2023: A year of economic opportunities for the Philippines

The World Health Organization is cautiously optimistic that the COVID-19 pandemic will no longer be a global health emergency by mid next year. According to WHO Director-General Tedros Adhanom Ghebreyesus, the number of weekly COVID-19 deaths has dropped to almost 90 percent since its peak at the end of January last year. Many experts also believe that COVID-19 will likely become endemic, meaning the virus would still be around but more manageable, like the cold or seasonal flu.

There is, however, great concern about the situation in China due to surging infection rates, compelling some countries to require travelers from China to present negative COVID-19 swab results. Whatever it is, we are all praying and hoping that the outbreak would be controlled to a certain extent and would not result in new mutations of the Omicron subvariants such as BA.5, BA.2.75 and the BF.7 that has been identified as largely responsible for the spike in infections across China. The US has offered assistance with their effective mRNA vaccines, but China has so far declined the offer. There are reports, however, that people from the mainland are getting Pfizer’s mRNA vaccine in Hong Kong.

Nevertheless, the lifting of worldwide restrictions is driving a lot of optimism that 2023 could be a year of recovery for most of the global economy, including the Philippines.

Finance Secretary Ben Diokno says “the worst is over and the best is yet to come” for the Philippines. And despite projections of a global recession this 2023, the Development Budget Coordination Committee predicts that the Philippine economy will grow by 6 to 7 percent in 2023 in the face of external headwinds.

“…an average GDP growth of 6.5 percent is nothing to be sneezed at: it is still one of the highest, if not the highest, growth rates among ASEAN+6 economies,” said Secretary Diokno, referring to the members of the Association of Southeast Asian Nations and dialog partners Australia, China, Japan, South Korea, India and New Zealand.

Driving this optimistic economic outlook are several factors that include the early approval of the 2023 national budget; the country’s strong international credit profile that continues to be at investment grade and the stable and resilient banking system that is characterized by strong capitalization well above international norms.

He also points to the country’s adequate buffers against external headwinds, such as the hefty level of our gross international reserves of $95.1 billion as of November 2022, the low external debt to GDP ratio of 26.8 percent by the end of September 2022 and a favorable external debt profile. The Philippines also has a steady supply of foreign exchange from overseas Filipino remittances, export revenues from business process outsourcing firms, tourism receipts and inflows from foreign direct investments, Secretary Diokno disclosed.

Significantly, the policies and reforms that have removed barriers to foreign investments to allow for more participation in Philippine industries have made the economic environment more attractive and favorable. The “game-changing laws” such as the Public Service Act and amendments to the Retail Trade Liberalization Law are “expected to boost foreign direct investments in particular, and the economy in general,” the country’s Finance chief said.

Great opportunities are certainly opening up with more countries taking interest in the Philippines as an investment destination.

No doubt all the trips of President Marcos are extremely important, leading to enhanced trade and economic partnerships worldwide.

Economic opportunities from the US abound for the Philippines following the passage of the 2023 National Defense Authorization Act by the US Congress, allocating a record $858 billion to the US Department of Defense.

One of the significant provisions of the NDAA is outlined under Section 5949 that prohibits executive agencies from buying or obtaining any electronic parts, products or services that include “covered semiconductor products or services” from certain Chinese companies which represent a sizeable and growing share of the chips market and a broad range of American electronic equipment such as mobile phones, networking equipment and automobile parts.

Although Section 5949 takes effect five years after the enactment of the 2023 NDAA with the Federal Acquisition Regulatory Council issuing the implementing rules and prohibitions in 2026, the Philippines can take advantage of the fallout from this legislation. Just consider, the Philippines’ semiconductor and electronics exports to the world amounted to $45.92 billion in 2021, with most of the exports going to the US.

The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 or CHIPS Act signed into law by President Joe Biden last August is also a positive development, according to the Semiconductor and Electronics Industries in the Philippines, as this will diversify the source of semiconductor wafers which the Philippines imports for the assembly, test and packaging of chips. According to Mckinsey research, global demand will also continue to grow, with semiconductors poised to become a $1-trillion industry by the end of the decade.

We are catching up as a top exporter of semiconductors and electronics to the US, and a strong sign that the United States is looking at the Philippines as one of the alternative sources for its imports is the upcoming visit to Manila of US executives from the Semiconductor Industry Association in mid-January.

As Sec. Diokno said, 2023 augurs a bright future for the Philippines – and we have the potential of being one of the leading economies in the Asia-Pacific region as long as we remain focused and not “drop the ball,” with our leaders and policy makers keeping their eyes on growing our economy.

A prosperous new year to all!

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