Philippines still largely ‘unfree’ in economic aspects — index

The Philippines remained largely “unfree” in economic aspects, even as it inched up a spot to 88^th out of 176 countries in a global ranking on economic freedom by The Heritage Foundation.

In the 2024 Index of Economic Freedom, the American conservative think tank said the Philippines’ score dipped by 0.3 point to 59 from 59.3 in 2023. It got a score of 61.1 in 2022 and 64.1 in 2021.

Manila ranked 89^th out of 176 countries in last year’s index, 80^th in 2022 and 73^rd in 2021. It ranked 70^th in 2020 and 2019.

Singapore (83.5) topped the index as the freest economy, followed by Switzerland (83.0), Ireland (82.6), Taiwan (80.0), and Luxembourg (79.2).

The bottom five countries include North Korea (176^th), Cuba (175^th), Venezuela (174^th), Sudan (173^rd), and Zimbabwe (172^nd).

Among 39 Asia-Pacific countries, the Philippines still ranked 18^th, lagging behind neighbors Thailand (87^th), Vietnam (59^th), Indonesia (53^rd), Malaysia (45^th), and Brunei (43^rd).

However, the Philippines was ahead of Uzbekistan (103^rd), Cambodia (106^th), and Kyrgyz Republic (112^th).

The index analyzes economies considering the rule of law, government size, regulatory efficiency, and market openness.

According to the think tank, the Philippines’ overall rule of law is weak, noting that the country got a score of 46.1 for property rights, lower by 0.3 point compared with last year.

Its score for judicial effectiveness increased by 16.4 points to 42.2.

For government integrity, the country’s score slipped by 0.6 point to 33.8, which is below the world average.

The Philippine government has pursued legislative reforms to enhance the entrepreneurial environment and increase job growth but “there still are institutional challenges,” the conservative think tank said.

“Despite some progress, corruption continues to undermine long-term economic development,” it said.

In the Philippine context, corruption is both a “regulatory capture problem and a systemic issue,” said Emy Ruth Gianan, who teaches economics at Polytechnic University of the Philippines.

One of the best recourse in addressing corruption would be to give the anti-graft court Sandiganbayan “sharper teeth to investigate,” she said in a Facebook Messenger chat.

“We also have to invest in community-based watchdogs as well as improve our whistleblower protection schemes,” she added.

For government size, the country scored 78.2 in tax burden, lower by 0.1 point from last year. Its score for government spending decreased by 2.1 points to 79.2. An 18.9-point decrease was seen in its fiscal health score, which was at 40.5 in the 2024 index.

The top individual income tax rate was at 35% in the Philippines, while its top corporate tax rate was at 25%, the think tank said.

“The tax burden equals 18.1% of gross domestic product (GDP). Three-year government spending and budget balance averages are, respectively, 26.3% and -5.8% of GDP,”

For regulatory efficiency, the country scored 69.7 in business freedom, up by 3.6 points compared with last year and above the global average. Its score for labor freedom increased by 0.3 point to 57.8, while its score for monetary freedom declined by 2.5 points to 65.8.

The business regulatory environment in the Philippines “has generally been streamlined,” the think tank said, adding that the “time and cost involved in dealing with licensing requirements have been reduced.”

The Heritage Foundation noted the regulatory environment is relatively well institutionalized but lacks efficiency.

While the labor market remains structurally rigid, “regulations are not particularly burdensome,” it added.

For market openness, the Philippines scored 74.4 in trade freedom. It received a score of 60.0 each for investment freedom and financial freedom. These scores remained unchanged.

“Foreign investment is generally welcome, and the Investment Code treats foreign investors the same as domestic investors,” the think tank said.

While the financial sector is dominated by banking and is relatively stable, it noted capital markets are underdeveloped.

The index considered aspects that also prevent foreign investors from setting up a business in a country — a thing that Philippine policy makers should consider as they push for amendments to the economic provisions of the 1987 Constitution, said Enrico P. Villanueva, who teaches money and banking at the University of the Philippines – Los Baños.

“The index notes that overall rule of law is weak, property rights score is below average, judicial effectiveness and government integrity are also average,” he said via Messenger chat.

“It is better that the government focuses on improving index scores rather than tinkering with the Constitution.”

The failure of institutions in the country is the main cause of low foreign investments, an economist said.

“The index recognizes that reforms have been made but the institutional challenges continue as the balance of power remains skewed,” Leonardo A. Lanzona, an economics professor at the Ateneo de Manila University, said via Messenger chat.

Weak Philippine institutions, as reflected in the country’s low score in government integrity, breed corruption and lead to specious reforms, he noted.

“The increasing numbers of Filipino households migrating to other countries is a testament to these institutional failures.” — By Kyle Aristophere T. Atienza, Reporter