Philippines - Country Commercial Guide
Market Overview
Last published date:

The Philippine economy grew by 7.6 percent in 2022, beating the government’s 6.5-7.5 percent target range and rebounding from the pandemic-induced recession in 2020.  This strong economic performance, the third fastest in ASEAN, helped the Philippines surpass its pre-pandemic 6.6 percent average gross domestic product (GDP) growth rate from 2012 to 2019.  Economic activity picked up during the year, driven by increased private consumption due to eased mobility restrictions, business reopening, and improvement in labor market conditions.  Philippine officials expect the country to achieve an upper middle-income status – a 2020 goal derailed by the pandemic – by 2025.  The Philippines’ gross national income per capita was estimated at around $3,950 in 2022, below the World Bank’s upper middle-income range of $4,256 to $13,205.

The Philippine government expects the economy to expand 6-7 percent in 2023, but GDP moderately grew by 5.3 percent in the first semester.  This brought GDP to $192.1 billion by the end of the first semester of 2023, weaker than the previous year due to the absence of election-related government spending, rising inflation, and high borrowing costs.  While strong domestic demand helped sustain the recovery, weak external sector performance and natural calamities could also temper economic growth.  Nonetheless, economic managers remain bullish on achieving their GDP targets by the end of the year through ramping up government spending and intensifying fiscal policy interventions.

Consumer price inflation averaged a three-year high of 5.8 percent in 2022, faster than the 3.9 percent in 2021 and above the Central Bank’s 2-4 percent target band.  Higher prices of fuels, personal transport, and food were the top drivers of inflation for the year.  Inflation pressures continue to build up through 2023, caused mainly by local weather disturbances and the Russian invasion of Ukraine that pushed up international oil and commodity prices.   The inflation rate averaged 6.8 percent from January-July 2023, higher than the Central Bank’s expected annual average inflation rate of 3.9 percent.  Rising domestic food, transport, and utility costs, as well as increased wages and transport fares, significantly increased inflation expectations. 

To tame rising inflation, the Philippines extended lower most favored nation (MFN) tariff rates for pork and rice; reduced MFN rates for corn to 5 percent in quota (from 35 percent non-ASEAN) and 15 percent out-quota (from 50 percent); and eliminated the 7 percent MFN rate on coal.  The Central Bank also raised rates by 452 basis points from May 2022 to March 2023, but has maintained its key policy rate at 6.25 percent since then.  The Central Bank hinted that it would not cut rates unless inflation falls to 4 percent.

The balance of payments (BOP) position recorded a deficit of $7.3 billion in 2022, a sharp turnaround from the $1.3 billion surplus in 2021.  The current account ran a deficit of $17.8 billion, higher than the $5.94 billion deficit the previous year, mainly due to a wider merchandise trade gap.  Although exports of goods increased by 5.9 percent, imports of goods significantly rose by 18.5 percent.  Net receipts in the secondary income account ($30.5 billion) and trade in services ($15.6 billion) expanded during the year, supported by sustained flows of remittances from overseas Filipino workers and revenues from the business process outsourcing industry, respectively.  Meanwhile, the capital account registered a $21 million growth in Q1 2023, a reversal from the $19 million net payments recorded inQ1 2022.  The financial account recorded net inflows of $5.7 billion in Q1 2023, higher than the $4.7 billion net inflows in Q1 2022.  This was mainly due to an increase in net inflows in other investment accounts ($4.3 billion) and a reversal to net inflows of portfolio investment accounts ($694 million). The increase, however, was slightly tempered by the decline in net inflows in direct investment accounts ($718 million). The Philippine stock market’s benchmark index ended lower by 7.81 percent in 2022 as external headwinds – including the Russian invasion of Ukraine, global supply disruptions, and U.S. Federal Reserve’s monetary tightening – drove investor sentiments.  The local currency bond market, on the other hand, grew by 13.3 percent in 2022, reaching $200.9 billion in outstanding debt securities.  Government and corporate bonds comprised 85.7 percent and 14.3 percent of the market, respectively. 

Net foreign direct investment (FDI) inflows experienced a decline of 23.3 percent to $9.20 billion in 2022.  The Philippines continues to lag similarly sized and ranked ASEAN neighbors in attracting FDI.  The United States is among the Philippines’ top investors – with total investments of $5.12 billion in 2021.  The Philippines’ competitiveness ranking dropped in 2023 to Rank 52 out of 64 economies (from 48 the previous year) in the Institute for Management Development World Competitiveness Report.  The Philippines continues to lag among Asia-Pacific peers due to poor infrastructure and a decline in government and business efficiency.  Investors also repeatedly cite government red tape, regulatory uncertainties, a slow judicial system, inconsistent application of laws by Local Government Units (LGUs), and corruption as challenges to doing business in the country.  To further attract foreign investment, the Philippines passed reform measures to ease restrictions on foreign ownership in many sectors.  The Amendments to the Public Service Act (PSA), taking effect in April 2023, allowed 100 percent foreign ownership in previously closed sectors of the economy except in six public utilities: (1) distribution of electricity, (2) transmission of electricity, (3) water and wastewater pipeline distribution systems, including sewerage, (4) petroleum and petroleum products pipeline transmission systems, (5) seaports, and (6) public utility vehicles.  The Retail Trade Liberalization Act (RTLA), taking effect in January 2022, lowered the paid-up capital requirement for foreign-owned retail trade businesses and the quantity of locally manufactured products foreign-owned stores are required to carry.   The amendments to Foreign Investment Act (FIA), taking effect in March 2022, eliminated restrictions of foreign ownership of export enterprises and opened up most areas except those subject to nationality requirements outlined in the 1987 Constitution and in the Philippines’ Foreign Investment Negative List. Meanwhile, the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), taking effect in April 2021, reduced the corporate income tax rate to 25% for large enterprises and 20% for micro, small, and medium enterprises, from the prior rate of 30%, in exchange for rationalization of fiscal incentives.

The Philippine Central Bank’s gross international reserves (GIR) stood at $96.1 billion as of end-December 2022, down from $108.8 billion a year prior.  As of July 2023, GIR remained high at $99.9 billion.  The latest GIR level represents a more-than-adequate external liquidity buffer equivalent to 7.4 months’ worth of imports of goods and payments of service and primary income. 

While credit rating agencies Moody’s, Standard & Poor’s (S&P), and Fitch Ratings maintained the Philippines’ investment grade credit rating, Fitch in May 2023 upgraded its outlook from “negative” to “stable”, which suggests the credit rating is likely to remain unchanged over the medium-term.  Fitch flagged the country’s improving fiscal position following the sustained reduction in government debt and the government’s sound economic policy interventions.  The Japan Credit Rating Agency (JCRA) in March 2023 similarly affirmed the Philippines’ “A-” credit rating.  S&P has been assigned a “BBB+” rating since April 2019, two notches above the minimum investment grade and just below the “A” scale.  Ratings from Fitch (“BBB”) and Moody’s (“Baa2”), meanwhile, are two steps below this scale.

The average unemployment rate eased to 5.4 percent in 2022, from a 7.8 percent average in 2021.  This translated to a 2.9 million unemployed labor force, lower than the 3.76 million in 2021.  Job quality remains a challenge, as the underemployment rate remained high at 14.2 percent in 2022, equivalent to about seven million people seeking additional work and longer working hours.  This nonetheless is an improvement from last year’s 15.9 percent underemployment rate.  The labor market steadily improved as of June 2023, with the unemployment rate down to 4.5 percent or around 2.33 million Filipinos.  Meanwhile, the poverty rate rose to 18.1 percent in 2021, equivalent to more than 19.9 million living below the domestic poverty threshold of about $228 in monthly income.  Before the COVID-19 crisis, the poverty incidence was down to 16.6 percent based on the 2018 survey, from 23.3 percent in 2015.

The political situation in the Philippines is stable, and the June 2022 change in administration was peaceful.  President Ferdinand Marcos, Jr. shared a few concrete economic proposals during his candidacy, including that he intends to lower consumer prices (currently inflated relative to wages due to rising fuel prices and global inflation), support Philippine farmers, and develop the country’s future energy security through nuclear energy (to replace coal-fired power in the long-term) and renewable energy (to help meet medium-term needs).  President Marcos has named experienced technocrats for key economic positions, including assigning the Central Bank Governor as the Secretary of Finance. [JF1] [EV2] 

The Philippine government is consistently challenged by a lack of due process, checks and balances, systemic corruption, weak oversight and regulatory institutions, and an overburdened criminal justice system known for slow court procedures.  The International Criminal Court (ICC) opened an investigation in 2021 to determine whether the Philippine war on drugs undertaken during the previous presidency of Rodrigo Duterte constitutes a crime against humanity; the Marcos administration has stated it will not cooperate with the investigation.  President Marcos announced his administration would continue the war on drugs but will focus its efforts on preventing the use of banned substances and on rehabilitating drug addicts.  His administration adopted the Internal Cleansing Strategy to combat illegal drug syndicates that involve members of the Philippine National Police (PNP). [JF3] [EV4] [EV5] 

Terrorist groups occasionally attack civilian targets, kidnap civilians – including foreigners – for ransom, and engage in armed attacks against government security forces.  These groups have typically carried out their activities in the western and central regions of Mindanao, including the Sulu Archipelago and Sulu Sea, and Western Visayas.  Although both Islamic State-East Asia affiliated terrorist groups and the Communist Party of the Philippines-New People’s Army (CPP-NPA) are capable of conducting operations outside of the rural, southern Philippines, these attacks are rare in the more populous, urbanized northern areas of Luzon, which is home to more than half the country’s population and over two-thirds of GDP in 2020.  The national government is attempting to end one of the longest-running militant insurgencies in Southeast Asia through a peace process with the Moro Islamic Liberation Front (MILF), which resulted in the creation of the Bangsamoro Autonomous Region in Muslim Mindanao in 2019.  The National Task Force to End Local Communist Armed Conflict (NTF-ELCAC) is a government agency established in 2018 that is mandated to respond to the communist insurgency by employing a “whole-of-nation” approach.  In 2023, the Vice President was appointed as a co-chair to the agency.

The U.S.-Philippine alliance has grown deeper under the Marcos administration.  Military cooperation remains a cornerstone of the bilateral relationship, highlighted by increased combined military exercises and U.S.-provided defense equipment and training, as well as increased access for the U.S. military to Philippine military facilities under the Enhanced Defense Cooperation Agreement (EDCA), signed in 2014.  In February 2023, the U.S. and Philippine governments announced plans to add four additional sites, bringing the total number of EDCA bases to nine.  President Marcos has shown greater resolve to counter PRC activity in the South China Sea.  The Philippines is largely dependent on PRC-supplied refined fuel, steel, and manufacturing inputs (including for semiconductors), which leaves the country potentially vulnerable to economic coercion.

U.S.-Philippine bilateral goods and services trade grew by 17.8 percent in 2022 to $36.1 billion. However, headwinds in renewed supply chain bottlenecks are still observed.  In 2022, the Philippines ranked as the 37th largest export destination for U.S. products and the 30th largest source of U.S. merchandise imports.  The U.S. trade in goods deficit with the Philippines was $6.8 billion in 2022.  In 2021, the economic mix of the Philippine economy was approximately 61% services, 17.6% manufacturing, and 10.1% agriculture. 

The United States was the Philippines’ fifth largest source of imports in 2022, with a 6.5 percent share of the country’s imports.  The top two import sources of the Philippines were China and Indonesia, with 20.6 percent and 9.6 percent import share, respectively.  The United States was the largest export market of the Philippines, with 15.8 percent of total export value in 2022.  It was followed by Japan which accounted for 14.1 percent. The Philippines’ largest global export category by value is electronic integrated circuits (including semiconductors).

Political Environment

For background information on the political and economic environment of the country, please click on the link to the U.S. Department of State  Countries & Areas website.