Recent Economic Developments

The Philippines avoided a recession thanks to timely fiscal and monetary stimuli combined with larger than projected inflows of remittances. The quick recovery reflects fully the primarily domestic nature of the economy, the limited exposure to foreign demand, the conservative nature of banks, and prompt and forceful fiscal and monetary stimuli. The first two effects arose thanks to an unexpected surge in remittance inflows in real peso terms, the modest contribution of exports and export-oriented manufacturing to GDP, and the small share of employment in manufacturing and exportrelated companies. Banks’ conservativeness prevented domestic financial disruptions from adding to the real economy’s woes.

Signs of recovery have also sprung up for exports as well as for the corporate sectors. Exports have started to recover from their January trough, with the recovery firming up since May. Notably, exports to developed countries like the US and Germany have improved since August. In the domestic market, the corporate sector witnessed improved profitability, but SMEs, especially those which are export-related are still reeling from the crisis. With financial markets also on the rebound, banks were able to turn-around the losses experienced in the last quarter of 2008.

The adverse impacts of the crisis on the social sector show signs of easing, though the recent typhoons caused renewed duress. As the economy started to recover, “green shoots” emerged in the labor market. The share of wage and salaried workers increased in July compared to April 2009, with a large decline in the number workers in the informal sector. Hunger incidence also recently receded from its level during the height of the food and global financial crises. Despite these improvements and the strong fiscal stimulus undertaken by the Government, it is estimated that the global economic recession will throw 1.4 million Filipinos into poverty by 2010 compared to a no crisis situation. Damages and losses inflicted by typhoons Ondoy and Pepeng are estimated to further worsen poverty incidence in the Philippines.

Real GDP growth is projected to rise from 1.4 percent in 2009 to 3.1 percent in 2010 though the pace of expansion will be lower than before the crisis, as bottlenecks to growth become more binding constraints in the post-global crisis environment. Continued large deployment of migrants and the authorities’ commitment to keep the fiscal impulse largely unchanged next year should help growth pick up modestly.

Growth is nonetheless projected to remain below potential due to pre-crisis structural bottlenecks. The Philippine economy achieved record growth rates in 2006-2007 despite these bottlenecks as excess global liquidity lifted global trade and growth, though this proved unsustainable. Achieving more rapid and inclusive growth in the less hospitable post-crisis environment—one that would allow the country to resume convergence with the more advanced countries in the region—will depend on determined implementation of reforms to improve the business environment, education and infrastructure, so as to enable companies to move closer to the technological frontier, as well as maintaining sound public finances.

  Source: Philippines Quarterly Update (November 2009)

World Bank Assistance to the Philippines

The new World Bank Country Assistance Strategy for the Philippines which covers Fiscal Years (FY)2010-2012 has greater focus on poverty reduction, a strategic shift in the Bank’s approach to development in the country. With a central goal of achieving growth that works for the poor, the World Bank Group (WBG) will support the Philippines in pursuing macroeconomic stability, an improved investment climate, better public service delivery for the poor, reduced vulnerabilities to income shocks and natural disasters, and better governance.

Addressing the country’s fundamental development challenges, the new CAS focuses on poverty alleviation measures and on operationalizing governance in all Bank-supported activities. It also addresses emerging global challenges such as climate change, disaster risk management, and the financial crisis and emphasizes a knowledge agenda that supports the Philippines in addressing its own development challenges.

The new CAS pilots deeper integration of the operations of World Bank and the International Finance Corporation (IFC), the private sector financing arm of the WBG. The Bank is prepared to provide support amounting to US$700 million to US$1 billion per year for the next three years, coupled with a robust program of analytical and advisory activities. IFC’s program would be in the range of US$250-US$300 million per year. Specific areas of joint IFC and Bank collaboration are in infrastructure, agribusiness, and the financial sector. Another member of the World Bank Group, the Multilateral Investment Guarantee Agency (MIGA), will provide guarantees to foreign investors against losses caused by non-commercial risks, as well as technical assistance to help countries disseminate information on investment opportunities.

  Country Assistance Strategy for the Philippines (FY 2010-2012)

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Donor Coordination

The Philippines Development Forum (PDF) is the primary mechanism of the Government for facilitating substantive policy dialogue among stakeholders on the country’s development agenda. It also serves as a process for developing consensus and generating commitments among different stakeholders toward critical actionable items of the Government’s reform agenda.

The PDF has evolved from the traditional Government-Donors Consultative Group (CG) process, which was expanded into a multi-stakeholder forum that facilitates substantive policy dialogue on the country’s development agenda among participants from national and local government units, civil society, academia, private sector, and the international development partners. This is the fiftth annual PDF held since its transformation in 2005.

For more information, contact:

The World Bank Office in Manila
Leonora Gonzales, External Relations Officer
Tel: (632) 917-3003
Fax: (632) 637-5870
Email: Lgonzales@worldbank.org

The External Affairs Office in Washington DC
Mohamad Al-Arief, Communications Officer
Tel: (202) 458-5964
Fax: (202) 477-0169
Email: Malarief@worldbank.org

Updated: July 2009

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