The Philippines’ economic freedom score is 65.0, making its economy the 61st freest in the 2018 Index. Its overall score has decreased by 0.6 point, with lower scores for the government integrity, monetary freedom, and property rights indicators outpacing improvements in trade freedom and judicial effectiveness. The Philippines is ranked 13th among 43 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.
The strong growth of the Philippines’ economy has allowed the government to prioritize domestic law-and-order issues over economic policy concerns. A rapid decline in the president’s popularity caused investor confidence to wane by the end of 2017. An absence of entrepreneurial dynamism thwarts development. Some fiscal reforms have been adopted, but deeper institutional reforms are required in interrelated areas: business freedom, investment freedom, and the rule of law. The judicial system remains weak and vulnerable to political influence.
A former colony of Spain and then of the United States, the Philippines became a self-governing commonwealth in 1935. Its diverse population speaks more than 80 languages and dialects and is spread over 7,000 islands in the Western Pacific. During President Benigno Aquino III’s single six-year term, the Philippines became one of the region’s best-performing economies. Longtime Davao City Mayor Rodrigo Duterte succeeded Aquino in 2016. Duterte has consolidated power by marginalizing his opponents, and his brutal crackdown on illegal drugs reflects authoritarian tendencies. Agriculture is still a significant part of the economy, but industrial production in such areas as electronics, apparel, and shipbuilding has been growing rapidly. Remittances from overseas workers are equivalent to nearly 10 percent of GDP.
The Philippines recognizes and protects property rights, but enforcement is weak. Property registration is tedious and costly, and records management is poor. Judicial independence is strong, but the courts are plagued by inefficiency, low pay, intimidation, delays, and long case backlogs. Corruption and cronyism are pervasive, and the country is a regional money-laundering hub. The President’s strong-arm tactics reinforce a culture of impunity.
The top individual income tax rate is 32 percent, and the top corporate tax rate is 30 percent. Other taxes include value-added and environmental taxes. The overall tax burden equals 13.7 percent of total domestic income. Over the past three years, government spending has amounted to 18.9 percent of total output (GDP), and budget surpluses have averaged 0.4 percent of GDP. Public debt is equivalent to 33.7 percent of GDP.
In 2016, the Philippines increased the transparency of its building regulations, making it easier to deal with construction permits. Local labor costs are relatively low, and workers are highly motivated. Reports of forced labor in the Philippines continue. The government has increased subsidies under President Duterte and maintains price controls on pharmaceuticals and some food and household fuel items.
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Trade is significant for the Philippines’s economy; the combined value of exports and imports equals 65 percent of GDP. The average applied tariff rate is 2.1 percent. Nontariff barriers impede trade. Government openness to foreign investment is above average. The gradually modernizing financial sector remains relatively stable and sound. Since 2014, overseas banks have been allowed to acquire 100 percent equity in existing banks.