Last week, the Philippine Statistics Authority released the latest data for gross domestic product. The annual GDP growth figure of 5.6 percent falls below the government target of 6 to 7 percent for 2023. Nevertheless, the Philippines is still in the position of being one of the “best-performing” economies in Asia. Among countries that have already released their Q4-2023 GDP growth figures, the Philippines trails behind Vietnam (6.7 percent) but surpasses China (5.2 percent) and Malaysia (3.4 percent).
Performance, metaphorically speaking, depends on what sport the Philippines wants to play. If it just wants to do a sprint, where the objective is simply to outrun its neighbors, then the Philippines would have reason to boast—at least for now. The country, however, should be aspiring to win its own marathon, as it were, for that is what truly matters to the average Filipino in the long term.
So, where is the Philippines now?
It is worth recalling that in last year’s International Institute for Management Development World Competitiveness Yearbook results, the Philippines did well in terms of real GDP growth (ranking 6th out 64 countries), but it did poorly in terms of real GDP per capita (ranking 62nd out of 64 countries). This means that the benefits of brisk economic growth are not really trickling down to the average Filipino.
Indeed, the latest GDP data reveal some structural imbalances that would still hint at growth being narrow, shallow, and hollow. On the expenditure side, growth is, yet again, largely driven by household final consumption, which accounts for 73.1 percent of GDP and has grown by 5.6 percent, in line with overall GDP growth. There is an indication, though, that it is slowing down, as its growth rate from 2021 to 2022 was 8.3 percent. Meanwhile, government final consumption, which accounts for 14.2 percent of GDP, has been virtually stagnant, as it has grown by just 0.4 percent. Gross capital formation (investment) accounts for 23.1 percent of GDP and has grown by 5.4 percent. The country continues to be a net importer.
On the production side, the services sector continues to account for the lion’s share of GDP (62.3 percent), while the industry sector (29.1 percent of GDP) and the agriculture, forestry, and fishing sector (8.6 percent of GDP) continue to lag behind it. Accommodation and food service activities (1.9 percent of GDP) and transportation and storage (3.6 percent of GDP) have grown by 23.4 percent and 13.1 percent, respectively. By contrast, manufacturing (17.9 percent of GDP) and the agriculture, forestry, and fishing sector have grown by just 1.3 percent and 1.2 percent, respectively.
Where does the Philippines want to go?
In a marathon, there is a goal or destination. By 2025, the Philippines will graduate from lower middle-income status (gross national income, or GNI, per capita between $1,086 and $4,255) to upper middle-income status (GNI per capita between $4,256 and $13,205). Right now, GNI per capita is estimated at $3,567. So, for 2024, the government is targeting GDP growth of 6.5 to 7.5 percent to attain upper middle-income status by next year. Also, by 2040, as articulated in AmBisyon, the Philippines will become a prosperous middle-class society where no one is poor.
How can the Philippines get to where it wants to go? How can it win its marathon?
Under a business-as-usual scenario, given its current pace and structure, the Philippines can grow by about 6.3 percent, which falls below the 2024 target growth rate of 6.5 to 7.5 percent. Given its current financial position, the government must find ways to collect new revenues and improve revenue collection efficiency to boost its spending. It is also important to attract more foreign direct investment that can be channeled into exports. This is easier said than done, however, as foreign investors are probably waiting to see remarkable improvements in Philippine competitiveness indicators.
Continuing this highly uneven, inequality-worsening type of growth runs the risk of hampering the much-needed spending power of a vast majority of Filipinos. The country might run out of gas and fail to reach its goal. Thus, structural rebalancing is needed so that scarce productive resources are strategically shifted from the top sources of growth to the lagging sectors in the economy, particularly agriculture and manufacturing. The tradeoff, though, is slower economic growth, as it will take some time for the lagging sectors to catch up with the leaders.
Of course, there is wisdom in this saying: “If you want to go far, slow down.” There will be short-term sacrifices for long-term gains. The country can forgo winning the sprint, but with structural rebalancing, it can build a more robust engine that will take it to its destination.
Dr. Ser Percival K. Peña-Reyes is the Director of the Ateneo Center for Economic Research and Development.