Prospects for the Philippine economy are challenging in the current global environment.  And looking ahead, the economy requires very much better management, according to the Asian Development Bank.

Developing Asia is being hit by the progressive weakening in the global economy, as export growth has been declining.  Following a rebound to 9% growth in 2010, growth moderated last year to about 7.5%, and may grow by about 7% in 2012, although there significant downside risks and uncertainties.

The Philippines is having a bumpier ride than Asia.  After hitting a record high of 7.6% in 2010, GDP growth may have dropped to below 4% last year because of a double-digit decline in exports since the middle of 2011 and because of decreased public infrastructure spending.

The Philippines is particularly vulnerable because its exports are too highly concentrated in electronics, particularly semi-conductors.  And as the government seeks to improve governance and transparency in public projects, infrastructure spending has been adversely affected.  But it will be important to ramp this spending up again to stabilize the economy, but also to address the country's massive infrastructure deficit.

Migrants' remittances should keep consumption strong, and maintain 2012 economic growth at 4.8%. But the Philippines must make more efforts to re-balance its export to other emerging economies.

While managing the short term is a challenge, the country suffers from some very large and persistent developmental challenges.

First, unemployment remains high, and poverty remains a serious problem -- despite some success stories like growth in employment in the business process outsourcing industry.  The industry is moving up the value chain from voice-based services such as call centres to knowledge-based businesses like software development, financial services, accounting and medical services.

But the service outsourcing industry employs only about 1% of the total labor force and is biased toward relatively skilled workers.  Fundamentally, the country needs a stronger industrial base.

Second, the Philippines is also in desperate need of improving its inadequate infrastructure, from hard infrastructure like roads and airports, to health and education services for people living in poverty. During 2002-2009, the Philippines invested less than half in education as compared to Malaysia, Thailand and Viet Nam.

Third, the Philippines' environmental disaster must be tackled -- coastal and marine environments, farm lands and forests, and air quality in the cities.  It is estimated that nearly 5,000 premature deaths each year in Manila are due to respiratory and cardiovascular diseases from exposure to poor air quality.

The fourth key issue to tackle is governance and political economy which is in fact the heart of the matter.

For years now, I have heard people talk about improving governance in the Philippines, but the situation just keeps on deteriorating.  With outward migration being a massive social safety valve, there is not sufficient pressure on the government and the country's elite to change.

And too often, anti-corruption campaigns descend into infighting and score-settling among different groups in the elite, without regard to the plight of the country's poor.

Reference:

Prospects for the Philippines.  Speech by Stephen P. Groff, Vice-President, Asian Development Bank

http://beta.adb.org/news/speeches/focap-prospects-philippines