The International Monetary Fund (IMF) recently announced that the Philippines is on track to become the fastest-growing economy in Southeast Asia! The IMF projects that the country’s economic growth will surpass 6 percent in 2024 and increase further to 6.2 percent in 2025. This makes the Philippines not only the fastest-growing economy in Southeast Asia but also the second-fastest in the entire Asian continent, just behind India, which is expected to grow by 7 percent in 2024 and 6.5 percent in 2025. According to the latest IMF data, Vietnam, another of Asia’s fastest-growing economies, is only projected to grow by 5.8 percent in 2024. Meanwhile, Indonesia is expected to grow by 5 percent, and Malaysia by 4.4 percent.
While these are projections, it’s important to consider the credibility of the IMF, a globally recognized institution trusted by major economies and world leaders. If the Philippines does indeed become the fastest-growing economy in the region within the next two years, does this reflect the effectiveness of the current government’s leadership? Can this success be attributed to President Bongbong Marcos? President Marcos has certainly been active in attracting major foreign investments to the Philippines and continuing significant infrastructure projects initiated by his predecessor. Some even say his ambition surpasses that of former President Rodrigo Duterte. So, is Marcos the driving force behind the country’s economic growth? Let’s take a closer look at what the IMF has said about the Philippine economy beyond these projections.
In June 2024, an IMF team visited Manila to discuss recent economic and financial developments and the outlook for the Philippine economy. Led by Elif Arbatli Saxegaard, the team noted that the Philippine economy has continued to perform well despite external challenges and policy tightening. This growth is driven by stronger consumer demand, increased public and private investment, and a recovery in exports.
What does this mean for the average Filipino? Strong consumer demand indicates that Filipinos are confident and willing to spend more, which drives demand for goods and services, further fueling economic growth. It also often reflects rising incomes and improved living standards. When people have more disposable income, they tend to spend more on both essential and non-essential items.
The rise in public and private investment means that both the government and private sector are investing more in the economy, building infrastructure, and expanding businesses. This creates jobs and boosts productivity. Such projects not only provide immediate employment but also lay the groundwork for long-term economic growth by improving logistics, reducing costs, and increasing efficiency. Private investments, like spending on new facilities, equipment, and technology, enhance productivity and competitiveness, leading to sustained economic expansion.
The recovery in exports suggests that the Philippines is gaining a stronger position in international markets, benefiting from global trade. This is crucial for the country’s economic health, as it brings in foreign exchange, helps balance trade deficits, and supports domestic industries.
In addition to these positive indicators, the IMF team also commended the Philippines’ central bank, the Bangko Sentral ng Pilipinas (BSP), for managing inflation by maintaining a policy rate of 6.5 percent. This has helped bring down inflation, which is expected to decrease to around 3 percent in the second half of 2024. This achievement highlights the effectiveness of the BSP, especially considering that many other countries are still struggling with high inflation.
Moreover, the IMF team praised the government’s decision to reduce tariffs on rice imports from 35 percent to 15 percent and to remove non-tariff barriers on agricultural imports. These measures are expected to help mitigate food price increases and lessen their impact on vulnerable households.
So, what does the reduction in rice tariffs mean for the average Filipino? Essentially, it means that rice imports will become cheaper. Tariffs are taxes imposed on imported goods, and by reducing them, the cost of importing rice decreases, potentially leading to lower prices for consumers. This is significant in the Philippines, where rice is a staple food for most households. Lower rice prices can ease financial pressure, especially on lower-income families who spend a larger portion of their income on food.
However, the reduction in rice tariffs has faced opposition. In July 2024, a farmers’ group asked the Supreme Court to halt the executive order mandating the 15 percent tariff reduction on imported rice. Former Agriculture Secretary Leonardo Montemayor also criticized the move, arguing that the Philippines should protect and support its local farmers, corn growers, hog producers, and poultry raisers. Why? Because tariffs not only generate revenue for the government but also protect local industries from foreign competition. High tariffs on imported goods make them more expensive, encouraging consumers to buy locally produced alternatives. By lowering tariffs, the government reduces the protective barrier around local agriculture, which could lead to increased competition from cheaper imported rice. This competition might hurt local farmers who cannot compete with the lower prices, potentially leading to reduced income for these farmers and a decline in domestic agricultural production.
Another key point from the IMF report is the recent reforms aimed at attracting foreign investment and creating a business-friendly environment. These reforms are crucial for diversifying the economy and enhancing the country’s growth potential. The recent increase in foreign investments is a testament to their impact. In 2023, foreign direct investments (FDI) in the Philippines reached over $8.86 billion, a slight decrease from the previous year but still significantly higher than before the reforms were implemented.
Finally, the IMF report discusses the Philippines’ latest Medium-Term Fiscal Program, which it describes as representing a more pro-growth fiscal stance focused on higher capital spending and a more gradual increase in revenues over the medium term. In simple terms, the Philippine government is shifting its fiscal policy towards fostering economic growth by investing more in infrastructure and other capital projects. This approach aims to stimulate the economy by creating jobs, improving productivity, and laying the foundation for long-term development. Instead of implementing rapid revenue increases, the government plans a gradual rise in revenues, allowing businesses and consumers time to adjust and continue contributing to economic activity.
Let’s break this down further. Higher capital spending means increased investment by the government in infrastructure projects like roads, bridges, schools, hospitals, and other public facilities. The goal of gradually increasing revenue is to boost tax collection and broaden the tax base without causing sudden financial strain on businesses and individuals.
The government also aims to reduce the fiscal deficit from 6.2 percent of GDP in 2023 to 3.7 percent by 2028. A fiscal deficit occurs when the government spends more than it earns in revenue. To pay for this deficit, the government must either borrow money or find ways to increase revenue, such as through taxes.
So, is the Philippines’ economic growth the result of President Bongbong Marcos’ leadership? The IMF seems to think so, highlighting several factors tied directly to the government’s actions, such as fiscal plans, tariff reductions, and foreign investments. However, it’s important to recognize that the country’s economic growth is not the work of one administration alone but the result of efforts spanning many years and governments. That said, with the Philippines now expected to become the fastest-growing economy in Southeast Asia and the second-fastest in Asia, it’s clear that the current administration is playing a significant role in driving this growth.