Beats global average in Heritage Foundation 2017 survey
The Philippines jumped 12 notches in a worldwide index of economic freedom, propelled by sustained economic growth amid a challenging global environment, US-based think tank Heritage Foundation found in its latest annual global survey.
The 2017 Index of Economic Freedom (IEF) Heritage Foundation showed the Philippines moved up to the 58th spot from 70th in the 2016 survey. The country’s economic freedom scored 65.6, advancing 2.5 points from the previous year’s score, the IEF, which covers 186 countries, said.
Heritage Foundation announced the results of its 2017 IEF with a word of warning for the Philippines: Deeper institutional reforms are required in interrelated areas, such as business freedom, investment freedom and the rule of law.
The score is higher than the world average of 60.9 and the Asia-Pacific region average of 60.4. The think-tank said these gains are due to the country’s “notable successes in fiscal policy, government spending and monetary stability.”
Heritage Foundation measures economic freedom based on 12 quantitative and qualitative factors, grouped into four broad categories, or pillars, of economic freedom: rule of law (property rights, government integrity, judicial effectiveness); government size (government spending, tax burden, fiscal health); regulatory efficiency (business freedom, labor freedom, monetary freedom); and open markets (trade freedom, investment freedom, financial freedom).
For the Philippines, the IEF reveals a positive relationship between economic freedom and a variety of positive social and economic goals, such as poverty elimination, greater per capita wealth, healthier societies, cleaner environments and democracy.
“The Philippines has achieved notable economic expansion, driven by the economy’s strong export performance and inflows of remittances that have bolstered private consumption,” it said.
The country’s gross domestic (GDP) accelerated to 6.8 percent in 2016 on the back of higher investment and robust public and private consumption. Personal remittances, meanwhile, reached US$29.7 billion in 2016, or a 4.9 percent increase from the year-ago level, and exceeded the Bangko Sentral ng Pilipinas (BSP)’s projected growth of 4.0 percent for the year.
“The government continues to pursue legislative reforms to enhance the overall entrepreneurial environment and develop a stronger private sector that is needed to generate broader-based job growth,” Heritage Foundation added.
For this year, the Philippines obtained its biggest gain in monetary freedom, posting an 18-notch leap in the rankings to 68th from 86th. The country also received high rankings on government spending (22/186) and fiscal health (26/186).
In its 2017 report, Heritage Foundation also underscored the stability of the country’s financial sector, adding that in 2016, the central bank announced it would end a 17-year moratorium on the granting of new banking licenses.
With its latest score, the Philippines enters the “moderately free” territory, which, according to Heritage Foundation, belongs to economies that provide institutional environments in which individuals and private enterprises benefit from at least a moderate degree of economic freedom in the pursuit of greater competitiveness, growth and prosperity.
Calls for deeper reforms
The think tank, however, called for deeper reforms in the areas of business freedom, investment freedom and the rule of law.
It said the absence of entrepreneurial dynamism still makes long-term economic development a challenging task.
“Trade is important to the Philippines’ economy; the value of exports and imports taken together equals 61 percent of GDP [gross domestic product]. The average applied tariff rate is 4.3 percent. Many agricultural imports face additional barriers. Investment in several economic sectors is restricted,” it pointed out.
The country’s labor market remains “structurally rigid,” with its labor freedom ranking 103rd out of 186 countries.
Implementation of laws protecting property rights in the country is “weak,” ranking 99th, the report also pointed out, adding that the Philippine judicial system remains weak and vulnerable to political influence.
“Judicial independence is strong, but the rule of law is generally ineffectual. Courts are hampered by inefficiency, low pay, intimidation and complex procedures,” it said, placing the country’s judicial effectiveness at the 110th spot, out of 186 countries.
In terms of government integrity (ranked 86th), the think thank said corruption and cronyism are pervasive in the country.
“A few dozen leading families hold a disproportionate share of land, corporate wealth and political power,” it said.
Without elaborating, it also noted that a culture of impunity is reinforced by the strong-arm tactics of the new president.
Gains from reforms
The country’s economic officials welcomed the Heritage Foundation report, which the Investor Relations Office (IRO) said signified gains from policy reforms undertaken by the government to maintain macroeconomic stability and enhance the country’s business and investment environment.
“The BSP’s firm commitment to maintain price stability and promote a sound and inclusive financial sector and the positive results we have achieved thus far have contributed to the big improvement of the Philippines’ IEF ranking,” BSP Governor Amando Tetangco Jr. was quoted as saying in a statement released by the IRO.
“The benign inflation environment has enabled the economy to further accelerate in 2016, a remarkable feat given the uncertainty and volatility in the global scene. With the BSP’s relentless efforts to pursue proactive reforms to improve governance and risk management in banks, the Philippine banking system remains a pillar of strength that will support the rapid pace of growth of the economy,” Tetangco said.
Finance Secretary Carlos Dominguez 3rd sees the jump in the country’s ranking in the 2017 IEF validating the “assiduous efforts by the Philippine government to sustain high growth and achieve economic inclusion by freeing some six million Filipinos from poverty.”
“For the Philippines to aspire to move up higher from the ‘moderately free’ to the ‘mostly free’ category in the near future, the Duterte Administration needs to pursue without letup its CTRP (comprehensive tax reform program) along with other bold reform initiatives to keep the high-growth momentum, upgrade the living standards of the Filipino poor, eliminate official corruption, and improve the ease of doing business in order to attract more investments and create jobs for all,” he said.
The IEF is an annual index and ranking created by The Heritage Foundation and The Wall Street Journal in 1995 to measure the degree of economic freedom in the world’s nations. The IEF ranking of countries is used as input by other institutions for their respective governance and competitiveness ratings, such as the World Bank for its Worldwide Governance Indicators. Likewise, the Index is used by some institutions in formulating policy.
“No matter what the existing level of development may be, countries can get an immediate boost in their economic growth through policies that reduce taxes, rationalize the regulatory environment, open the economy to greater competition, and fight corruption,” the think tank said.