Markit

Emerging Markets Report

Initial Analysis of Emerging Markets
Ravi Goel, Namo Jain, Uday Pratap Singh, Kaushik Sadhu and
Gunjan Batra

12

PHILIPPINES
Introduction:
1.
Its location on the Pacific Ring of Fire and its tropical climate make the Philippines prone to earthquakes and
typhoons but have also endowed the country with natural resources and made it one of the richest areas of biodiversity
in the world.
2.
With a population of more than 92 million people, the Philippines is the 7th most populated Asian country and
the 12th most populated country in the world. An additional 12.5 million Filipinos live overseas
3.

Japan, the biggest contributor of official development assistance to the country

4.
Due to the volcanic nature of the islands, mineral deposits are abundant.
The country is estimated to have the second-largest gold deposits after South Africa and one of the largest copper
deposits in the world.
It is also rich in nickel, chromite, and zinc.
Despite this, poor management, high population density, and environmental consciousness have resulted in these
mineral resources remaining largely untapped.
Geothermal energy, however, is another product of volcanic activity that the country has harnessed more successfully.
The Philippines is the world's second-biggest geothermal producer behind the United States, with 18% of the country's
electricity needs being met by geothermal power.

Infrastructure:
1.
Most of the national burden of health care is taken up by private health providers. In 2006, total expenditures
on health represented 3.8% of GDP. 67.1% of that came from private expenditures while 32.9% was from government.
External resources accounted for 2.9% of the total. Health expenditures represented about 6.1% of total government
spending.
2.
The transportation infrastructure in the country is relatively underdeveloped. Partly this is due to the
mountainous terrain and the scattered geography of the islands, but it is also the result of the government's persistent
underinvestment in infrastructure.
3.
The Philippines has a sophisticated cellular phone industry and a high concentration of users. As of 2008, there
are about 67.9 million cellular phone subscribers in the Philippines. Over five million of them use their cellular phones as
virtual wallets, making it a leader among developing nations in providing financial transactions over cellular networks.
Estimates for internet penetration in the Philippines vary widely ranging from a low of 2.5 million to a high of 24 million
people. Social networking and watching videos are among the most frequent internet activities.

Economy:
1.
The national economy of the Philippines is the 45th largest in the world, with an estimated 2011 gross domestic
product (nominal) of $216 billion
2.
Primary exports include semiconductors and electronic products, transport equipment, garments, copper
products, petroleum products, coconut oil, and fruits
3.
Major trading partners include the United States, Japan, China, Singapore, South Korea, the Netherlands, Hong
Kong, Germany, Taiwan, and Thailand.

4.
A newly industrialized country, the Philippine economy has been transitioning from one based on agriculture to
one based more on services and manufacturing.
5.
The unemployment rate as of July 2009 stands at around 7.6% and due to the global economic slowdown
inflation as of September 2009 reads 0.70%. Gross international reserves as of July 2011 are $75.174 billion. In 2004,
public debt as a percentage of GDP was estimated to be 74.2%; in 2008, 56.9%. Gross external debt has risen to $66.27
billion. The country is a net importer.
6.

Trade (2010): Exports--$50.7 billion. Imports--$61.1 billion.

7.
The service sector contributes more than half of overall Philippine economic output, followed by industry (about
a third), and agriculture (less than 20%).

Financial Conditions:
1.
The Philippine economy proved comparatively well-equipped to weather the recent global financial crisis, partly
as a result of the efforts to control the fiscal deficit, bring down debt ratios, and adopt internationally-accepted banking
sector capital adequacy standards.
2.
The Philippine banking sector--which makes up 80% of total financial system resources--had limited direct
exposure to distressed financial institutions overseas, while conservative regulatory policies, including the prohibition of
investments in structured products, shielded the insurance sector.
3.
After slowing to 3.8% growth during 2008, and sputtering to 1.1% during 2009, real year-on-year GDP growth
rebounded to 7.6% during 2010, a 34-year high, fueled in part by election-related spending, optimism over the peaceful
transition to a new government, and an accommodating monetary policy.
4.

Growth slowed in 2011 and is likely to be in the 3.5 to 4% range.

5.
Overseas workers remittances are on track for an 8% annual growth rate, and, continue to comprise roughly
10% of GDP. Annual GDP growth averaged 4.6% over the past decade, but it will take a higher, sustained economic
growth path--at least 7%-8% per year by most estimates--to make progress in poverty alleviation given the Philippines'
annual population growth rate of 2.04%, one of the highest in Asia.
6.
The portion of the population living below the national poverty line increased from 24.9% to 26.5% between
2003 and 2009, equivalent to an additional 3.3 million poor Filipinos.
7.
The Philippine stock market index ended 2011 up 4% after gaining 63% in 2009 and 38% in 2010. The Philippine
peso closed 2010 up 5.1% year-on-year. From $44.2 billion as of end-2009, gross international reserves rose to a new
record high of nearly $62.4 billion as of end-2010, adequate for nearly 10 months of goods and services imports and
equivalent to 5.5 times foreign debts maturing over the next 12 months.
8.
Although still relatively high, the debt of the national government has declined to under 56% of GDP (from a
2004 peak of 78% of GDP); and the consolidated public sector debt has declined to about 75% of GDP (from a 2003 peak
of 118% of GDP). The national government worked to reduce its fiscal deficits for 5 consecutive years to 0.2% of GDP in
2007 and had hoped to balance the budget in 2008 but opted instead for measured deficit spending to help stimulate
the economy and temper the adverse impact of global external shocks on the already high number of Filipinos struggling
with poverty. The national government ended 2008 and 2009 with deficits equivalent to 0.9% and 3.9% of GDP,
respectively. The deficit-to-GDP ratio declined to 3.7% of GDP in 2010, with a 1.7% deficit likely for 2011, Further
reforms are needed to ease fiscal pressures from large losses being sustained by a number of government-owned firms

and to control and manage contingent liabilities. The national government's tax-to-GDP ratio increased from 13% in
2005 to 14.3% in 2006 after new tax measures went into effect; it declined and stagnated at 14% in 2007 and 2008,
however, and declined further to 12.8% in 2009 and 2010, low relative to historical performance (i.e., 1997s 17% peak
ratio) and regional standards. The passage of revenue-eroding measures, partly to temper the impact on incomes of the
global financial crisis, exacerbated weaknesses in revenue administration. The government has used privatization
receipts to reduce shortfalls in targeted tax collections, but this has not been a sustainable revenue source.
9.
The Philippine Congress enacted an anti-money laundering law in September 2001 and followed through with
amendments in March 2003 to address legal concerns posed by the Organization for Economic Cooperation and
Development (OECD) Financial Action Task Force (FATF). The Egmont Group, the international network of financial
intelligence units, admitted the Philippines to its membership in June 2005. The FATF Asia Pacific Group conducted a
comprehensive peer review of the Philippines in September 2008. Some of the more important concerns include the
exclusion of casinos from the list of covered institutions, the non-criminalization of terrorist financing as a stand-alone
crime, and 2008 court rulings that inhibit and complicate investigations of fraud and corruption by prohibiting ex-parte
inquiries regarding suspicious accounts. Legislation to address these deficiencies is pending in the Philippine Congress,
and has been designated urgent by the Aquino administration, which will accelerate its movement through the
Congress. The Philippines has taken steps to adopt Internationally Agreed Tax Standards (IATS) and has enacted a law
that allows and provides a framework for the exchange of tax-related information. In September 2010, as a result, the
OECD upgraded the Philippines to its tax "white list."
10.
Potential foreign investors, as well as tourists, remain concerned about the rule of law, inadequate
infrastructure, policy and regulatory instability, and governance issues.
11.
While trade liberalization presents significant opportunities, intensifying competition and the emergence of
powerful regional economies also pose challenges. Competition from other economies for investment underlines the
need for sustained progress on structural reforms to remove bottlenecks to growth, lower costs of doing business,
combat corruption and promote good public and private sector governance.