The Philippines will still register one of the fastest economic growth rates in Asia in the next five years, but sustaining such a pace could be difficult if the political landscape changes and creates uncertainty to investors.
London-based think tank Capital Economics earlier this week warned that the increased political uncertainty in the Philippines could dent economic growth over the medium-term period, despite heavy spending on big infrastructure projects.
The research institute, in its latest report, noted that there were signs investors were starting to think twice before committing to long-term investments in the country. Having grown rapidly between 2010 and 2016, foreign direct investments in the Philippines dropped 15 percent in the first six months of 2017 compared with the same period last year.
Capital Economics said “the worsening outlook for investment is one of the key reasons why we think the Philippines will slightly disappoint expectations over the coming years.” Companies, it added, needed a stable and predictable business environment before they invest.
The London think tank does not think President Rodrigo Duterte is the disaster for the economy that some feared. But the institute said there were signs that the war on drugs, his erratic policymaking style and the worsening security situation in the south of the country was starting to weigh on investment prospects.
Capital Economics said after having climbed up the business rankings under President Benigno Aquino III, improvements to the business environment appeared to have come to a halt. “If the Philippines is to maintain rapid growth, it requires more capital deepening. It is no surprise that the fastest-growing emerging markets over the past couple of decades have typically been those with high investment rates,” it said.
Political stability under the previous Aquino administration was a key factor behind the surge in investment growth in the past few years. Military coup attempts and corruption scandals, which were a common feature of political life in the country for much of the post-war period, were notably absent during the Aquino presidency, the think tank said.
The government, however, could neutralize the dent on the economy. Its plan to ramp up infrastructure investment may turn things around and subdue the political noise.