Philippines: Risk Assessment
Country Rating1
Rating: B
Business Climate Rating1
Rating: B
Risk Assessment2
Consumption supported by transfers from expatriates
The Philippines has proven very resilient to the crisis thanks particularly to its only moderately open economy, the steadiness of the private transfers underpinning household consumption, and the stimulus programme set up by the government. Economic growth rebounded in 2010, spurred by the recovery of investment and exports, especially electronics.
In 2011, GDP growth will continue to trend up. Manufacturing and services are expected to outperform, buoyed by dynamic household spending and steady investment. Agriculture could slow nonetheless due to strong rains caused by the La Niña phenomenon, capable of damaging crops. Moreover, the low investment rate and the deficiencies in infrastructure remain bottlenecks for the country's medium-term growth prospects.
In this context, Coface monitoring records will likely continue to reflect stable corporate payment behaviour in 2011, persistent shortcomings in transparency and debt collection notwithstanding. Financial statements provided by companies are often relatively unreliable. Debt collection is moreover handicapped by slow and costly legal procedures.
Solid financial position in 2011
The crisis had only a limited impact on sovereign risk, which has been held in check. After widening in 2009-2010 as a result of the stimulus programme, the fiscal deficit will likely contract in 2011 in a context of recovery and a decline in public spending. It will likely continue to be financed by bond issues (with very tight spreads) on international markets. Although public sector debt will remain above average for Asian and emerging countries, it will nonetheless remain at manageable levels.
Despite the downturn of exports, the Philippines have maintained a large current account surplus thanks to private transfers. This trend is expected to continue in 2011 with the transfers expected to remain stable in the medium term as a result of their varied geographic origins - Asia (11%), Middle East (15%), Europe (16%), and United States (52%) - and the types of jobs held by expatriate Philippine workers (notably skilled jobs in the health sector). The satisfactory level of foreign exchange reserves provides the country with protection from sudden capital flight.
There are nonetheless persistent risks: the country's external debt ratios, albeit in decline, remain above the regional average with the debt held in large part by private creditors sensitive to political risk.
The Philippines banking system has held up well thanks to a limited exposure to toxic assets, high solvency ratios, introduction of Basel II, and reduction in the proportion of non-performing loans. However, bank intermediation remains low compared to other Asian countries.
Structural reforms expected in the wake of the May 2010 elections
Benigno "Noynoy" Aquino, son of former president Corazon Aquino, was elected with over 40% of the votes in the May 2010 presidential election. Elected to Congress and then to the Senate over the past 12 years and holding a degree in economy, Mr Aquino focused his campaign on combating corruption and poverty. The broad popular support he enjoys is expected to enable the new president undertake structural reforms (particularly tax reform) in a country long suffering from serious governance deficiencies.
Strengths
- Stronger banking sector
- High levels of education and training
- Highly productive and adaptable workforce
- Significant and stable inflows of expatriate worker remittances providing support for consumption and external accounts
Weaknesses
- GDP growth limited by low savings and investment rates
- Persistent shortcomings concerning the business environment
- Insecurity linked to the Islamist rebellion localised in the south of the archipelago