PH poised to become a rising star of Asia

The Philippines has long had promise as a regional star with its well-resourced islands and renowned, capable workforce. Having fallen short of its potential in the past, recent changes are positioning the country to become Asia’s next rising star.

Over the past decade, the Philippine economy has bounced back from the external debt crisis in the 1980s and the Asian financial crisis in the late 1990s. Gross domestic product (GDP) growth has averaged 5 percent since 2000, significantly higher than in the previous two decades. In 2013, the Philippines grew by 7.2 percent—the highest growth rate among the major economies of the Association of Southeast Asian Nations.

To fulfill its potential, however, the country must tackle tough challenges. While blessed with a large young workforce, its 16.5 percent youth unemployment rate—more than double the overall official national rate—remains a pressing concern. It is not ideal that 10 percent of the population should  work abroad. The Philippines needs more quality jobs.

Poverty has declined, but almost a quarter of the population is still considered poor. And in this final year of the Millennium Development Goals, the Philippines is behind targets on primary education, maternal and child health, and infectious diseases such as HIV/AIDS and tuberculosis.

The country has taken some important steps. Recently I visited Mindanao—the country’s poorest region, but one with immense development potential, including diversified agriculture and tourism. The historic signing of the Comprehensive Agreement on the Bangsamoro provides greater opportunity for peace and development in Mindanao. Overall, the country has made considerable progress in political stability.

Indeed, security and political stability is part of an eight-point development agenda I have been thinking about, after visiting 17 of the Asian Development Bank’s (ADB) developing member-countries since I became president in April 2013. The remaining seven points of what I call a “back to basics” agenda are: macroeconomic stability, investment in infrastructure, investment in human capital, an open trade and investment regime, good governance, a well-articulated and shared development strategy, and a commitment to inclusive growth.

Macroeconomic stability in the Philippines has been strengthened, thanks to fiscal and budget reforms as well as the independence of the Bangko Sentral. Inflation is under control. Smaller fiscal deficits, lower public debt and a stronger banking sector underpin the sovereign investment grade ratings attained in 2013.

Progress has been made in improving human capital. The Conditional Cash Transfer program links cash benefits to education and health for over four million families. The government has raised its education budget and added two years to high school to improve job readiness. It is also enhancing vocational and skills training to better match private-sector needs and build a competitive workforce. The ADB is supporting these areas.

Yet, there is much more to be done.

First is investment in infrastructure. Underdeveloped transport links and expensive power with looming shortages are among the major constraints to growth. The government has already raised its infrastructure budget to an equivalent of 3 percent of GDP in 2014 and 5 percent of GDP by 2016. Yet this is still lower than many other developing countries, such as Sri Lanka (6 percent) and Vietnam (9 percent). In addition to mobilizing private-sector resources through public-private partnerships, there is a need to further increase public spending in infrastructure.

Second is an open trade and investment regime. Here, recent improvements in the Philippines are reflected in global-competitiveness rankings. The government has recently allowed the full entry of foreign banks to the country. It is pushing for legislation including the proposed Antitrust Law to strengthen competition in industries. More can always be done. For instance, while the banking system has been strengthened, investment alternatives such as corporate bond markets and life insurance need broadening to help channel savings into productive uses. Greater access to finance for small and medium businesses will facilitate their critical role in job creation and growth, especially in rural areas. Enhancing openness in trade and investment through the Asean economic community initiative is also crucial.

Third, good governance is not just about fairness. Without good governance, people may divert their energy from innovation and hard work to unproductive activities. I am pleased to see the progress the Philippines has made on governance reform, including anticorruption measures, budgeting based on results, and more transparent procurement systems. Notably, the ranking of the Philippines in the Transparency International Corruption Perceptions Index has improved in recent years. It will be critical to build on this momentum to further increase the confidence and trust of citizens and investors alike.

Fourth, one of the most important tasks of government is to have a clear vision or strategy for development, which transcends administrations and is shared by the people. While we know that the private sector is an engine for growth in any country, it is the responsibility of the government to set policies in line with the national strategy, prioritize its spending and investments, and appropriately guide the private sector. It should be systematic, realistic and flexible to respond to changing circumstances.

Finally, growth must be made more inclusive. Without shared values and a collective interest, sustainable growth cannot be achieved. Greater inclusiveness can be pursued in the Philippines through the government’s strategy of raising public investments in infrastructure, agriculture, health and education, particularly in the Visayas and Mindanao.

My organization, the ADB, has assisted development across the Asia and Pacific region since its establishment in 1966. In the Philippines, we have supported many projects and programs amounting to more than $15 billion in such areas as energy, roads, agriculture, education, social protection, and overall public-sector management. In response to Typhoon “Yolanda,” we are implementing support amounting to $900 million for recovery and reconstruction in the affected areas, emphasizing a community-driven approach.

In the 1960s, when Asian leaders chose Manila to host the ADB’s headquarters, the Philippines was second in economic development only to Japan. I believe that, building on its recent progress, the country can return to its place among Asia’s leading economies. The Philippines is our home, and I am committed to strengthening the ADB’s support in fully realizing the country’s potential based on its long-term vision.

Takehiko Nakao is president of the Asian Development Bank.