Wide-ranging political and economic reforms since 2010 have enhanced the health of the Philippine economy significantly and are likely to keep supporting the local investment climate to sustain gross domestic product (GDP) growth at an average 5.8 percent in the next decade, BMI Research said.
The think tank unit of the Fitch Group sees succeeding reforms in the areas of tax, foreign ownership and security promoting investment growth between 2015 and 2024.
“Ongoing political and economic reforms, as well as increasing foreign investor interest, will help speed up investment growth in the Philippines. This will, in turn, enable the country to sustain its strong growth trajectory over the coming years,” BMI Research stated in an economic analysis report on the Philippines.
Real GDP growth in the country has been strong on the back of steady growth in domestic demand and rising foreign investor interest, it said.
“Conditions for an investment-led boom over the coming decade have certainly become more favorable,” it added.
It noted some initial success resulting from ongoing economic reforms, with foreign direct investment (FDI) inflows to the country last year surging 65.9 percent to an all-time high of $6.2 billion.
Jump in world rankings
In a sign of improving governance, the Philippines has risen in rank in the Transparency International’s Corruption Perception Index from 139th in 2009 to 85th in 2015.
Similarly, the country’s ranking in the World Bank’s Ease of Doing Business Index also improved from 141st in the 2009 report to 95th in the 2015 report, it said.
“Looking ahead, we remain optimistic that ongoing economic and business reforms will continue even after the Aquino Administration ends, which will sustain fervent foreign investor interest towards the country,” BMI said.
In terms of real investment growth, the think tank forecasts a strong average of 9.8 percent annual growth over the period 2015 to 2024, while gross fixed capital formation as a share of nominal GDP should rise from 20.9 percent during the period, it said.
Prudent fiscal, monetary policy
BMI also stressed that inflation has hovered at manageable levels, while the country’s fiscal and external positions have improved substantially.
“For one, this owes to the fiscal and monetary prudence that has taken root in the country, which will translate into an increased national savings rate over the coming years, and in turn fuel more rapid investment growth,” it said.
Thanks to the Bangko Sentral ng Pilipinas’ (BSP) proactive efforts in keeping a close watch on potential events that could lead to increasing inflationary pressures, the Philippines has been able to enjoy relative monetary stability over recent years, it pointed out.
“To be sure, headline inflation came in within the central bank’s inflation target range for the sixth consecutive year in 2014, reflecting ongoing monetary prudence from the BSP, which we expect to persist over the coming decade,” it said.
Ongoing fiscal reform measures have yielded dividends, with revenues as a share of GDP rising, while spending relative to GDP has been on a multi-year decline, it noted, adding that consequently, there has been a narrowing of the country’s fiscal deficit.
Lower corporate tax rate, more liberalized foreign ownership, and a peaceful Mindanao could be catalysts to faster investment growth in the country over the coming years, BMI suggested.
Reducing the 30 percent corporate the tax rate in the Philippines would greatly help to encourage more local and foreign businesses in the archipelago, it said. Corporate tax rate in the country remains among the highest in the Southeast Asia region.
“Additionally, while the country introduced banking sector liberalization in 2014, there still exists a foreign ownership cap of 40 percent in a wide variety of sectors, which impedes greater foreign participation in the local economy.”
With Mindanao having huge growth potential in the agriculture and mining sectors, the ability to forge long-lasting peace in the region will, therefore, help to unlock substantial economic gains, the report concluded.