The new administration to take office in June 2022 would have to carefully manage PHILIPPINES Key conditions and rising vulnerabilities on the macroeconom- ic policy front, accelerate physical and hu- challenges man capital investments, and pursue structural reforms to strengthen long-term Table 1 2021 The Philippines swiftly contained its recovery. Rebuilding a narrowing fiscal Population, million 111.0 largest COVID-19 outbreak in early 2022. space can be achieved by carefully pursu- GDP, current US$ billion 392.5 Metro Manila and other key regions were ing fiscal consolidation. Ensuring inclusive GDP per capita, current US$ 3534.3 placed under Alert Level 1 since March and quality growth matters as the coun- a 2.7 International poverty rate ($1.9) 1, allowing for unimpeded cross-border try pursues its Ambisyon Natin objective a 17.0 travel and a return to full-capacity in of reaching middle class society by 2040. Lower middle-income poverty rate ($3.2) a 46.9 workspaces, establishments, and public Upper middle-income poverty rate ($5.5) Gini index a 42.3 transportation. Progress in mass vaccina- School enrollment, primary (% gross) b 99.1 tion, amid declining vaccine hesitancy, Life expectancy at birth, years b 71.2 continues to help drive domestic activity Recent developments as nearly 60 percent of the population are Total GHG Emissions (mtCO2e) 214.4 fully vaccinated, with about 13.0 percent The economy expanded by 5.6 percent year- Source: WDI, Macro Poverty Outlook, and official data. having received boosters. Current macro- on-year in 2021, fueled by a faster-than-ex- a/ Most recent value (2018), 2011 PPPs. b/ Most recent WDI value (2019). economic policies remain supportive of pected recovery in the second half of the growth, although policy space continues year. However, output remained below to narrow given rising public debt and in- pre-pandemic level by around 5.0 percent, Following a deep contraction in 2020, the creasing inflationary expectation. whereas many regional peers have closed Risks remain tilted to the downside the gap. Strong external demand buoyed economy rebounded in 2021 supported by with significant implications on the manufacturing exports, while public in- strong manufacturing and public invest- macroeconomic policy setting. Foremost vestment drove growth in construction. The ment. Economic policies have been sup- is the possibility of new COVID-19 vari- relaxation of containment measures, espe- portive of the recovery, but policy space is ants which could lead to a resurgence cially towards the end of the year, drove a in infections, possible re-introduction of rebound in services. However, agriculture narrowing. Poverty has likely improved containment measures, and additional struggled with a contraction in livestock between 2020 and 2021, but remains burden on fiscal support. In addition, production due to the African Swine Fever. above pre-pandemic levels. The economy the upcoming national election raises On the expenditure side, private consump- is projected to grow by about 5.6 percent uncertainty on policy continuity and tion was a key growth engine. Public invest- per year over the medium term, anchored priorities of the next administration. On ment accelerated, but uncertainty and weak the external front, the Russia-Ukraine confidence dampened private investment. on more robust domestic activities. How- war heightens the inflationary pressure Goods exports benefitted from a supportive ever, the outlook is subject to downside already experienced in global markets, external environment. risks from external and domestic sources. which could accelerate the tightening The fiscal deficit rose to 8.6 percent of GDP of the monetary policy in advanced in 2021 fueled by an acceleration in public economies and in the Philippines. spending and a sharp decline in non-tax FIGURE 1 Philippines / Real GDP growth and contributions FIGURE 2 Philippines / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 10 70 200000 180000 60 5 160000 50 140000 0 40 120000 100000 -5 30 80000 Net exports 20 60000 -10 Discrepancy 40000 Investments 10 20000 -15 Government Consumption Household Final Consumption Expenditure 0 0 GDP Growth 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 -20 International poverty rate Lower middle-income pov. rate 2017 2018 2019 2020 2021 Upper middle-income pov. rate Real GDP pc Source: Philippines Statistics Authority. Source: World Bank staff calculations. MPO 1 Apr 22 revenues. Public spending increased by 2.3 slows in view of fiscal consolidation. Capi- percent of GDP, anchored on public invest- tal growth may be tempered by rising inter- ment growth, and fiscal support measures. Outlook est rates and lingering uncertainty from the The central government debt increased external environment. from 54.6 percent of GDP in 2020 to 60.5 The economy is projected to grow at 5.7 Poverty incidence is estimated at 18.3 percent of GDP in 2021. percent in 2022 and 5.6 percent on average percent in 2021, based on the lower mid- The central bank kept the key policy rate in 2023-24. Growth will draw strength dle-income poverty line of 3.2 dollars a at 2.0 percent despite headline inflation from the domestic environment with de- day, 2011 PPP. Following current growth breaching the 2-4 percent target in 2021. clining COVID-19 cases, looser restric- projections, poverty incidence will de- The uptick in headline inflation was due tions, and wider reopening. The strong do- crease to 16.2 percent in 2022, and contin- to rising global oil prices and a surge in mestic condition will help compensate for ue to decline through 2024. The Russia- food inflation as a result of food produc- the weak external environment, reeling Ukraine war may induce inflation spikes tion challenges from the African Swine from a global growth deceleration, rising that may slowdown the decline in pover- Fever and weather-related disturbances. inflation, and geopolitical turmoil. ty, mainly through the knock-on effect of Labor force participation is 60.5 percent in The reopening will benefit the contact-in- fuel price increases on food prices that January 2022, the same rate in January tensive services sector, while public invest- disproportionately hurt the poor and eco- 2021. Female participation notably in- ment will support construction and indus- nomically vulnerable. creased by 1.2 percentage points, while un- try. Agriculture is expected to grow mod- Significant risks emanate from the exter- employment decreased to 6.4 percent from estly as structural weaknesses persist. On nal environment. Central banks in ad- 8.8 percent in the same period. The labor the expenditure side, private consumption vanced economies have signaled immi- market improvement may have helped will expand with recovering employment nent interest rate hikes, which could lead lower poverty between 2020 and 2021, but and remittances, boosted by election-relat- to financial volatility in emerging mar- it remains above pre-pandemic levels. ed spending. Consumption growth could kets. Rising global commodity and ener- There are danger signs of the low quality have been higher if not for the Russia- gy prices will intensify inflationary pres- of jobs generated with workers moving to Ukraine war driving inflationary pressure sure. Domestically, the political transition self-employment and low-skilled wage oc- on fuel and food. Public consumption is ex- risks policy discontinuity that may under- cupation, which can jeopardize future pected to grow in line with the bigger na- mine market confidence. While the coun- poverty reductions. The labor shift and hu- tional budget, while public infrastructure try has entered a benign phase of the man capital deterioration have increased investments will contribute to capital for- pandemic, threat of a new variant-driven inequality. The Gini coefficient is estimat- mation growth. Net exports will be weaker surge hangs over the outlook. Neverthe- ed to increase from 42.3 percent in 2018 to amid a subdued external environment. In less, the country has adopted systems 45.0 percent in 2021, and would have been 2023-2024, private consumption will be sup- that allow more public mobility and lo- higher without the social assistance given ported by sustained remittances and do- calized responses to outbreaks, reducing at the height of the pandemic. mestic activities, while public consumption adverse economic impacts. TABLE 2 Philippines / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.1 -9.6 5.6 5.7 5.6 5.6 Private Consumption 5.9 -7.9 4.2 5.5 5.6 5.6 Government Consumption 9.1 10.5 7.0 9.2 7.8 6.5 Gross Fixed Capital Investment 3.9 -27.5 9.6 12.3 10.1 9.4 Exports, Goods and Services 2.6 -16.3 7.8 7.6 7.3 7.0 Imports, Goods and Services 2.3 -21.6 12.9 12.3 10.3 9.0 Real GDP growth, at constant factor prices 6.1 -9.6 5.6 5.7 5.6 5.6 Agriculture 1.2 -0.2 -0.3 1.0 1.1 1.1 Industry 5.5 -13.2 8.2 6.5 6.2 5.9 Services 7.2 -9.2 5.3 6.0 6.1 6.1 Inflation (Consumer Price Index) 2.4 2.4 3.9 4.2 3.5 3.3 Current Account Balance (% of GDP) -0.8 3.2 -1.8 -4.0 -3.5 -3.3 Net Foreign Direct Investment (% of GDP) 2.3 1.9 2.7 2.8 3.0 3.0 Fiscal Balance (% of GDP) -3.4 -7.6 -8.6 -7.1 -6.0 -5.1 General Government Debt (% of GDP) 34.1 48.1 54.6 56.2 56.9 57.0 Primary Balance (% of GDP) -1.5 -5.5 -6.4 -4.6 -3.5 -2.6 a,b International poverty rate ($1.9 in 2011 PPP) 2.2 3.7 3.1 2.6 2.1 1.7 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 15.0 20.4 18.3 16.3 14.6 12.9 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 44.2 50.8 48.5 46.0 43.4 40.9 GHG emissions growth (mtCO2e) 3.3 -12.2 0.6 2.3 2.1 2.0 Energy related GHG emissions (% of total) 58.8 54.8 55.1 54.8 54.4 54.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2018-FIES.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 2 Apr 22