Independent think tanks and financial institutions from abroad rate the Philippine economy as the  worst hit in 2020 and is  expected to be  the slowest to recover in 2021 among the countries in Asia.  The average estimate of the GDP decline expected of the Philippine economy for the year just ended is anywhere from a negative  8.5 to 9.5 percent for the whole year.  The prospects for 2021 are not much brighter.  My most optimistic growth projection for the whole year of 2021 is 4 percent, which will still keep the Philippine GDP below its pre-pandemic level until the last quarter of 2022.   Because  the Philippine Government has been  the least effective in controlling the negative impact of COVID-19 on the economy among the Asian economies, it will surely lose the short-distance race or economic sprint to its neighbors.  The good news, however, is  that the Philippine economy will be one of the sure winners in the economic marathon if we consider a two to three-year horizon.  By 2022, the Philippine GDP growth will be one of the highest growing at anywhere from 8 to 10 percent annually.  Already, a London-based think tank—the Centre for Economic and Business Research (CEBR)—has forecasted that among 193 countries, the Philippines will become the 22nd largest economy within the next fifteen years.  This is consistent with another long-term projection the Hong Kong Shanghai Bank made more than 15 years ago that by 2050, the Philippine economy will be the 16th largest economy in the world.

This bright long-term forecast of CEBR is only one of the many optimistic prognostications of independent think tanks  and financial institutions about the long-term future of the Philippine economy.  Within the last year or so, the Philippines was rated by the Oxford Economic Institute to be the second most attractive emerging market in the next decade or so, next only to India and ahead of Indonesia and China in third and fourth places, respectively.  It was ranked by The Economist publication as the sixth in financial strength ahead of countries like Vietnam, Thailand and China.  The Japan Credit Rating Agency upgraded its credit standing  to triple B Plus.  These and other long-term projections of a bright prospect for the Philippine economy are based on strong fundamentals that are literally immune to the damage done by COVID-19 whose impact on the Philippine economy will be short-lived.

I foresee that starting 2022,  Philippine GDP can start growing at 8 per cent or more, enabling the Philippines to reach upper-middle income status in 2025 by attaining a  per capita income of at least $4,000.  As it crosses this threshold, its population then of about 115 million will provide such a large domestic market made up of predominantly middle-income households whose domestic consumption will  be the main engine of growth.  Even if poverty incidence continues to be above 10 to 15 percent of the population, those who constitute the majority of the population (85 per cent or more) will be transitioning from low-middle income to upper-middle income status, the phase in the transformation of an economy that will be accompanied by an  explosion of demand for all types of consumer goods and services that will be the bases for rapid industrialization of the economy, a phase which our neighbouring tiger economies experienced   in the last decades of the twentieth century.  This happy situation is the result of a distinct advantage of the Philippines among East Asian economies, which is that of having  a large, young and growing population in contrast with the ageing societies that surround us in the Indo-Pacific region, especially in the Northeast Asian region comprised of Japan, South Korea, Taiwan, Hong Kong and increasingly China. The last one—even if it has a population of 1.4 billion— is already suffering from the rapid ageing of its population, which will put a very heavy economic burden on its increasingly dwindling younger  population.    In Southeast Asia, Singapore, Malaysia and Thailand are no longer considered attractive investment destinations because of their small and in Thailand’s case, rapidly ageing population.  The countries that will dominate the Indo-Pacific region will be India, Indonesia, the Philippines and Vietnam.

Most of 2021 will see the Government still playing the leading role in growing the economy through current expenditures related to combatting the ill effects of the pandemic and in continuing the long-term Build, Build, Build program which will eventually  spill over to at least the next two Administrations.  Government outstanding debt is expected to hit a record of  P10.16 trillion by the end of 2020 and swell further to P11.98 trillion in 2021.  The debt-to-GDP ratio will rise from 39.6 percent in 2019 to 58.1 percent in 2020, considered still within prudent limits (countries like the US and Japan have triple-digit debt-to-GDP ratio of anywhere from 100 to 200 percent).   House Bill No. 8059 is proposing additional funding of P247 billion for the necessary pump-priming role of the Government.  The deficit-to-GDP ratio will still be single-digit at 8.5 percent (as contrasted with the U.S. ratio of 34 percent and that of the OECD average of also 34 percent).  This once-in-a-century crisis provoked by the pandemic is making it necessary for the State to be the major engine of growth in our economy in which it has been the private sector that has played that role traditionally.  It will be only sometime in 2023 when the large firms would have cleaned up their respective balance sheets when we can expect the private sector to once again be the primary engine of growth.

The worst consequences on the private business sector will still be felt in 2021 when numerous large corporations will be carrying huge debt burdens that they will be having great difficulties to service.  Many of the banks will be under tremendous pressure from their non-performing loans.  The focus of businesses should not be on their profit and loss statements which will inevitably show huge losses.  Already numerous  large retailing, travel and tourism, food and beverage, fashion, entertainment, and media enterprises are showing record losses of billions of pesos.  To avoid bankruptcy, businesses should focus on restructuring their balance sheets, selling off or liquidating businesses that have little prospects of recovering even after the pandemic is licked.  There should be a massive shift of resources (both human and financial) away  from the sunset industries like airlines, commercial centers, dine-in restaurants, private educational institutions, fashion and luxury goods towards the sunrise industries  of food and agribusiness, health and wellness, logistics,  the IT-BPO sector, and human resources development.

Two sectors that are expected to bounce back quickly in 2021 are the BPO-IT sector as business enterprises in the developed countries such as  those in North America and the European Union struggle to recover profitability by paring down their labor costs through outsourcing of their business services.  To be equally benefited will be the export of Filipino manpower to these developed countries (including the Northeast Asian countries suffering from demographic crises) as OFWs find greater opportunities to work abroad, resuming the average growth of foreign exchange remittances to the Philippines of some 3 to 5 percent yearly.  In fact, even in the worst year of the pandemic of 2020, the decline of these remittances was limited to less than 2 percent on an annual basis, despite the fact that more than 300,000 OFWs had to return home because they were laid off  from their work, especially in the Middle East.

Chances of growing even more rapidly at 10 percent or more, starting 2022 and beyond. will be greater if all sectors cooperate to endow the countryside and the agricultural sector with better farm-market-roads, post-harvest facilities, irrigation facilities, cold storage and other infrastructures needed by the farmers to make their land more productive and to deliver their produce to the market at lower costs.  Agribusiness— from farming to storage to logistics to processing to retailing, etc—should attract  heavy investments from both the public and private sectors.  Every effort should be exerted to make agriculture as a whole to grow at least at  3 percent per annum.  The other requirement for faster growth is the amendment of the Constitution to remove the many unreasonable restrictions against Foreign Direct Investments in such areas as public utilities, mining, media and education. We should emulate Vietnam  in the way their public authorities have made it easier for foreign direct investors to participate in these sectors in which the Philippines has been ultra-nationalistic in its policies.  If these amendments cannot be introduced in the remaining years of the Duterte Administration, it is hoped that the next Administration will give them the highest priority.

The greater growth prospects starting in 2022 will also be made possible by the intensification of the move  of economic activities towards regions outside the National Capital Region, which has been lagging in growth even before the pandemic.  There are much higher growth prospects in the Southern Luzon area, especially Batangas that is evolving into another metropolitan region spanning the space from Calamba, Laguna to the Batangas seaport, which already has a larger volume of passenger traffic than the Manila ports.  The other candidate for replacing Metro Manila as a metropolis is Central Luzon, the so-called Pampanga triangle consisting of Angeles, San Fernando, Clark and Subic.  Rapid urbanization and industrialization in  this region will be further facilitated by the railroad system that is being constructed by the Japanese from Clark to Bulacan and eventually to Manila.  Similar infrastructural developments are expected in the CALABARZON area with a railway extending from Calamba, Laguna to the Batangas seaport, a private cargo international airport in Batangas (similar to the international airport San Miguel Corporation is  building in Bulacan) and the doubling of the capacity of the Batangas seaport, which is the natural gateway from Luzon to the Visayas and Mindanao. To be continued.

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