The Philippines' move allowing greater foreign participation in public services is seen by the World Bank as a productivity enhancement, especially in the electrical machinery, telecommunication and transport sectors.
Referring to the amendment to the antiquated Public Service Act (PSA) that was enacted during the previous Duterte administration, the Washington-based multilateral lender said effectively and fully implementing this law would "increase total factor productivity by 3.2 percent on average, because it boosts competition in key enabling sectors and facilitates technology spillovers."
"The sectors with the largest shares of transportation and telecom in their input mix—metals and electronics—would have the largest productivity increases: should the PSA reform be fully implemented, the two sectors would experience double (6.4 percent) the average productivity boost of other sectors," the World Bank said in its regional report titled "Services Unbound: Digital Technologies and Policy Reform in East Asia and Pacific" published on Dec. 9.
Also, the World Bank said "the elimination of foreign equity restrictions in the Philippines' PSA amendment can potentially cut foreign direct investment (FDI) restrictiveness in the transportation and communication sectors by 75 percent," hence "would make these sectors some of the least restricted services in the economy."
"More open transportation and telecom sectors are likely to lead to improved services provisions, either through lower prices, improved quality, or increased varieties. These changes will benefit those sectors that most rely on transportation and telecom services as inputs," it added.
The World Bank noted that the Philippines has been embarking on FDI liberalization, with the amendments to the PSA, the Retail Trade Liberalization, as well as Foreign Investment law approved by the previous administration.
The current Marcos Jr. administration, meanwhile, opened up to more foreign capital in green and sustainable power sources under the Renewable Energy Act of 2022.
In the case of the amended PSA, the World Bank cited that it "also represents an interesting case in terms of political economy of reforms."
"The economic cabinet secretaries championed the reform with the aim of jumpstarting investments for an economy that was hit hard by pandemic lockdowns and by a decelerating global economy. The timing was opportune, and these efforts were met by a receptive legislature eager to demonstrate bold action to boost growth," the World Bank pointed out.
To recall, towards the tail-end of the previous administration badly hit by socioeconomic crises inflicted by COVID-19, the economic managers of former president Rodrigo R. Duterte pushed for—and successfully passed into laws, with the legislative branch's help—a combo of economic liberalization bills aimed at further opening the economy to foreign investors without touching the restrictions enshrined in the 1987 Constitution, especially the 60:40 Filipino ownership rule.
"In its last remaining months in power, the previous administration successfully marshalled its majority coalition in the Philippine Congress to pass this landmark liberalization reform. To address concerns that the reform would endanger national security by allowing foreigners to assume control of key sectors, the measure empowered the President to prohibit investments in public services in the interest of national security," the World Bank added.
Subsequently, the state planning agency National Economic and Development Authority (NEDA) came out with the PSA amendment's implementing guidelines in 2023, during this current administration.
"As full implementation materializes, beyond the productivity effects, the reform might also contribute to lower food prices because food-producing sectors rely on transportation services for their supply chain management. Lower prices, in turn, might increase public support for the reforms," the World Bank said.
The PSA's amendment has paved the way towards full foreign ownership in public services that this law removed from what are considered public utilities and critical infrastructure.
These public services now enjoying liberalized investments include airlines, domestic shipping, expressways, railways, subways, as well as tollways, the World Bank noted.