Even though growth has not been considerable – first-half GDP growth was quite flat at just 1% – the Philippines is somewhat fortunate given the lacklustre outlook globally. The country's OFWs, rumoured to be sent home in droves prior to January 2009, have been able to continue remitting, keeping the economy buoyant. Remittances in 2008 totalled $16.4bn and are estimated to grow by as much as 5% in 2009. In the first seven months of the year OFW remittances grew 3.8% and the additional growth in the remainder of the year is seen to be driven by Filipinos working abroad sending home more money after the ravaging effects of the typhoons.
Unfortunately, the two typhoons, which have caused considerable damage to the country's largest island, Luzon, have been estimated to lower GDP growth by as much 0.5% in 2009. This drop is significant considering economic growth for the year is predicted to fall between just 0.8 and 1.8%. While the National Economic Development Authority (NEDA) has not revised down its growth estimates just yet, pointing out the damage caused by the typhoons, while horrendous, will not dramatically reduce the country's production capability. In fact, the NEDA national planning and policy staff director, Dennis M Arroyo, has suggested the two typhoons may even pull up GDP as reconstruction could see production and manufacturing of goods surge towards the end of the year.
Further enabling the Filipino economy to remain sheltered from the current economic storm has been the prudent guidance of the Bangko Sentral ng Pilipinas (BSP). Tight regulation of the banking and finance industry by the BSP has ensured the capital adequacy ratios (CAR) and non-performing loan (NPL) figures have remained strong. A rigidly structured licensing programme the BSP has implemented also ensured limited exposure to the risky financial instruments that infected many of the world's financial markets.
Headline inflation, which peaked just 14 months ago at 12.3%, dropped to a record low of 0.2% in July, and averaged 3.4% in the first nine months of 2009. The BSP predicts an annual inflation rate between 2.5% and 4.5% in 2009 and 3.5% and 5.5% in 2010. The dramatic decrease in inflation over the past year has provided the BSP with adequate room for monetary policy easing. The crucial interbank borrowing rate is currently at a low of 4%, while the lending rate stands at 6%, having been decreased six times since December 2008.
The Philippines' limited exposure to external influence does not stop with the financial industry. Exports make up a relatively small portion of the Filipino economy compared to some of its regional neighbours, accounting for roughly $50bn per year. While the country's fairly limited production of exports has protected the overall economy during the current crisis, the opposite is true during years of significant external growth.
Additionally, the Philippines relies on rather little foreign direct investment (FDI), which declined to $1.52bn in 2008 from $2.92bn in 2007. While country's inability to attract significant FDI may have helped shelter the country during the current crisis, it will surely be a burden when the global economy recovers.
The fiscal deficit, which the administration originally aimed to reign in by the end of President Gloria Macapagal-Arroyo's term, was forced to take a back seat in 2009 since deficit spending was seen as key to keeping the country's economy afloat until the global economic downturn recedes. A $6.9bn stimulus package, entitled the Economic Resilience Plan (ERP), was the Arroyo administration's specific response to the global economic crisis.
IMF's Philippines resident representative, Denis Botman, has urged the government to halt stimulus spending in 2010, declaring that, "The government has to shift to a neutral fiscal stance next year. There is not much room for fiscal stimulus because the country's debts are too high," in a statement to local press.
Fortunately, spending in preparation for the forthcoming elections in June 2010 is predicted to have a "stimulus" effect on the economy in the first half of 2010, hopefully preventing the federal government from spending any additional funds.
The recent spate of typhoons that has caused massive flooding and landslides leave little room for optimism and are predicted to become more frequent in years to come as a result of global warming. However, Filipinos are known to have an innate sense of optimism and there are indeed several reasons to look forward to 2010 as the global economy thaws and a new administration enters Malacañang Palace. The Philippines should once again find itself with an opportunity to address its isolated position in the global market. If the country can continue to grow its service-related industries, such as business process outsourcing and tourism, while simultaneously increasing its industrial manufacturing and mining prospects, we could very well see a new economic force in the region.