‘Slower growth of the world economy, including that of China and the US (the Philippines’ biggest trading partners), will drag down the economy but nonetheless, Philippine economic growth should be well above the average for peers at a similar level of development, on a 10-year weighted average per capita basis’
The country's foreign direct investments or FDIs will remain "stable" in the next few years while the government continues to improve its tax policies, S&P Global Ratings said.
The government aims to achieve at least $9 billion in FDIs this year and $11 billion in 2024. Last year, the country posted $9.4 billion in FDI inflow, down by 22 percent compared to the 2021 level due to global economic slowdown.
"The CREATE Act is being amended in Congress to clarify application of value-added tax on foreign investors and sunset provisions. We believe this, coupled with recent reforms the authorities introduced, will support FDI into the Philippines over the next two to three years," S&P said in a report.
The CREATE Act or Corporate Recovery and Tax Incentives for Enterprises lowers income tax of firms from 30 percent to a range of 25 to 20 percent, and grants tax incentives to firms dealing in key industries, such as manufacturing and technology.
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FDI inflow declined by 12.9 percent to $5.454 billion in the first eight months this year from the level in the same period last year, according to the Bangko Sentral ng Pilipinas.
"Slower growth of the world economy, including that of China and the US (the Philippines' biggest trading partners), will also drag down the economy. Nonetheless, economic growth in the Philippines should be well above the average for peers at a similar level of development, on a 10-year weighted average per capita basis," S&P said.
"The country has a diversified economy with a strong record of high and stable growth. This reflects supportive policy dynamics and an improving investment climate," the global credit rater explained.
GDP to improve this year
S&P estimates Philippine GDP or gross domestic product per capita will improve to $3,903 this year and $4,273 in the next from $3,600 in 2022. This reflects an average of 4.4 percent growth until 2026.
GDP per capita refers to the economic output or productivity level of each resident of a country. Through FDIs, the government hopes to create jobs for more Filipinos.
The Philippine Statistics Authority said over 22,000 jobs could be created from FDI pledges amounting to P27.3 billion in September after a series of investment promotion activities by the Marcos administration.
Trade and Industry Secretary Alfredo Pascual said 18 out of 70 projects were already registered with the Board of Investments, nine projects are already operational, and five of them are related to information technology and business process outsourcing.
Build up the pipeline
"We're trying to build up the pipeline. Over time, these pledges will be realized depending on the gestation period of the industry. Energy has five to seven years; nuclear energy has 10 years. Manufacturing is faster," he said.
S&P sees Philippine export of services will also grow as the world further recovers from the pandemic and geopolitical tensions, especially the wars between Russia and Ukraine, and between Israel and Hamas subside.
"Nevertheless, current account deficits should moderate in the outer years. This is because the Philippines' competitive unit labor costs relative to that for peers such as Thailand and Indonesia, and large, young, educated, and flexible labor force, should strengthen its services exports," S&P said.
Sound corporate tax measures
Through sound corporate tax measures, the government also aims to increase its revenue to finance infrastructure projects and social services.
The Development Budget Coordination Committee targets P3.84 trillion to P3.90 trillion in national government revenue, higher than its P3.73-trillion estimate during its meeting in April.
S&P said the country's interest payments-to-government revenue ratio could average at 12 percent until 2026 due to high debt stock and global interest rates.
The national budget for next year is pegged at P5.8 trillion, up by 9.5 percent compared to the level this year. A substantial 37.9 percent is allotted to cash subsidies and health programs, and 29.6 percent to infrastructure projects.
