Outlook for 2011-15

• The resounding victory won by Benigno Aquino in the May 2010 presidential election suggests that the Philippines is on course for a period of relative political stability.
• Mr Aquino's predecessor, Gloria Macapagal Arroyo, will use what influence she still has in Congress (the legislature), the Supreme Court (the upper house) and other bodies to block attempts to investigate her for alleged corruption.
• Government revenue will remain low as a proportion of GDP, and the Economist Intelligence Unit therefore expects the budget to remain in deficit, averaging 2.5% of GDP a year in the forecast period.
• Real GDP grew by 7.3% in 2010, the fastest pace since the mid-1970s, but we forecast that growth will slow to 5.2% in 2011 and then average 5.6% a year in the remainder of the period.
• Inflation will accelerate to 5.3% in 2011, mainly owing to higher oil and non-oil commodity prices, before slowing to an average of 4.6% a year in 2012-15.
• After falling in 2011 in response to a rise in oil imports, the current-account surplus will grow in 2012, before declining again from 2013 onwards. The surplus will be equivalent to 3.2% of GDP on average in the forecast period.

Monthly review

• The House of Representatives (the lower house) has voted to impeach the official ombudsman, Merceditas Gutierrez, a close ally of Ms Macapagal Arroyo, thereby setting the stage for a high-profile trial in the Senate.
• A high-level council comprising members of the executive and the legislature has approved 23 pieces of legislation to be fast-tracked through Congress, but the most significant measures are unlikely to be passed any time soon.
• At its meeting on March 24th the Bangko Sentral ng Pilipinas (the central bank) raised overnight borrowing and lending rates by 25 basis points each. It was the first rate rise since August 2008.
• The government recorded a rare budget surplus in January. The main tax agency, the Bureau of Internal Revenue, exceeded its collection target for the month. Expenditure was lower than planned.
• The unemployment rate edged up slightly in the first quarter of 2011, according to the National Statistics Office. The number of unemployed people stood at 2.9m, equivalent to 7.4% of the 39.2m-strong labour force.
• Merchandise exports rose by 11.8% year on year in January, down from the previous month's expansion of 26.5%, according to the statistics office. Meanwhile, imports rose by 23.9%.

The resounding victory achieved by Benigno Aquino in the May 2010 presidential election-he beat the second-placed candidate, Joseph Estrada, a former president, by a record margin of more than 5m votes-suggests that the Philippines is on course for a period of relative political stability. The president serves a six-year term and, under the terms of the constitution, cannot be removed from office except through impeachment. But it remains to be seen whether Mr Aquino has what it takes to survive as president in the febrile atmosphere of Philippine politics. Mr Aquino has yet to show that his election victory reflected his own abilities as a leader rather than those of his mother, Corazon Aquino, a former president whose death in August 2009 was mourned by millions of people-providing Mr Aquino with the perfect platform from which to launch his own bid for the presidency. Mr Aquino's attempts to investigate corruption alleged to have occurred under his predecessor, Gloria Macapagal Arroyo, have already made enemies of those who benefitted from the patronage of the previous administration. Ms Macapagal Arroyo and her allies will use what influence they still have in Congress (the legislature), the Supreme Court and other state institutions to defend their interests, even if that means destabilising the current administration.

One of Mr Aquino's first acts as president was to pass an executive order establishing a "truth commission" to investigate the previous administration. But in early December the Supreme Court ruled by ten votes to five that the order was unconstitutional. The justice minister, Leila de Lima, said that the court's ruling showed that Ms Macapagal Arroyo's controversial appointment of an ally, Renato Corona, as chief justice in the final month of her term was "paying off". Thwarted in their attempts to investigate Ms Macapagal Arroyo herself, Mr Aquino's allies in the legislature are attempting to pick off the previous president's allies. On March 23rd the House of Representatives (the lower house) voted overwhelmingly to impeach the official ombudsman, Merceditas Gutierrez, for the failure of her office to secure any convictions in relation to cases of the previous administration's alleged corruption. Ms Gutierrez's conviction by the Senate (the upper house) would remove one of Ms Macapagal Arroyo's closest allies from office. The move could also revive Mr Aquino's campaign to investigate the previous president herself.

Although Mr Aquino can count on the support of the House of Representatives, only four of the Senate's 23 members currently belong to his Liberal Party (LP). The president will therefore have to work hard to win the support of the upper house for his policies and, in particular, for the support of the 16 Senators (a two-thirds majority) whose votes will be required to convict Ms Gutierrez. So far the administration has been successful in pushing through important pieces of legislation, such as the 2011 budget, which was passed in Congress in mid-December. But Ms Gutierrez's trial is likely to prove far more divisive. It will also distract Senators from the important task of passing legislation aimed at boosting investor confidence in the country.

At a time when the impeachment proceedings are likely to ratchet up political tensions, the president must be careful not to antagonise the armed forces. Ms Macapagal Arroyo faced a series of military mutinies during her presidency, but she survived these with the support of the army's most senior generals. In an early attempt to win the backing of the armed forces, Mr Aquino has offered to pardon all those implicated in the mutinies against his predecessor. However, he may come to regret this decision: pardoning those who rebelled against the previous commander-in-chief will do nothing to prevent errant officers from taking up arms again. Civil-military relations have already been strained by Senate hearings into Ms Gutierrez's role in investigating high-level corruption in the military, including claims that army funds were siphoned off into a "retirement" fund for senior generals. The risk of a coup should not be overstated, but political divisions could prove destabilising if they permeate through the ranks.

Security risks will persist throughout the forecast period. Despite years of negotiations, Ms Macapagal Arroyo failed to finalise a peace agreement with the main separatist movement on the southern island of Mindanao, the Moro Islamic Liberation Front (MILF). However, the rebel organisation responded positively to Mr Aquino's election victory and formal negotiations between the two sides resumed in early February. But serious obstacles to a peace agreement remain. Any attempt, for example, by Mr Aquino to reinstate the terms of a collapsed 2008 peace accord-especially the previously proposed boundaries of an autonomous Muslim homeland-would encounter strong opposition from Christian politicians in Mindanao. There will also be difficulties signing an agreement with the National Democratic Front, the umbrella organisation of the Communist Party of the Philippines and its military wing, the National People's Army. Official negotiations resumed in February aimed at ending a rebellion that has lasted for more than 40 years.

The next presidential election is due to be held in 2016. Under the constitution, Mr Aquino will not be permitted to stand for re-election, although it is possible that his supporters will attempt to revise the constitution before then to allow the president to serve again. Elections will be held in May 2013 for one-half of the seats in the Senate and the entire lower house. The congressional elections will provide Mr Aquino and the LP with an opportunity to strengthen their position in the legislature. As Mr Aquino will still have three more years to serve as president by then, he will continue to benefit from all the possibilities for patronage that his office provides.

Relations with the US will remain of paramount importance for the Philippines in 2011-15. Aside from historical connections-the Philippines was once a US colony-ties are strong for a number of reasons, including an important commercial relationship (the US is the Philippines' largest trading partner) and close military associations (the US army provides support for the government's campaign against Muslim separatists on Mindanao). US military presence will continue to take the form of intelligence support and joint training exercises. China's importance as a trade partner and a source of investment will grow in 2011-15. Under diplomatic pressure from China, in December 2010 Mr Aquino chose to side with the likes of Cuba, Iran and Venezuela in boycotting the ceremony at which Norway's Nobel committee awarded a peace prize to a Chinese dissident, Liu Xiaobo. But the status of the Spratly Islands in the South China Sea will also remain a source of tension. In early March the Philippine government filed a diplomatic protest after two Chinese patrol boats allegedly harassed a Philippine ship exploring for oil in the waters surrounding the disputed islands.

The main policy challenge for Mr Aquino's administration during the early part of the forecast period will be to show that it is committed to improving the public finances. The budget has been in deficit for the past 13 years, and the ratio of public debt to GDP is among the highest in South-east Asia, at 55.4% in 2010. Mr Aquino's administration has abandoned the goal of balancing the budget, arguing that a deficit is unavoidable if public services are to be improved, but the administration is targeting a gradual reduction in the deficit, to 2% of GDP by 2013. The government is seeking to upgrade the country's infrastructure through partnerships between the public and private sectors. Mr Aquino aims to have established around 80 such partnerships, with aggregate investment capital of P740bn (US$16.8bn), by the end of his presidency in 2016. In March the government announced details of five of at least ten projects expected to be put out to tender in 2011. Private investors have previously been deterred from becoming involved in all but the most commercially attractive projects by the government's refusal to offer guarantees. However, Mr Aquino has said that he is prepared to provide such assurances in some circumstances-a policy that will add to the government's contingent liabilities.

The budget deficit will shrink as a percentage of GDP in 2011-15, but there will be not be a return to a balanced budget, as this would require larger improvements in the tax take than seem feasible. Although the budget deficit narrowed from the equivalent of 3.9% of GDP in 2009 to 3.7% of GDP in 2010, revenue fell to its lowest level in relation to GDP since the late 1980s. The 2011 budget, approved by Congress in December, has set a deficit target of 3.2% of GDP, based on the official growth assumption. The budget increased expenditure, notably on welfare, but it contained few measures to boost revenue. In 2011-15 the Economist Intelligence Unit expects the revenue to GDP ratio to stay below the level at which it stood before the 2008-09 global recession, while the fiscal deficit will remain relatively large, at an average 2.5% of GDP a year. Even though it is not targeting a balanced budget in the medium term, the administration will want to establish a reputation for economic competence among its foreign creditors, given that it depends on the global bond market to finance its deficits.

After leaving policy interest rates unchanged, at record lows since July 2009, the Bangko Sentral ng Pilipinas (BSP, the central bank) raised overnight borrowing and lending rates by 25 basis points each, to 4.25% and 6.25% respectively, at its most recent policy meeting on March 24th. The BSP's monetary board will continue to raise interest rates for the remainder of the year to prevent inflation from exceeding the upper limit of its 3.5-5.5% target range. Although the central bank will want to avoid sharp rises in interest rates, it may be forced to tighten monetary policy more aggressively than it would like to control inflation. The BSP was one of the slowest among the major central banks in South-east Asia to raise interest rates in recent months. The persistent fiscal deficit will keep market interest rates high and may crowd out private borrowers.

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The Philippine economy expanded by 7.3% in 2010, the fastest pace since the mid-1970s, as demand rebounded after the 2008-09 global recession. We expect the rate of economic expansion to slow in 2011. In addition to weaker global growth, prospects for growth in the Philippine economy will be negatively impacted by a sharp rise in the international price of crude oil. The Philippines imports virtually all of its crude oil requirements. Slower growth in Japan and possible disruptions to manufacturing supply chains as a result of the March 11th earthquake and consequent tsunami may also impact growth this year. We have therefore revised down our forecast for real GDP growth in 2011, to 5.2%, from 5.4% previously. Growth will then average 5.6% a year in the remainder of the forecast period. Personal consumption will be supported by a fall in unemployment and by increased spending by the government on conditional cash transfers. The 2008-09 global recession and the seizing up of credit markets had a severe impact on fixed investment in the Philippines. However, gross fixed investment has since recovered as firms have revived expansion plans, but the growth rate in 2010 of 17.1% will not be sustained in the forecast period. Without marked improvements in the business environment, the country will not attract the levels of foreign direct investment needed to raise investment significantly, given the low level of national savings.

Exports of goods and services recovered strongly in 2010, expanding by 25.6%, after a contraction of 13.4% in 2009. In addition to stronger global economic growth, exports have been boosted by a recovery in demand for electronic goods, which account for around 60% of Philippine goods exports. However, with global growth expected to moderate this year, Philippine export expansion is set to slow again. Stronger final demand in the country's main export markets, particularly China, will support a return to faster export growth in 2012-15. Import growth will exceed export growth in 2011, but from 2012 onwards import growth will closely track that of exports, as a large proportion of imports to the Philippines consists of components used to manufacture goods that will be sold abroad.

The main downside risk to our GDP growth forecast comes from the possibility of a sharp slowdown in global economic expansion in 2011 as the fiscal and monetary stimulus measures that have been implemented around the world in the past three years are withdrawn. The conflict presently besetting the Middle East and North Africa also poses risks to the Philippines. In addition to driving up oil prices, the conflict may result in a drop in remittances from overseas workers in that region, which accounts for around 16% of remittance receipts for the Philippines. Any drop in remittances would depress personal consumption.

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The Philippines looks to be exposed to the Japanese natural disaster

The earthquake and tsunami that struck Japan on March 11th, leaving some 21,000 people missing or dead, elicited a swift message of sympathy from the Philippines. The president, Benigno Aquino, offered humanitarian assistance, and 10.1 tonnes of food packs and other relief supplies were soon dispatched to the north-eastern coastal regions that were hit hardest by the disaster. Amid concerns about the leak of harmful radiation from the Fukushima Daiichi nuclear power plant, the government announced that the Philippine Nuclear Research Institute would begin random testing of foodstuffs imported from Japan. On March 23rd the Philippines' chief socioeconomic planner, Cayetano Paderanga, said that officials may be forced to downgrade their 7-8% growth forecast for 2011 in response to the Japanese disaster along with the violence presently besetting the Middle East and North Africa.

Of South-east Asia's major economies, the Philippines looks to be more at risk than most from any slowdown in the Japanese economy. For a start, Japan is the country's most important trading partner. In 2010 the Philippines' exports to Japan totalled US$7.8bn, equivalent to 15.2% of its export earnings, making Japan the country's leading export market, according to the National Statistics Office. Indonesia is the only country that has a greater export dependence on Japan than the Philippines. Japan was also the Philippines' most important source of imports in 2010, with shipments totalling US$6.7bn, representing 12.3% of total import payments. Much of the Philippines' trade with Japan is related to the manufacture of electronics products. Philippine electronics producers who depend on Japanese factories for shipments of electronic components may face disruptions to their supply chains in the coming months. Electronics remains an important industry in the Philippines, accounting for around 60% of the country's total export earnings. But, in terms of the impact of lower trade with Japan on overall GDP growth, the Philippines may be less vulnerable than South-east Asia's more trade-dependent economies: in 2010 the Philippines' exports to Japan were equivalent to only 4.1% of GDP. (Singapore's exports to Japan were equivalent to 7.4% of GDP, even though they accounted for only 4.7% of the city state's total export receipts.)

In addition to being an important trading partner, Japan is also home to thousands of overseas Filipino workers and is a major source of foreign direct investment in the Philippines. In 2010 remittances from Filipinos working in Japan amounted to around US$880m, equivalent to 4.7% of the country's total remittance receipts, according to the Bangko Sentral ng Pilipinas (the central bank). Only the US, Saudi Arabia and the UK were more important sources of remittances in 2010. Japan was also the leading source of direct investment in the Philippines in that year. Of the P196.1bn (US$4.5bn) of foreign investment approved in 2010 by the country's four main investment agencies, P58.3bn came from Japan, according to the National Statistical Co-ordination Board. The Japanese natural disasters could result in lower flows of remittances and investment to the Philippines in the coming year or so.

A gradual recovery in domestic demand, a poor domestic rice harvest and higher global oil prices contributed to an acceleration in inflation in 2010. Consumer prices rose at an annual average rate of 3.8% in that year. Inflation will accelerate again in 2011, to 5.3% on average, in line with higher global prices for oil and non-oil commodities, notably food. Annual inflation will slow to 4.6% in 2012 as global commodity prices fall again, and it will then average 4.7% in 2013-15. Wage pressures are likely to increase in line with healthy economic growth, but relatively high unemployment will deter excessive wage demands.

Relatively rapid economic growth at a time of weak growth in the developed world together with continued current-account surpluses should help to support the peso in the forecast period. The currency is forecast to appreciate gently against the US dollar, strengthening to an average of P42.5:US$1 in 2015, from P45.1:US$1 in 2010. The Philippines was the recipient of record inflows of portfolio investment in 2010 owing to the relatively high yields available in the country. Such inflows are likely to remain strong in 2011, but the peso would be vulnerable if global risk aversion was to increase in response, for example, to renewed concerns about sovereign debt defaults in Europe. The peso would also be hit if global oil prices rise more sharply than is presently forecast, given that the Philippines is a net importer of oil, or if inflation was to accelerate more rapidly than is forecast.

Despite the continuing merchandise trade deficit, a large surplus on the current transfers account will ensure that the current account remains in surplus in 2011-15, to the tune of around 3.2% of GDP on average. The current-account surplus will fall in 2011 as the value of goods imports rises sharply in line with higher global oil prices. Although the recent political uprisings in the Middle East and North Africa could result in a drop in remittances from Filipinos working in the region, a general improvement in overseas labour markets will help to support a rise in the transfers surplus. Merchandise exports will expand by an average of 11.7% a year in the forecast period, driven by healthy final demand in the Philippines' main export markets and higher international prices for its main category of exports, electronic goods. Imports will expand by 12.2% a year on average in 2011-15, driven mainly by strengthening demand for the country's exports, which include a high imported component. The Philippines has recorded surpluses on its services account since 2006 and will continue to do so during the forecast period. Services exports have been boosted by the country's growing importance as a base for business-process outsourcing, and the outsourcing sector will continue to record strong growth in 2011-15.

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The House of Representatives (the lower house of Congress, the legislature) has voted to impeach a close ally of the previous president, Gloria Macapagal Arroyo. The government's ombudsman, Merceditas Gutierrez, will stand trial in the Senate (the upper house) on May 9th when Congress returns from a six-week recess for the Easter holiday. She is accused of betrayal of public trust for failing to investigate cases of corruption that are alleged to have occurred during Ms Macapagal Arroyo's presidency. If convicted, the ombudsman would be removed from her post and barred from holding public office again. A conviction would also revive the anti-corruption campaign of the president, Benigno Aquino, which has been stalled since the Supreme Court ruled in early December that a "truth commission" established to investigate Ms Macapagal Arroyo was unconstitutional.

Mr Aquino commands a strong majority in the House of Representatives. It was therefore no surprise that, on March 23rd, the lower house voted overwhelmingly to impeach Ms Gutierrez, by 212 votes to 44 (with four abstentions). But the result of what is likely to be a highly politicised trial in the Senate is much less predictable. Only four of the upper house's 23 members belong to Mr Aquino's Liberal Party. Ms Macapagal Arroyo's party, Lakas-Kabalikat ng Malayang Pilipino-Christian Muslim Democrat (Lakas-Kampi-CMD), also has four members, as does the Nacionalista Party. Of the Senate's remaining 11 members, five are independent, two each belong to Pwersa ng Masang Pilipino (PMP) and the Nationalist People's Coalition (NPC), and one member each from the People's Reform Party (PRP) and Laban ng Demokratikong Pilipino (LDP). A conviction requires the support of a two-thirds majority (16 members).

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Prior to the lower house's decision to impeach Ms Gutierrez, the Senate had already found probable cause to impeach the government's ombudsman in relation to an investigation into high-level corruption in the military. The testimony of two witnesses who appeared before the Senate's Blue Ribbon Committee in January appeared to cast doubt on Ms Gutierrez's claim that there was insufficient evidence to prosecute a former comptroller of the armed forces, Colonel Carlos Garcia, for plunder in relation to some P300m (US$6.7m) in undeclared assets. Ms Gutierrez's role in the investigation of military corruption is not among the alleged offences included in the articles of impeachment, but it is possible that the Senate will take into account the evidence presented to the committee to explain the official ombudsman's low conviction rate. The committee's partial report, which was presented on March 10th, called on Ms Gutierrez to resign before any trial to "save the office of the ombudsman" from scandal. However, Ms Gutierrez has refused to step down.

The articles of impeachment accuse Ms Gutierrez, who was appointed in 2005, of failing to act in relation to six cases of alleged corruption, including claims that Ms Macapagal Arroyo used funds from the Department of Agriculture to finance her election campaign in 2004, and that the authorities demanded bribes to award a broadband Internet contract to a Chinese company, ZTE, in 2007. These cases were to have been examined by the truth commission established by Mr Aquino soon after he became president. The official ombudsman's impeachment trial will provide a means of shedding more light on these cases. If Ms Gutierrez is convicted, the removal of the government's ombudsman from office may pave the way for the vigorous anti-corruption drive that Mr Aquino promised during his election campaign. The interests of the present administration would therefore be well served by a conviction. However, the trial is likely to divert the Senate's attention away from the authorities' legislative programme.

In February the Legislative-Executive Development Advisory Council (LEDAC, a consultative council chaired by the president and comprising high-ranking members of the administration and Congress) met for the first time since Mr Aquino took office in June 2010. It concurred with the administration's list of 23 pieces of legislation to be fast-tracked by Congress. Among the most significant economic policy proposals were: a fiscal responsibility bill that would require the legislature to balance measures that reduce budget revenue with those that increase revenue; a bill to "rationalise" fiscal incentives awarded to investors; and amendments to the procurement law (Republic Act No. 9184) and the build-operate-transfer law (Republic Act No. 6957, as amended by Republic Act No. 7718). None of the proposals are at an advanced stage in Congress, although the proposal to rationalise investment incentives has been under discussion in the legislature since the mid-1990s. As a result, the proposals may not be enacted by the end of the current congressional session in early June. But three other measures could be finalised before then because they have already gone through the committee stage. One proposal is to postpone elections in the Autonomous Region of Muslim Mindanao, due in August, to coincide with congressional and local polls in May 2013. This measure was passed by the House of Representatives on March 22nd but will face strong opposition in the upper house. The other measures that may be passed in the current session of Congress are changes to the labour code to allow night-time working by women and the streamlining of perks at state-owned enterprises (SOEs). Given the obstacle-strewn path that most government proposals encounter in the legislature, the president's list of bills is ambitious. But the fact that the LEDAC has even met is a step forward-the committee had not convened since October 2009.

The Bangko Sentral ng Pilipinas (BSP, the central bank) has raised its main policy interest rates for the first time since August 2008. On March 24th the central bank's monetary board increased the overnight borrowing and overnight lending rates by 25 basis points each, to 4.25% and 6.25% respectively. The BSP had been the only major central bank in South-east Asia not to have raised interest rates since slashing the cost of borrowing in response to the 2008-09 global financial crisis. The BSP said that the decision to raise interest rates came in response to accelerating inflation (consumer prices rose by a 22-month high of 4.3% year on year in February) as well as higher international commodity prices, notably for food and oil. The central bank said that its inflation forecasts indicate that its annual average inflation target of 3-5% could be at risk, but added that its "pre-emptive" response to the build-up in price pressures would anchor inflationary expectations.

Prior to the recent move, the BSP had left its two main interest rates at record lows since July 2009. The economy's strong performance in the fourth quarter of 2010, when real GDP expanded by 7.1% year on year, and the continuing growth in merchandise exports and remittances in the first month of this year, appear to have convinced the bank that the economy can withstand higher interest rates.

The government's budget deficit is typically at its widest in the first quarter of the year. In 2011 the authorities expect to record a first-quarter deficit of P112bn (US$2.5bn), equivalent to more than one-third of the deficit target of P290bn for the year as a whole. But in January the government recorded a budget surplus of P13.4bn, owing to two factors: budget revenue rose by 47.3% year on year to P135.9bn, as the two main tax-raising agencies, the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC), both registered strong revenue growth. The BIR exceeded its collection target for the month by P2.6bn, while the BOC was P200m above its collection target. These results are in part owing to higher oil and commodity prices, particularly in the case of the BOC, but a recent campaign against tax evasion may also be paying dividends. The most striking improvement on the revenue side was from a non-tax source, the Bureau of the Treasury-its revenue rose to P31bn from only P5.2bn in the year-earlier period owing to dividends paid by SOEs. A 5.3% year-on-year fall in government expenditure, to P122.5bn, also contributed to the budget surplus in January. This reflected the government's decision to bring forward to December some of the expenditure programmed for this year. This trend is therefore unlikely to have continued, particularly as in mid-March the government announced plans to raise total spending in 2011 by P10bn, to P1.71trn (US$38.6bn).

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The Philippines' unemployment rate edged up slightly in the first quarter of 2011, according to the National Statistics Office. The number of unemployed people stood at 2.9m at end-January, equivalent to 7.4% of the 39.2m-strong labour force, representing only a small increase from the first quarter of 2010, when 2.8m people were jobless. The unemployment rate was highest in the capital, Manila, at 12%. Unemployment was lowest in the Cagayan Valley, in the north-east of the main island of Luzon, and in the Zamboanga Peninsula, on the southern island of Mindanao, at 3% in both regions. For 2010 as a whole the unemployment rate averaged 7.3%, down slightly from 7.5% in 2010, representing the highest annual rate of joblessness since 2006. Unemployment rose to a high of 8% in the second quarter of 2010, but fell to 6.9% in the third quarter before rising to 7.1% in the fourth quarter. The Philippines does not publish seasonally adjusted unemployment figures and so year-on-year changes in joblessness are the most reliable indication of the state of the labour market. The number of underemployed people, meaning those working less than 40 hours per week, was more or less stable in the first quarter of 2011, at 7.1m, equivalent to 19.4% of the labour force. Services remained the country's main employer, accounting for 52.5% of the total number of employed in January. Most of those employed by the service sector worked in wholesale and retail trade. In addition, agriculture accounted for 32.9% of the total number of employed, while the remaining 14.5% were employed in industry, mostly in manufacturing.

The Philippines' merchandise exports rose by 11.8% year on year in January, down from an expansion of 26.5% in December 2010, according to the National Statistics Office. Exports grew at a record pace in 2010, expanding by 33.8%, amid a recovery from the slump in global trade in 2009, when exports contracted by 21.7%. However, the pace of export growth had begun to slow in fourth quarter of 2010. Slower growth in exports of electronic goods-the Philippines' leading export, accounting for around 60% of total earnings-explains the recent slowdown in overall exports. In January exports of electronic goods rose by only 5.3%, down from growth of 19.4% in December and 40.1% in 2010 as a whole. Excluding electronic goods, exports grew by 20.2% in January, representing a much more gradual slowdown from growth in 2010 of 25%. This is explained by the strong rates of growth recorded in exports of non-electronic goods in January, notably of machinery and transport equipment (which grew by 27.2%), coconut products (53.9%), mineral products (40.3%) and garments (29.2%). Meanwhile, imports continued to record strong year-on-year growth in January, rising by 23.9%. Imports of electronic products were up by 37.6%, suggesting that the electronics industry remains relatively strong, despite the slower growth in exports. Imports of crude petroleum rose by 32.7% in January. As import growth vastly exceeded that of exports, the merchandise trade deficit widened sharply in January, to US$1.3bn-the biggest monthly deficit since July 2008.

Remittances from Filipinos working overseas are an important source of economic growth for the country. In 2010 remittances totalled US$18.8bn, equivalent to 10% of GDP, boosting personal consumption. Remittances have also kept the current account in surplus despite the country's wide merchandise trade deficit. In January the value of remittances rose by 7.6% year on year, to US$1.5bn. However, around one-half of the country's overseas workers are based in the Middle East. In 2010 Filipinos working in that region repatriated US$3bn, representing 15.8% of total remittance receipts. The recent unrest besetting North Africa and the Middle East would seem to threaten Philippine employment in the region, and consequently result in a fall in remittances-both of which could undermine household income in the Philippines. However, at present there is no sign of a sharp fall in remittances. Towards the end of March around 14,000 registered overseas Filipino workers had left Libya, which is now the target of airstrikes by a Western-led alliance, with around 2,000 Filipinos still in the country, mainly employed in medical services. Of those who had departed, more than 8,000 are returning to the Philippines, while the rest are mostly relocating to other parts of the Middle East. Those who have left Libya are expected to find employment readily elsewhere. The Philippine Overseas Employment Administration, the government body that promotes and monitors overseas employment, is reported to have more than 200,000 unfilled job orders on its books. The number of displaced workers would only become problematic if turmoil spread to the region's two major destinations for overseas Filipino workers, Saudi Arabia and the UAE. They accounted for 8.2% and 4.1%, respectively, of remittance receipts in 2010.

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Land area

300,179 sq km

Population

88.6m (August 2007 census)

Main towns

Population in '000 (2007)

Metro Manila (National Capital Region): 11,553 Taguig City: 613

Quezon City: 2,679 Valenzuela: 569

Manila (capital): 1,661 Cagayan de Oro: 554

Kalookan: 1,379 Paranaque: 553

Davao: 1,363 Las Pinas: 532

Cebu: 799 General Santos City: 530

Zamboanga: 774 Bacolod: 499

Pasig: 617 Iloilo: 419

Climate

Tropical

Weather in Manila (altitude 14 metres)

Hottest month, May, 24-34°C; coldest month, January, 21-30°C (average daily minimum and maximum); driest month, February, 13 mm average rainfall; wettest month, July, 432 mm average rainfall

Languages

Filipino (Tagalog), English and Spanish; many local dialects

Weights and measures

Metric system; also some local units

Currency

Peso (P); P1 = 100 centavos. Average exchange rate in 2010: P45.1:US$1

Time

8 hours ahead of GMT

Fiscal year

January-December

Public holidays

January 1st (New Year's Day); February 25th (EDSA Revolution Day); April 21st (Maundy Thursday); April 22nd (Good Friday); April 11th (Valour Day); May 2nd (Labour Day); June 12th (Independence Day); August 21st (Ninoy Aquino Day); August 29th (National Heroes' Day); November 1st (All Saints' Day); November 30th (Bonifacio Day); December 25th (Christmas Day); December 30th (Rizal Day); December 31st (New Year's Eve)

Official name

Republic of the Philippines

Form of state

Under the 1987 constitution, the government is based on a separation of powers between the executive presidency, a bicameral legislature and an independent judiciary

The executive

The president is chief executive, head of state and commander-in-chief, serves no more than one six-year term and may approve bills passed by Congress (the legislature) or exercise a veto, which can be overridden by a two-thirds majority of Congress. Cabinet appointments are subject to approval by the Congressional Commission on Appointments

Legislature

The Congress of the Philippines consists of the Senate (the upper house, with 24 members) and the House of Representatives (the lower house, which has 278 members, of whom 80% are directly elected and 20% are selected from party lists). Senators are elected for six-year terms and representatives for three-year terms

Legal system

Based on US common law; the 1987 constitution contains a Bill of Rights and provides for a judiciary with the Supreme Court at its apex

National elections

Elections took place in May 2010 (for the president and vice-president, the House of Representatives and one-half of the Senate). The next legislative election is due in May 2013 (for the House of Representatives and one-half of the Senate); the next presidential election is due in 2016

National government

Benigno Aquino became president for a six-year term in June 2010. However, his party, the Liberal Party, does not command a majority in either house of Congress

Main political organisations

Liberal Party; Lakas-Kabalikat ng Malayang Pilipino-Christian Muslim Democrat (Lakas-Kampi-CMD); Nacionalista Party; Nationalist People's Coalition (NPC); Pwersa ng Masang Pilipino (PMP); Communist Party of the Philippines (CPP); Moro National Liberation Front (MNLF); Moro Islamic Liberation Front (MILF)

President: Benigno Aquino

Vice-president: Jejomar Binay

Key ministers

Agriculture: Proceso Alcala

Budget & management: Florencio Abad

Defence: Voltaire Gazmin

Education: Armin Luistro

Energy: Jose Rene D Almendras

Environment: Ramon Paje

Finance: Cesar Purisima

Foreign affairs: Alberto Romulo

Justice: Leila de Lima

Trade & industry: Gregory Domingo

Central bank governor

Amando Tetangco