Social Protection Remains Important as the Philippines Navigates Global Uncertainties

Social Protection Remains Important as the Philippines Navigates Global Uncertainties

The Word Bank: Improving the efficiency of social protection in the Philippines remains essential to protect the poor and most vulnerable from economic shocks as the country grapples with global uncertainties and domestic risks including high inflation, according to the Philippines Economic Update (PEU) released today by the World Bank.

Bucking global trends, strong domestic demand in the Philippines is expected to propel its economy to a 6.0 percent growth in 2023 and 5.9 percent the following year. Strong domestic demand is underpinned by consumer spending drawing strength from the continuing jobs recovery and the steady flow of remittances. Fixed capital investment will also contribute to growth, anchored on upbeat domestic activity, and improved business confidence.

The services sector will continue to support growth, buoyed by spillovers from China’s reopening. The recovery of international tourism will contribute to boost growth of transportation services, accommodation, and food services, as well as wholesale and retail trade services. The country’s information technology-business process outsourcing industries will also continue to bolster the services sector, as foreign companies outsource their business operations to the Philippines to reduce costs.

The implementation of recently passed reforms – such as the amendments to the Public Service Act, Foreign Investment Act, and Retail Trade Liberalization law – allowing greater foreign participation in the economy, will encourage private investment and strengthen growth in the country over the medium term.

However, there are persistent global and domestic risks that can hinder recovery and poverty reduction, according to Ndiamé Diop, World Bank Country Director for Brunei, Malaysia, Philippines, and Thailand. “It is essential to sustain improvements in social protection to help families, especially the poor and vulnerable, cope with economic difficulties as the country navigates the global slowdown, budget constraints, high prices of basic commodities, and climate-related risks,” said Diop.

The PEU says ensuring an efficient delivery of social protection programs would require speeding up current government reforms, including adoption of the national ID system for social protection delivery, updating the targeting system for identifying poor and vulnerable families, innovations in digital payment systems and strengthening financing mechanisms and readiness for disaster response.

Global risks to the country’s economic outlook include the possibility of rising global inflation, higher global interest rates, and an escalation of geopolitical tensions brought about by Russia’s invasion of Ukraine which could further cause a sharper-than-expected global slowdown, thus hampering Philippine exports.

Within the country, high inflation remains a risk to the economic outlook due to several factors including natural disasters affecting food supply, the threat of El Niño that could further constrain food production, logistics and supply chain challenges, and pressure from domestic demand. High inflation erodes the purchasing power of poor families, making it more difficult for them to afford necessities.

Ralph Van Doorn, World Bank Senior Economist said addressing inflation requires implementing measures such as reducing tariff and non-tariff barriers, enhancing domestic supplies, and bolstering agriculture with extension services, seeds, and fertilizers.

“In the face of escalating prices, a comprehensive strategy is needed to guarantee sufficient food for everyone. This entails a more productive agriculture and food system that is resilient to climate risks, serves all consumers, and competes effectively in both the local and global markets,” Van Doorn added.

Sustained investments in climate change initiatives, particularly in the agriculture sector, would be also beneficial. This could include measures such as extending water-saving drip irrigation systems to rainfed areas, bolstering the resilience and productivity of agricultural lands, and enhancing water storage capacity for a consistent supply during prolonged dry periods.

Over the long-term, the PEU advocates for a transition towards cleaner energy to further the country’s climate change mitigation efforts. A shift towards clean energy would not only decrease dependence on imported fossil fuels, but also enhance energy security through increased use of indigenous and renewable energy sources.