Poverty in Philippines, high for Asia, falls as economy strengthens

By Ralph Jennings, Jul 29, 2019

TAIPEI – Poverty in the Philippines, a chronic development issue that makes the country an outlier in Asia, is declining because of economic strength followed by job creation.

The archipelago’s official poverty rate dropped to 21% in the first half of last year from 27.6% in the first half of 2015, President Rodrigo Duterte said in his July 22 State of the Nation Address.

Economic growth of 6% plus since 2012 has helped to create jobs, especially in Philippine cities such as the capital Manila, economists who follow the country say.

“Twenty-seven percent is actually pretty high by kind of Asian standards, so I think that progress is attributable to the rapid economic growth that’s happened in the Philippines since 2012,” said Rajiv Biswas, Asia-Pacific chief economist at the market research firm IHS Markit.

Asian outlier

Poverty around Asia had declined from 47.3% in 1990 to 16.1% in 2013, according to World Bank data. Factory jobs, often driven by domestic export manufacturing industries, have fueled much of the boom, especially in China.

Poverty lingered in the Philippines largely for lack of rural jobs, economists believe. Rudimentary farming and fishing anchor the way of life on many of the country’s 7,100 islands. Foreign manufacturers often bypass the Philippines because of its remote location, compared to continental Asia, and relative lack of infrastructure that factory operators need to ship goods.

But the country hit a fast-growth stride in 2012 with a pickup in manufacturing and services. After growing just 3.7% in 2011, the GDP that now stands at $331 billion has expanded at between 6.1% and 7.1% per year.

More jobs

Urban jobs are getting easier to find as multinationals locate call centers in the Philippines, taking advantage of cheap labor and English-language proficiency.

A $169 billion, 5-year program to renew public infrastructure is creating construction jobs while giving factory investors new reason to consider siting in the country. Most new jobs now are in construction, with some in manufacturing, said Christian de Guzman, vice president and senior credit officer with Moody’s Sovereign Risk Group in Singapore.

Underemployment, he added, has “improved quite a bit,” de Guzman said.

“Jobs are being created (and in) the jobs that do exist, I think there’s more work to do, so to speak,” de Guzman said. “I guess less underemployment if you will, and again this is one of the fastest growing economies in Asia.”

Philippine unemployment edged down just 0.1 percentage point to 5.2% in January 2019 compared to a year earlier, but underemployment fell from 18% to 15.6% over that period, according to the Philippine Statistics Authority.

Tax reform

Duterte is also advancing tax reforms that he expects to lower poverty to 14% of the 105 million population by 2022.

Tax revenue collected under these reforms will allow the government to spend more on health, education and other social services aimed at making people more prosperous, the Department of Finance said in a statement last year.

The Tax Reform for Acceleration and Inclusion Act (TRAIN), which Duterte signed into law in 2017, spells out changes in the tax code.

“Actually, one of the key elements there is the first tax laws that was passed, we call it the TRAIN one,” said Ramon Casiple, executive director or the advocacy group Institute for Political and Electoral Reform in Metro Manila.

Rural income

Longer-term poverty relief will come down to creation of rural jobs such as “specialized” or “advanced” agriculture, Biswas said. The 21% poverty rate is “still high,” he said. Government agencies and private firms over the past few years have already introduced hybrid seeds and new technology to make farming more self-sufficient, domestic news outlet BusinessWorld reported last year.

Natural disasters such as seasonal typhoons and a 50-year conflict between Muslims and the military in the south further hobble poverty relief, some analysts believe. Local government corruption also stops aid from reaching some of the poor, they suggest.

“Both growth and, in turn, poverty reduction seem to be hindered by several factors, including unequal wealth distribution both in terms of social groups and geographic distribution…corruption as well as natural disasters and ongoing conflicts, with the latter triggering a series of negative collateral effects,” said Enrico Cau, Southeast Asia-specialized associate researcher at the Taiwan Center for International Strategic Studies.