MANILA – Conservative US think tank Heritage Foundation’s Economic Freedom Index cited corruption, bureaucratic red tape, and preferential treatment of the powerful as the factors that pulled down the Philippines’ ranking this year.
The Philippine economy is the 73rd freest in the 2021 index, dropping three places, following an economic freedom score of 64.1 – a decrease of 0.4 point due to a decline in trade freedom.
“The Philippines is ranked 12th among 40 countries in the Asia–Pacific region and its overall score is above the regional and world averages,” the index noted.
“The Philippine economy remained in the ranks of the moderately free this year. The regulatory environment is overly bureaucratic and costly for both businesses and investors. Of special concern are weaknesses in the judicial system and the government’s failure to counter ongoing corruption effectively,” it added.
In a report by The Philippine Star, the Philippines has been sliding in the index since 2017, aside from last year’s brief recovery.
This year’s drop is being blamed on “over 200 non-tariff barriers” which according to the Heritage Foundation “hampered trade even the country had tried to open up the economy more, most notably through the rice liberalization law in 2019.”
The report also noted that in January, a new law has been enacted allowing Duterte to drop permits but there is little evidence of it being effectively implemented.
It also cited that for the last three years, difficulty in commerce still remains despite the enforcement of an Ease of Doing Business Law.
The index measures economies’ freedom using 12 indicators from rule of law to state intervention and taxes.
In terms of the rule of law which covers property rights, judicial effectiveness and government credibility, the Philippines scored 57.0, 34.5 and 40.6 points, respectively.
“Property rights are recognized and respected but enforcement is inadequate and sporadic. The property registration process is time-consuming and expensive. Courts are inefficient, biased, corrupt, slow, and hampered by low pay, intimidation, and complex procedures. Corruption and cronyism are pervasive,” the index said.
“There is little accountability for powerful politicians, big companies, or wealthy families,” it added.
Despite the drops, the country’s labor freedom improved by 0.3 points and monetary freedom by 1.8 points but these were partially offset by a 1.3-point decrease in business freedom due to “high power costs and because the recovery rate when resolving insolvency has dropped.”
Firms in the country have also been assessed to have lesser tax burden, which will likely continue if Duterte sign the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill which would slash corporate income taxes by 25 percent from the current 30 percent.
“The overall tax burden equals 14.0 percent of total domestic income,” the index said, noting restrictions in investments in several sectors continue to hinder the country’s trade freedom.
“Foreign investment is generally welcome and the investment code treats foreign investors the same as it treats domestic investors. However, investment in several sectors remains restricted. Capital markets are underdeveloped,” the index added.
Due to crippled consumer spending and business activities due to the impact of the COVID-19 pandemic, the Philippine economy plunged to -9.5 percent in 2020 – or the sharpest economic decline since the Philippine Statistics Authority started collecting data on annual growth rates in 1946.
In a report by The Philippine Star, Department of Trade and Industry (DTI) Sec. Ramon Lopez was curious of the Philippines’ ranking drop.
“(I’m) wondering (about) their basis because we didn’t have any tariff increase recently,” he said in a Viber message.
Meanwhile, Hong Kong, Macau and other Chinese territories were absent in this year’s list as they are counted as part of China to “reflect Beijing’s increasing sway over policy.”