Policy Paper: Economic Growth and Poverty Reduction

The Philippines was one of the fastest growing economies in Asia in 1960. Its per capita GDP of US$612 was twice as much as Thailand’s and three times as much as Indonesia’s. The situation is now reversed with Thailand’s per capita income being twice as much as that of the Philippines. The growth of the Philippine economy has lagged behind the economies in Asia. Per capita income in the Philippines grew at an average rate of 1.4 percent over 1960 to 2008 while other economies grew at annual rates between 3.6 percent and 6.0 percent.

A direct consequence of the country’s low economic growth is its inability to reduce poverty .The poor increased from 30.0 percent of the population in 2003 to 32.9 percent in 2006. The Gini coefficient, a measure of the inequality in income distribution in the country has remained unchanged at 44 per cent for decades, in contrast to Thailand, Vietnam and Indonesia where reductions in income inequality have been made. The richest 5.0 percent of households in the Philippines account for nearly a third of national income, while the poorest 25 percent account for only 6 percent.

Studies after studies identify binding constraints that the Philippines have failed to address: These are: a) an unstable fiscal position; 2) inadequate infrastructure; and, 3) a weak investment climate. The tax effort has weakened from 17.0 percent in 1997 to 13.0 percent in 2008. Government has perennially been off-track with respect to its revenue targets and finances the budget through borrowings. Debt service takes up more than one-fourth of the budget and the debt stock has risen to P4.2 trillion or 56.3 percent of GDP in 2008. An anemic fiscal position is a major constraint in the provision of adequate public goods and services.

Continue reading the MGG Policy Paper on Economic Growth and Poverty Reduction (First Draft).

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