Philippines

	Score	Rank
Financial Standards Index	55.00 out of 100	25
Business Indicator Index	5.40 out of 12	81

Business Indicators Summary

With an overall score of 5.40/12, the Philippines is below standard on the economic, legal, and political indicators that make up our Business Index. The Philippines has a market-based mixed economy, in which total government expenditures, including consumption and transfer payments, are low. The Arroyo administration, in office since 2001 and reelected to a six-year-term in 2004, has made considerable progress in restoring macroeconomic stability. However, to sustain long-term economic growth, the government needs to improve infrastructure, enhance education systems, reduce trade and investment barriers, generate employment, and alleviate poverty for a rapidly expanding population. The Philippines restricts foreign investment in a number of sectors, and all foreign investment is screened and must be registered with the government. Further, foreign investors receiving incentives may be subject to performance and local sourcing requirements. In addition, potential foreign investors remain concerned about law and order, inadequate infrastructure, policy and regulatory instability, and governance issues. The Philippines has established procedures and systems for registering claims on property rights. However, weak enforcement and a cumbersome court system continue to concern investors. In terms of protecting intellectual property rights, the Philippines has made progress in recent years, but enforcement continues to be problematic. The Philippines ranks 141st out of 180 countries in the Transparency International's 2008 Corruption Perception Index.

Business Indicators

Economic Model
Forex Regulations
- Capital Controls
- Exchange Controls
Foreign Investment Law
Trade Regulation
Tax Regime
Tax Rates
Bankruptcy Indicators
International Dispute Settlement
Political Environment
Political Stability
Corruption
Adherence to global labor standards

Economic ModelMarket-based mixed economy

Gwartney et al.'s 2008 Economic Freedom of the World Annual Report scores the Philippines at 4.0 (on a scale from 0 to 10, with higher values signifying greater economic freedom) for the factor "Government enterprises and investment" as a percentage of total investment. When a substantial number of state-owned enterprises (SOEs) operate in many sectors, including manufacturing, and government investment is generally between 30% and 40% of the total, countries receive a rating of 4.

The Heritage Foundation's 2009 Index of Economic Freedom notes that total government expenditures, including consumption and transfer payments, are low. Government spending equaled 17.5 percent of GDP, a decrease of almost 10 percent from 2007 when government spending equaled 26.7 percent of GDP. Public debt has been reduced due to progress in privatization, VAT reform, and fiscal prudence. In the power sector, over 40 percent is privately owned, according to the Heritage Foundation.

According to the Background Note on the Philippines by the U.S. Department of State (DoS), the service sector accounts for over half of the overall Philippine economic output, industry contributes about a third, and agriculture accounts for less than 20%. The Arroyo administration, in office since 2001 and reelected to a six-year-term in 2004, has made considerable progress in restoring macroeconomic stability. However, to sustain long-term economic growth, the government need to improve infrastructure, enhance education systems, reduce trade and investment barriers, generate employment, and alleviate poverty for a rapidly expanding population, as the DoS report points out. Also, "continuing efforts to fast-track power sector privatization remain critical to the long-term stability of public sector finances, ensuring reliable electricity supply, and bringing down the cost of power," the report continues.

Sources

U.S. Department of State, "Background Note: the Philippines," 2008. Available from U.S. Department of State website. Accessed on February 4, 2009. (U.S. DoS 2008)
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Heritage Foundation, "2009 Index of Economic Freedom," 2009. Available from Heritage Foundation website. Accessed on February 4, 2009. (HF 2009)
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Gwartney, J., et al., "Economic Freedom of the World: 2008 Annual Report," 2008. Available from Frazer Institute website. Accessed on February 4, 2009. (Gwartney et al. 2008)
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