PHL poised for ‘takeoff’ driven by reforms, services — HSBC

THE Philippine economy is expected to “take off” due to the strengths of its labor force, the pursuit of key reforms, and continued growth in its services exports, HSBC Global Research said in a report.

“The Philippines is reaping the rewards of two decades of hard-earned reform. From liberalization, fiscal, and institutional reform, we think the Philippines has one of the strongest reform narratives in ASEAN, giving the economy the stability it needs for take-off,” HSBC economist for ASEAN Aris D. Dacanay said.

Mr. Dacanay said the Philippines has “laid a solid fiscal and economic foundation that could finance the long-term investments needed to lift its economic potential.”

It cited reforms such as the Rice Tariffication Law, the Public Service Act, and the recent 12% value-added tax (VAT) on digital services.

“These reforms have given the economy the space and resources to respond accordingly and mitigate the impact of these shocks,” he added.

“While most ASEAN states are experiencing declining tax revenue collections relative to their GDP, the Philippines has improved the efficiency of its revenue base.”

The Treasury reported that revenue in the nine-month period rose 16.04% to P3.29 trillion, exceeding the P3.15-trillion target for the period by 4.53%.

“This increase in revenues has allowed the Philippines to invest in its long-term potential — which it did. While some ASEAN states are shifting their public expenditure from investments to consumer subsidies and welfare, the Philippines is boosting its economic potential through infrastructure and physical capital.”

HSBC also noted the country’s favorable demographics.

“Reforms have built the launchpad for takeoff, but demographics is the economy’s fuel. The Philippines has achieved over and above the tailwinds, with the labor market performing better than what the demographic trend would suggest.”

It expects the Philippines’ share of the working age population to peak in 2035, the latest among other ASEAN countries, which would make its demographic tailwind “long-lasting.”

“Across ASEAN, the Philippines has the most favorable demographics. From 2025 to 2035, the Philippines’ working-age population is projected to grow by as much as 15%, which will be the fastest pace in the region.”

“This demographic dividend should, in turn, boost GDP per capita and increase the absolute savings available for further investment,” it added.

HSBC expects the average incremental saving in the economy to rise by $17.7 billion annually until 2029.

Meanwhile, HSBC also noted the opportunity of services exports.

“Apart from strength in numbers, the Philippines has found a niche in exporting ‘light-asset’ services,” it said.

“In the age of digitalization, this serves as a window of opportunity for the Philippines. The advancement of the digital space has made services more tradable, unlocking the potential for services to expand to larger markets and grow. If international transport has led to a surge in manufacturing, data is the service sector’s cargo ship to the world.”

“Services exports have surpassed overseas remittances as the main driver of the Philippine economy’s current account, despite the continued growth in overseas remittances,” it said.

“From physically exporting labor to exporting services… digitalization has helped move the Philippines up the global value chain. And with the currents of the world pointing towards services, the Philippines, among ASEAN, is in the best position to catch the wave, in our view.” — Luisa Maria Jacinta C. Jocson