Philippines Vs. Indonesia: Manila Is Catching Up

by Royal Bank of Scotland, 09 May 2012

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topics:
Risk Management

tags:
Indonesia macro-economics Philippines

Most indicators for the Philippines, including external debt servicing ratios, import cover, external reserves relative to broad money and the net international investment position, have improved in recent years. On several of these measures, the Philippines is now comparable to Indonesia, a market that has been embraced more readily by investors.

In fact, we note that both the net international investment position and the composition of external reserves of the Philippines are now distinctly superior to those of Indonesia.

Government spending

After having somewhat involuntarily having run a very tight ship last year, the government is set to step up spending this year. In 2011, current spending of the government had increased at its slowest pace in two decades. A paltry rise of 2.3% in nominal spending had translated into a real decline of 0.7% from a GDP accounting perspective.

The government was also unable to meet its capital spending targets with the deviation from programmed levels amounting to 0.7% of GDP. Much of it reflected the decision of the authorities to review all pending projects for efficiency and cost considerations. As this fiscal tightness had come against of weak external conditions, fiscal policy had effectively become pro-cyclical with growth, when the need of the hour was quite the opposite.

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