Country Risk Rating

Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable. - Source: Coface

Business Climate Rating

The business environment is mediocre. The availability and the reliability of corporate financial information vary widely. Debt collection can sometimes be difficult. The institutional framework has a few troublesome weaknesses. Intercompany transactions run appreciable risks in the unstable, largely inefficient environments rated B.


  • Large population that is young (50% is under 25), qualified and with good fluency in English
  • Diverse geographic and sectoral origins of expatriate workers’ remittances (10% of GDP)
  • Thriving Business Process Outsourcing (BPO) sector
  • Poverty reduction (Pantawid Pamilyang Pilipino Program)


  • Inadequate infrastructure levels, low fiscal revenues (14% of GDP)
  • Governance shortcomings and high corruption perception
  • High levels of income inequality, underemployment leading to expatriation
  • Terrorism in the South of the country
  • Strict bank secrecy and casinos that facilitate money laundering
  • Exposed to natural disasters (typhoons)

Current Trends

A recovery with persistent downside risks

Growth should rebound in 2021, but could not reach its momentum due to persisting downside pressures. The pandemic-induced shock on domestic consumption (70% of GDP) and investment (25% of GDP) was significant in 2020. Lockdown measures that were imposed twice (March-June and August-September 2020) in major cities in Luzon (60% of GDP) weighed on consumer and business confidence, compounded by restrictions on movement of the population. While those measures were gradually eased in Q3, the economic shock hit households through a higher unemployment rate (10% in July against 5.4% the previous year) and a higher savings rate that will linger into 2021. On the other hand, overseas remittances have been spared by the pandemic: overseas workers, mostly nurses, caregivers and housekeepers, especially in Asia and Gulf states, have steadily sent remittances back home to help their families. This has partly offset the domestic consumption shock. Nevertheless, the outlook for household consumption recovery is likely to be soft in 2021. The tourism sector, which accounts for 12.7% of GDP and 26% of employment (2019) and already hit by international border closures, will post a small recovery due to the circumspection among potential travelers. Remittances (10% of GDP), which held surprisingly well in 2020, will decelerate as expatriates will not be able to keep up the pace, and this will weigh on the 8% or so households that depend on them. As business confidence and FDI inflows (3% of GDP) should probably remain low, public infrastructure should, after the 2020 blip, drive investments through President Duterte’s “Build, Build, Build” public infrastructure project of which the completion is expected for 2022, before the end of Duterte’s term. That being said, a resurgence of COVID-19 cases, which would prompt tighter restrictions over the economy, could delay such projects, as government resources would give priority to households and health first.


Budget and trade deficit set to widen

The budget deficit is set to stay wide in 2021 as the government maintains fiscal support in order to restart the economy and domestic consumption amid lingering downside risks. The state budget increased by 9.9%, equivalent to 21.8% of GDP. The bulk of the budget is allocated to social services (36.9%), which support programs for health systems, social welfare and employment. However, revenue collection is also set to recover at a fast pace amid rebounding growth. This should lead the government to raise USD 70 billion, of which 74% should be sourced on the domestic market in order to limit foreign exchange risks.

Before the pandemic, the current account had registered a slight deficit due to a trade in goods deficit (14% of GDP), mostly offset by secondary income (workers’ remittances). However, the trade in goods deficit improved due to a fall in imports as the pandemic-induced shock hit domestic demand, while secondary income remained almost intact, which led to a surplus in the current account. This trend will revert in 2021 as imports are likely to recover through domestic consumption and faster than exports, which should also experience a gradual recovery led by electronics exports, but could remain subdued as the global economy recovers slowly from the effects of COVID-19. Foreign exchange reserves should remain adequate, covering around 11 months of imports as of August 2020.


Duterte’s agenda under pressure

Rodrigo Duterte was elected in 2016 for a six-year term. The mid-term elections in 2019 gave him control of the senate and the capacity to push forward his agenda. The latter comprises the fight against drug trafficking through the re-imposition of the death penalty, health and education, and infrastructure. However, the pandemic slowed his agenda, notably in infrastructure: only 34% of the “Build, Build, Build” program’s flagship infrastructure projects have been implemented so far due to under-execution.



Coface (02/2020)