Renewed economic growth could be the key to addressing inequality in the Philippines

The current run of rapid growth is an opportunity for the Philippines to do something much more valuable than just advance material wealth and catch up with middle-income peers. With the right policies, the Philippines government believes that this could be the era when the country is finally able to successfully address widespread poverty.

To stress the point, the World Bank titled its annual review of the Philippines economy published in early 2015, “Making Growth Work For the Poor”. Motoo Konishi, the World Bank’s country director, said in a statement in January 2015 while releasing the report, “The Philippines has what it takes to sustain this high level of growth for many years. The country is benefitting from low and stable inflation, its finances are healthy, and debt levels are declining. It has a dynamic private sector that is seizing global opportunities. Now is the time to move the economy decisively onto a path that reduces poverty and creates more and better jobs.”

The government sees the same opportunity and has made the phrase “inclusive growth” one of its most-popular slogans to describe its new economic policy goals. The government tracks a long list of indicators of poverty reduction, including the UN’s Millennium Development Goals and its own list of like-minded Philippine Development Plan targets. These range from maternal and infant mortality to access to safe drinking water, which the Philippine Statistics Authority (PSA) publishes regularly on its website along with accompanying green smiley faces when there has been positive progress, and red-faced frowns where there has not.

UNEVEN DISTRIBUTION: The Philippines has long had a reputation for extreme wealth alongside deep poverty, and though much progress has been made since the 1990s the stereotype continues to hold some truth. According to PSA data, as of the first half of 2014, 25.8% of the population lived below the official poverty line of $39.50 per person per month. Meanwhile, a small number of families control a huge portion of the country’s wealth, with the 20 richest Philippine citizens and their families having a combined net worth equal to $62.9bn, or 22% of annual GDP, according to 2014. By comparison, the top 20 richest Americans rated by Forbes in February 2015 had a combined net worth equal to $774bn, or 4.4% of US GDP.

FACING CHALLENGES: The current administration’s policies are fundamentally economically conservative, and have a strong emphasis on market liberalisation. However, at the same time the government puts a stronger focus on social policy, somewhat similar to the policy mixes of European centre-right parties or what in Europe is often called social liberalism. There is also an emphasis on sound fiscal parameters and controls on public spending, but also a pride that vastly improved tax collection systems are funding increased investment in public welfare, education and health care spending.

The World Bank report praises the government’s progress in making growth “more inclusive” and driving “stronger job creation and faster poverty reduction”. The average unemployment rate in 2014 dropped to 6.8% in 2014 from 7.2% in 2013 despite a 1.7% increase in the size of the working-age population. The number of employed rose by about 1m or 3.1% from 36.3m in 2013 to 37.3 in 2014.

Meanwhile, PSA data showed the proportion of the population living below the official poverty line rose to 25.8% in the first half of 2014, when it was P1755.60 ($39.50) a month, up from 24.6% in the first half of 2013, when it was P1605 ($36.11).

One way in which poverty is being reduced is through government’s rapid boost in the availability of cash income supplements to the poorest families. The number of households receiving them jumped from 1m in 2010 to 3.9m in 2013. Poverty, however, is unevenly spread across the country, with only 2.6% of Metro Manila’s families living below the official poverty line in 2012, while the ratio was as high as 37.1% in southern Mindanao, 37.4% in the eastern Visayas and 48.7% in the Autonomous Region in Muslim Mindanao. Poverty is generally greater in the least developed regions that are most dependent on agriculture and fishing.

UNEVEN SPLIT: PSA data show that poverty rates by profession are by far highest among farmers and fishers, with 38.3% and 39.2%, respectively, of them under the poverty line in 2012 compared to an average rate for all professions of 25.2%. Regionally uneven development is one of the biggest challenges for the Philippines in reducing poverty. Metro Manila’s gross regional domestic product (GRDP) accounted for 37% of national GDP in 2013, though it is home to only 12.8% of the population.

The capital region enjoys a far higher GRDP per capita than the rest of the country, at P342,170 ($7698) in 2013, compared to P93,745 ($2109) in Central Luzon, P58,451 ($1315) in Eastern Visayas and P101,862 ($2292) in Central Visayas. The poorest regions were Bicol in the Visayas with GDP per capita of P42,206 ($950) in 2013 and Muslim Mindanao with P29,608 ($666). The national GDP per capita in 2013 was P117,603 ($2646).

Education is an area of particular focus. The government is targeting 99% enrolment in primary education and 71% in secondary education by 2016. Enrolment in elementary schools fell from 95.9% in 2010/11 to 95.2% in 2012/13. However, the completion rate increased from 72.1% to 73.7%, which may be attributed to the government’s conditional cash transfer (CCT) programme. Secondary enrolment was also down slightly, from 64.7% in 2010/11 to 64.6% in 2012/13. This is expected to increase because of the initiative to expand CCT coverage to those 15-18 to enable them to finish high school.

The number of higher education graduates also rose to 553,706 in 2013 from 498,418 in 2010, on track to reach a target of 601,505 by 2016. Graduates of technical and vocational programmes leapt from 1.34m in 2010 to 1.77m in 2013, far exceeding the original target of 1.38m by 2016.

The ratio of families with access to safe drinking water and sanitary toilets has risen from 73% and 67.6% in 1990 to 83.8% and 92.2% in 2013. The government has also reduced the incidence of malaria, and the health care system has become better at treating tuberculosis. However, the maternal mortality rate also increased from 162 per 100,000 births in 2006 to 221 per 100,000 in 2011, giving little hope of reaching a target of 50 by 2016. The prevalence of underweight children under 5 years of age dropped only slightly from 20.6% in 2006 to 20.2% in 2011, still far from the goal of reaching 12.7% by 2016. The percentage of families with low caloric intake rose from 53.9% in 2003 to 66.9% in 2008 as food prices rose. The target is 32.8% by 2016.

National health insurance enrolment also slipped from 84% in 2012 to 79% in 2013, far from the target of 100% by 2016. School completion remained poor, with elementary school completion rates rising slightly from 72.1% in 2010/11 to 73.7% in 2012/13, and rates for secondary school dropping from 75.1% in 2010/11 to 74.8% in 2012/13. Those ratios do not include children who do not enrol.

NEW SOLUTIONS: The World Bank also urged the government to further accelerate public spending, which lagged in 2014 largely due to a Supreme Court challenge that delayed new packages for government spending on reconstruction infrastructure in regions hit hard by Typhoon Haiyan. The report recommended that the government aim to boost investment by 6.8% of GDP, with 2.5% of GDP going to infrastructure and 4.5% to social services. According to the World Bank, tax administration reforms could generate an additional 3.8% of GDP of “fiscal space” in the medium term, while tax hikes would be required if the government is to generate the other 3% of GDP. The bank’s report also recommended raising levies on gasoline and eliminating any unnecessary tax incentives, while simplifying tax procedures for smaller enterprises. It also urged acceleration of the awards of public-private partnership (PPP) infrastructure projects, which have lagged behind the government’s announced plans, to reach 5% of GDP.

The World Bank also urged the government to push for more comprehensive regulatory reforms, while continuing to improve its revenue collection systems. The report noted a range of obstacles to trade, investment and new PPPs, while pointing to liberalisation of telecoms as a catalyst that facilitated rapid development of business process outsourcing (BPO). The World Bank report also said, “The success of the BPO industry highlights the large dividends that can be gained from liberalisation. Going forward, non-traditional and non-captured industries with very large growth potential, such as tourism and outsourcing of higher-value manufacturing, such as design of electronics, could become key growth and employment drivers if supported by a freer market.”