The economy of the Philippines is 57.4 percent free, according to our 2007 assessment, which makes it the world's 97th freest economy. Its overall score is 0.2 percentage point lower than last year, partially reflecting new methodological detail. The Philippines is ranked 16th out of 30 countries in the Asia–Pacific region, and its overall score is slightly lower than the regional average.
The Philippines scores well in fiscal freedom, trade freedom, and freedom from government. Income and corporate tax rates are burdensome, and overall tax revenue is low as a percentage of GDP. The average tariff rate is low, but non-tariff barriers are significant. Total government expenditures in the Philippines are equal to roughly 20 percent of national GDP, and state-owned businesses do not account for a large portion of overall revenue.
The Philippines is relatively weak in business freedom, investment freedom, monetary freedom, property rights, and freedom from corruption. The government imposes both formal and non-formal barriers to foreign investment. Inflation is fairly high, and the government subsidizes the prices of several basic goods. The judicial system is weak and subject to extensive political influence. Organized crime is a major deterrent to the administration of justice, and bureaucratic corruption is extensive.
Background:
Before gaining its independence in 1946, the Philippines had been a United States colony since 1898 and, before that, a Spanish colony since the 16th century. Current President Gloria Arroyo took power in 2001 after her predecessor's resignation and has weathered a number of coup attempts. GDP has grown annually by about 5 percent since 2002 as a result of success in the service sector, increased agricultural output, and improved exports. The Philippines is handicapped, however, by a major debt burden and an Islamic insurgency in the south. Industry, services, and remittances account for most of the country's GDP, and the majority of workers are employed in the service sector.
Business Freedom - 54.2%
Starting a business takes an average of 48 days, which is equal to the world average of 48 days. To maximize entrepreneurship and job creation, it should be easier to start a company. Obtaining a business license is relatively simple, but closing a business can be difficult. Regulations are sometimes inconsistent and lacking in transparency. The overall freedom to start, operate, and close a business is restricted by the national regulatory environment.
Trade Freedom - 74.8%
The Philippines' weighted average tariff rate was 2.6 percent in 2003. Complex and restrictive customs regulations, burdensome import licensing requirements, sanitary and phytosanitary restrictions, import and export taxes, import and export bans, numerous import restrictions, export subsidies, quotas, widespread corruption, and weak protection of intellectual property rights add to the cost of trade. Consequently, an additional 20 percent is deducted from the Philippines' trade freedom score to account for these non-tariff barriers.
Fiscal Freedom - 84.0%
The Philippines has burdensome tax rates. The top income tax rate is 32 percent, and the top corporate tax rate is 35 percent. Other taxes include a value-added tax (VAT) and a real property tax. In the most recent year, overall tax revenue as a percentage of GDP was 12.4 percent.
Freedom from Government - 91.4%
Total government expenditures in the Philippines, including consumption and transfer payments, are low. In the most recent year, government spending equaled 18.7 percent of GDP, and the government received 1.2 percent of its revenues from state-owned enterprises and government ownership of property. Although efforts to restructure and privatize state-owned companies have been made in recent years, privatization in the electricity generation and distribution network has not been significant.
Monetary Freedom - 73.4%
Inflation in the Philippines is high, averaging 6.9 percent between 2003 and 2005. Relatively high and unstable prices explain most of the monetary freedom score. Additionally, the government is able to influence prices through state-owned enterprises and utilities. Price controls exist for electricity distribution, water, telecommunications, and most transportation services. Price ceilings are usually imposed only on basic commodities for emergencies. The president can impose price controls to check inflation or ease social tension, but this authority has rarely been exercised. An additional 10 percent is deducted from the score to account for these policies.
Investment Freedom - 30.0%
The Philippines maintains barriers to many foreign investments. Two negative lists restrict both foreign investment and the ability of foreigners to practice in numerous sectors. Unofficial barriers, like high levels of corruption, also impede foreign investment. The mining sector is now open to 100 percent foreign-owned companies. Both residents and non-residents may hold foreign exchange accounts, although non-residents may do so only with foreign currency deposits or proceeds from conversions of property in the Philippines. Payments, capital transactions, and transfers are subject to numerous restrictions, controls, quantitative limits, and authorizations.
Financial Freedom - 50.0%
The government has opened the financial system to foreign competition, has raised capital standards, and has improved oversight in the wake of a 1990s devaluation and financial crisis. Non-performing loans are declining. Two banks are fully state-owned, and one is partially state-owned, including the fourth and seventh largest domestic banks as of March 2005. Credit is generally available at market terms, but the government requires banks to lend specified portions of their funds to preferred sectors. Foreign banks are not permitted to own over 30 percent of banking assets. Foreign firms are allowed to fully own insurers and may set up local subsidiaries. Capital markets are centered on the stock exchange.
Property Rights - 30.0%
The Philippine judicial system enforces the law weakly. Judges are supposed to be independent, but several are corrupt, having been appointed strictly for political reasons. Organized crime is a strong deterrent to the administration of justice.
Freedom from Corruption - 25.0%
Corruption is perceived as widespread. The Philippines ranks 117th out of 158 countries in Transparency International's Corruption Perceptions Index for 2005.
Labor Freedom - 60.7%
The labor market operates under inflexible employment regulations that could be improved to enhance overall productivity growth. The non-salary cost of employing a worker is low, but dismissing a redundant employee can be costly.
CHARTS
Philippines, The
- Rank: 97
- Regional Rank: 16 of 30
Quick Facts
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- GDP (PPP): $376.6 billion
6.0% growth in 2004
4.5% 5-yr. comp. ann. growth
$4,614 per capita
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- FDI (net inflow): $57 million
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- Official Development Assistance: $970 million (11% from the U.S.)
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- External Debt: $60.6 billion
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- Exports: $42.8 billion
Primarily electronic equipment, machinery, transport equipment, garments, optical instruments, coconut products, fruits and nuts, copper products, chemicals
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- Imports: $50.5 billion
Primarily raw materials, machinery, equipment, fuels, vehicles, vehicle parts, plastic, chemicals, grains
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oh well, i wanted to post something somehow but i've nothing yet in mind so i figured, why don't i just post something different? hahaha. i got this for my Investment Plan project for the Economic Analysis Chapter. it says that our country ranked the 97th place out 162 countries of the Index of Economic Freedom. That aint so bad is it?! nway, im still busy with school. still lots of requirements to accomplish plus the final exams next week. shit. im close to having a nerve-wreck already. i just wish this sem would end soooooooon. like in a snap!!
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