Bernardo M. Villegas
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published: Dec 07, 2021


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Taking A Long Term View (Part 1)

          There is no shortage of forecasts about the global and national economies from both local and foreign individuals and institutions.  All sorts of letters from the alphabet are being employed to fathom the near-term future.  There are those who optimistically predict a V shape recovery, i.e. that the economy can bounce back vigorously, say from a decline in 2020 of anywhere from -3 to -5 percent to 6 to 9 percent in 2021.  Others talk about a U-shape recovery, expecting a slower rate of recovery, prognosticating that it may take two to three years before we recover pre-pandemic growth rates.  On the darkest side of the forecasts is the L shape non-recovery, which means that the economy will languish at close to zero growth for the next two to three years.  No matter how much these varied forecasts are arrived at  with the most sophisticated computer models and abundant statistical data, all of them remain to be no more than guestimates.  As we are witnessing even in the countries that seemed to have done a good job in addressing very early and effectively the COVID-19 pandemic, there remains the uncertainty of second, third or even more waves of the virus.  Until and even if a vaccine is discovered,  the general states of the global and domestic economies will be very difficult to predict over the next two to three years.

         That is why it is important for all the stakeholders of the economy, the Government, the business sector, the work force and the consumers in particular, to take a long term view about why the Philippine economy, despite the short-term challenges of survival, is still one of the most attractive emerging markets, not only in the Asia Pacific region, but in the world for the next decade or so.  Especially since the Philippines has a very young population, the vast majority of the people living today can expect to be around for at least the next twenty years.  They, therefore,  can and should plan for at least the next decade or so.  The next two years, no matter how agonising, will just be a blip over their lifetime.  As many independent think tanks and institutions have declared, the Philippines is one of the most promising emerging markets over the next decade or so.

         Let me just cite some of these independent institutions that have heaped praises on the Philippine economy over the last ten or more years.  All of them have taken a long-term view and have recognised certain fundamentals in the Philippine economy that made them conclude that we will lead the world in economic growth, together with a few other economies.  In 2001, Jim O’Neil of Goldman Sachs included the Philippines among eleven countries that he considered will be the emerging engines of growth in the first decades of the twenty first century, together with two other ASEAN countries, Indonesia and Vietnam.  In 2007, Hongkong Shanghai Bank Corporation (HSBC) forecasted that the Philippines will be the sixteenth largest economy in 2050, surpassing countries like Indonesia, Australia, Malaysia, the Netherlands, Switzerland and Pakistan.  IN 2019, Oxford Economics listed the Philippines as the second among the ten leading emerging markets that will dominate the global economy during the next decade, next only to India and ahead of Indonesia and China.  In May 2020, at the height of the pandemic, The Economist considered the Philippines as the sixth among emerging economies ranked by financial strength, trailing behind Botswana, Taiwan, South Korea, Peru, and Russia in that order.  More recently the Japan Credit Rating Agency upgraded the Philippines from triple B+ to A- .

         It is worth noting that all these very positive assessments  about the Philippine economy are coming from independent institutions and not from self-serving Philippine organisations issuing propaganda.  What do they see in the Philippines that make them bullish about the Philippine long-term economic prospect? Let me summarise some common perceptions about the Philippines among these foreign institutions.  They all consider the demographic dividend of the Philippines as a major advantage in a global economy where all advanced economies and even some emerging markets like China and Thailand are suffering from rapid ageing and scarcity of a young labor force.  Indeed, the young, growing and English speaking population of the Philippines (now numbering 110 million with a median age of 23) will not be affected by the pandemic and will continue to be a source of workers for the rest of the world in the form of Overseas Filipino Workers who are remitting foreign exchange earnings that constitute more than 10 percent of GDP.  The pandemic will impact negatively on these remittances only over the short run.  Precisely because the rest of the developed world and even some emerging markets are suffering from serious shortages of essential workers in the health and fitness sectors, IT-BPO industry, education,  and other vital personal services, the Philippines will continue to be a source of migrant workers for a long time to come. In addition, more than one million  Filipino workers are working in the BPO-IT industry that is providing all types of business services for corporations in many parts of the world, principally in the U.S.  The earnings of these workers represent some 7 percent of Philippine GDP.  As long as the industry leaders are proactive in developing retraining programs to upgrade the skills of the voice-oriented workers so that they can perform more sophisticated functions in the knowledge processing sector,  we will continue to compete with India as a global leader in providing workers for the booming digital sector.

         Over the next five to ten years, when the pandemic may just be a bad memory, the young and growing population will continue to be the strong foundation of a consumption-led economy that is transitioning from low-middle income status to upper-middle income.  We would have made this transition in 2020 were it not for the deep recession of 2020 which prevented our GDP per capita to surpass $4,000, the threshold for an upper-middle income economy. But it is just a matter of time in the next three to five years when we will have a population of predominantly upper middle income consumers.  This will augur well for the recovery of numerous consumer-oriented products and services  which go beyond the basics of food, shelter and clothing.  There will be a rebound of the fashion, furnishings, entertainment, travel, tourism and other non-essential goods and services which characterise an upper middle-income economy.  We can be at this stage for at least ten to twenty years (as China has been over the last two decades) which may enable the economy to grow at above-average GDP growth rates of 8 to 10 percent (as China did).  We just have to make sure that our future leaders will continue the tradition of fiscal and monetary prudence that at least our last three Administrations have been able to maintain.  The low debt-to-GDP ratio (30 to 40 percent) and limited fiscal deficit (less than 3 percent) are among the reasons why credit rating agencies have been giving us triple B+ and A- ratings.  We have a pool of very well trained economists and other professional managers who can continue the tradition of fiscal and monetary prudence that we have already attained. To be continued