely restrict the efficiency of businesses operating in the Philippines. GAN cites extensive bribery within the public administration and vague and complex laws that make foreign companies vulnerable to extortion and manipulation by public officials. Favouritism and undue influence are widespread in the courts, leading to time-consuming and unfair dispute resolution, and to an uncertain business environment. Corruption plagues the customs administration, and fraud routinely occurs for companies when filing import and export documentation. Moreover, GAN says that the legislative framework for fighting corruption is scattered and is not effectively enforced by the weak and non-cooperative law-enforcement agencies.
The country ranks in 80th place in terms of economic freedom, as ranked by the Heritage Foundation’s 2022 Index, down from 73rd in 2021. Its overall score decreased by 3.0 points over the year, primarily because of a decline in fiscal health and monetary freedom. The Philippines is ranked 15th among 39 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.
March Bulletin
Political Risk – No Change
The government faces no significant threats to its rule. President Duterte is not eligible to run for president again in the May 2022 elections, Filipino presidents being limited to one term of six years only. Ferdinand (Bongbong) Marcos Junior, the son of the former dictator of the same name, is the favourite to win the poll. He is particularly popular with younger Filipinos. Duterte´s daughter Sara Duterte-Carpio, the running mate of Marcos Junior, is likely to win the separate vice- presidential campaign. The election of Marcos Junior and Duterte-Carpio would avoid a situation, which has happened in the past, when candidates from rival parties are elected to the posts of president and vice president and are unable to work together. No major changes to policy are expected if both Marcos and Duterte-Carpio do emerge victorious.
The main challenges facing the next administration will include tackling the government’s budget position and any widening of the country’s current account deficit as foreign exchange transactions with the rest of the world increase. How to deal with China´s increasingly assertive stance in the South China Sea will be the most pressing foreign policy issue.
Economic Risk – No Change
The economy is accelerating, registering growth of 7.7%, on an annual basis, in the final quarter of 2021, faster than the 6.9% expansion seen in the previous quarter. Full year growth for 2021 came in at 5.6%, exceeding the government's 5.0%-5.5% target and after a record 9.6% contraction in 2020 driven by prolonged COVID-19 lockdowns. However, the economy still faces risks particularly from any new COVID-19 variants that may emerge and from inflation pressures driven by higher prices of oil and some food items.
The government reimposed coronavirus curbs in the capital region and a number of provinces in early 2021 due to a resurgence in infections driven by the more transmissible Omicron variant. However, a nearly two-year ban on foreign travellers was lifted in early February as the Omicron surge eased. The move should provide a welcome boost to tourism and the economy. Tourism contributed 12.7% of GDP and generated 5.7 million jobs in the pre-pandemic year of 2019.
More than 60 million out of 110 million Filipinos had been fully vaccinated by mid-February, and 8.2 million had received booster shots. Vaccine shortages and public reluctance to be vaccinated has hampered the vaccine campaign. Inflation averaged 3.9% in 2021, within the 2-4% central bank target. While the central bank expects inflation to continue to ease in 2022, the spread of African Swine Fever is hitting domestic hog production, forcing up pork prices. Meanwhile, the sharp increase in crude oil prices this year could undermine the central bank´s rosy outlook. The central bank has kept its key rate at a record low of 2.0% since November 2020, vowing to prioritize the economic recovery. It has indicated it will not raise interest rates any time soon despite the threat of tightening in the United States and elsewhere.
Commercial Risk – No Change
Around 70 per cent of small and medium-sized enterprises faced cashflow problems in 2020 as a result of the pandemic, according to a study by the Asian Development Bank. Over half had no income whatsoever for a period and many relied on loans from family and friends to survive. Many remain in a fragile situation, so counterparty risk remains high.
The outlook for the banking sector is improving, according to a Fitch Ratings report issued in January 2022. Fitch cited data from the central bank showing the gross non-performing loan ratio of Philippine banks declined to an eight-month low of 4.35% in November from 4.42% in October as the industry’s asset quality continued to improve. The November ratio was the lowest since the 4.21% recorded in March 2021, as the level of loans disbursed by Philippine banks continues to improve. Preliminary data showed that the loans disbursed by banks rose by 4.3 percent to P11.08 trillion from January to November last year compared to P10.62 trillion in the same period in 2020. Fitch expects a deterioration in loan asset quality for banks and non-bank financial institutions as fiscal and policy support are withdrawn in 2022. However, it anticipates that banks will offset these reductions with improved pre-impairment profitability and the reduction of loan loss allowances and excess capital buffers accumulated through the pandemic.
Latest economic data
f - forecasts
Source: International Monetary Fund except where stated
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