Philippines: off the sick bed

published 12 February 2016

16-2-11-Aquino-634 — President Aquino has made rapid progress

When Benigno Aquino became president of the Philippines in 2011, the country was in poor shape, says William Pesek in Barron's. The previous two leaders had been arrested for corruption. "Powerful vested interests", tax evasion, and the legacy of past mismanagement notably overspending were holding the economy back.But the former "sick man of Asia" has made rapid progress.

A clampdown on corruption helped the Philippines jump from 134th to 85th in Transparency International's Corruption Perceptions index (which measures how crooked countries' public sectors are deemed to be). Spending and debt have fallen too, with the budget deficit at 1% of GDP now and the debt pile at 40% of GDP, down from 68% in 2003.

The well-educated, English-speaking population has carved out a niche in business process outsourcing, taking care of back-office administration for foreign companies, as well as in high-tech manufacturing (principally electronics). Remittances from overseas account for around 8% of GDP and have underpinned consumption. This has all spurred investment, now at a 15-year high of 22% of GDP, according to brokers CLSA. But there is still "plenty of room for improvement" in Thailand and Indonesia it is 24% and 33% respectively.

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Most of the upswing so far has come from the private sector, but the government is set to award at least 60% of the $7.6bn of 2016's planned public works by March, giving infrastructure a much-needed boost, says Pesek. "Dodgy infrastructure and high power costs" are key deterrents for foreign investors. Throw in the fast-growing workforce, says Matt Bohlsen on SeekingAlpha.com, and the outlook for consumption is encouraging especially because household debt is a mere 6% of GDP.

The Philippines also appears to be one of the safer markets in the region for now: it is a net oil importer and because consumption comprises the lion's share of GDP, it's less exposed to China-related regional and global ructions than most of its regional counterparts. A current-account surplus also shields against destabilising falls in the Philippine currency, the peso. The economy should grow by almost 7% in 2016, says CLSA, and is "the best macroeconomic story in Asia". Investors can gain exposure via an exchange-traded fund, the db x-trackers MSCI Philippines (LSE: XPHG).

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.