S&P has upgraded its projection for the Philippines – despite the threat posed by the new Omicron coronavirus variant – after the country posted better-than-expected Q3 results.
While successive waves of Covid-19 have put Southeast Asian economies on the back foot, the global ratings agency estimated that the Philippines’ gross domestic product (GDP) could grow 7.4 percent next year, making it the second-fastest growing economy after Vietnam.
This rosy outlook is all the more remarkable because it comes just weeks after warnings that the Philippines might be ‘Asia’s economic laggard’ – and the Philippine government’s own prediction from Economic Planning Secretary Karl Kendrick Chua that the next two generations of Filipinos would bear the expected USD 1.1trn cost of lockdowns and other Covid restrictions.
Positive actions are driving growth
So, what’s prompted the volte-face and what opportunities could this economic renaissance offer the Philippines?
For one thing, the Philippines is reaping the benefits of its highly effective fuel marking programme which has curbed the illicit fuel trade in the country and boosted tax revenues, contributing to the Bureau of Customs (BoC) exceeding its collection goals.
To date, a total of almost 33bn litres of oil has been injected with a chemical marker at the country’s import terminals, refineries and retail sites, allowing authorities to verify its tax-paid status. The highly successful scheme, implemented by SGS and Swiss firm SICPA, has allowed a new BoC task force to seize more than 81,000 litres of smuggled fuel, raising lawmakers’ hopes that fuel smugglers will be deterred by the credible threat of enforcement.
The fuel marking programme has also brought in much-needed revenue—duties generated since marking began in September 2019 stand at USD 6.4 billion, boosting the Philippines’ economy amidst the coronavirus-induced economic downturn. According to Finance Secretary Carlos Dominguez III, “the billions of pesos in tax revenues generated with the help of fuel marking [means] that the fight against oil smuggling [is] already won”.
The Philippines’ economy has also been bolstered by the fact that Manila has fine-tuned its Covid response, accelerating the rollout of vaccines – including booster doses – and controlling the epidemic with more localised measures rather than blunt instruments like nationwide lockdowns.
A mass vaccination operation was launched at the end of November to combat the spread of Omicron, involving the security forces and 160,000 volunteers in a bid to vaccinate nine million people via 8,000 sites in just three days. The daily target almost quadrupled the national average over the previous month.
At the beginning of December, the government additionally announced a broader booster drive, encouraging all vaccinated adults to get a third shot just six months after their second – or after three months for those who had the single-dose J&J vaccine.
A rapid economic recovery
During a recent virtual economic briefing, Secretary Chua listed the Covid interventions he believed would contribute to the country’s return to pre-pandemic economic levels by early 2022, including the shift to an ‘alert level’ system, highly targeted lockdowns and the increase in transport capacity.
Key sectors are already beginning to bounce back. National Economic and Development Authority (NEDA) estimates put airlines’ capacity at 40 percent of pre-pandemic capacity – up from just 5 percent last year and 16 percent this September – with visits to shopping centres also back up to 63 percent of previous levels.
At the same briefing, Finance Secretary Carlos Dominguez said he expected to see the full reopening of the economy by the New Year.
To further accelerate economic recovery, NEDA recommended that the vaccination drive be expanded to children from age 5 and above. Having acquired millions of additional doses of the Pfizer vaccine, Philippine health officials are confident about the upcoming rollout of paediatric vaccinations.
Collaborations with key partners
As the Philippines’ economy continues to recover, Manila is looking forward to expanding international collaborations and is courting investments from key partners especially in R&D, manufacturing, digital and renewable energy industry sectors.
Trade relations with the European Union (EU) may prove to be particularly important as the country steers its course towards post-pandemic recovery. The Philippines is currently the only ASEAN country with access to the EU’s Generalized Scheme of Preferences (GSP); trade officials are hopeful that this relationship could be extended to its services sector under a more comprehensive free trade agreement. Such a move would require a shift in emphasis from traditionally consumption-led to investment-led economic growth in the country.
The EU’s recently announced ‘Global Gateway’ program – an alternative to China’s Belt and Road Initiative (BRI) – could offer fresh opportunities for such engagement. The EUR 300bn global infrastructure plan aims to create resilient and secure connections across digital, energy and transport sectors, consolidating health, education and research systems all over the world.
With a worldwide infrastructure deficit predicted by G20 to reach EUR 13 trillion by 2040, the Global Gateway model would support a wide range of infrastructure projects in the coming years. It claims that projects would be ethically managed, financing and delivering infrastructure under ‘fair and favourable terms to limit the risk of debt distress’.
Importantly, Global Gateway could offer the Philippines a more palatable investment partner than BRI, as Chinese-backed projects like the Chico River Pump Irrigation Project and Kaliwa Dam Project have come under fire for lack of transparency, delayed completion dates and questionable contract terms.
Looking to the future
The EU’s focus on sustainability via equal partnerships and the development of clean, climate-aware projects that prioritise inclusive growth and support the transition towards a circular global economy, means that the Philippines could take the opportunity to upgrade its infrastructure and consolidate its economic recovery while acting on climate change at the same time.