Why the Philippines is Poor, According to the IMF

Weak government spending and political uncertainty are just some of the reasons why the Philippines has been outperformed by most of its Asian neighbors, a study sponsored by the International Monetary Fund showed.

The 25-page working paper, The Determinants of Economic Growth in the Philippines: A New Look, compared the Philippines to 23 emerging markets for the period 1965–2008 to analyze the factors behind per-capita GDP growth in the Philippines.

A previous study noted that in the 1950s, the Philippines had the second highest per capita GDP in Asia. Today, its Southeast Asian neighbors Malaysia, Indonesia, Thailand, and Vietnam are described as high performing economies that are targetting first world statuses, while the Philippines was operating on a low-growth trajectory.

“The Philippines’ mediocre performance in a number of indicators—particularly relative to its Asian couterparts—illuminates some of the existing pieces of the Philippine growth puzzle,” Willa Boots Tolo, author of the report and now a bank officer at the Philippines’ Bangko Sentral, said.

Among the factors blamed for the country’s weak economic performance were weak agricultural productivity, high government debt, low public, private, and foreign investment, weak research and development spending, low spending on education, lackluster tourism sector, relatively high income inequality, high corruption, strong population growth, more episodes of financial crisis, and political uncertainty.

It suggested that the Philippines lacked a sustained period of relatively strong economic reforms.

Tolo said that, in order to catch up with its East Asian counterparts, the Philippines would need to maintain macroeconomic stability, expand its fiscal space, and redirect public spending to agriculture, infrastructure, and research and development.

“Expansion of the fiscal space and thus scaling up spending on public investment requires raising tax revenue through both administrative and selective tax policy measures. This would include strengthening tax administration, reform in excise taxes, rationalization of fiscal incentives, and addressing exemptions in value-added taxation,” she said.

The study said better irrigation, access to fertilizers, farm-to-market roads, and storage facilities could support development in the agricultural sector.

The government’s focus on public-private partnerships for traditional and non-traditional infrastructure investments would also maximize the returns to development, while srengthening the focus of education on the sciences in all levels would encourage future researchers and scientists who would be instrumental in nation building.

By Roderick T. dela Cruz