Poverty and growth in the Philippines

Authors: Celia Reyes and Aubrey Tabuga, PIDS

Despite the Philippine economy having enjoyed one of its best growth periods in recent years, the poverty rate continues to rise, putting a strain on achieving the Millennium Development Goal targets the country has vowed to achieve come 2015.

Inequitable growth across sectors and geographical units combined with various natural and man-made crises have produced some damaging results. Likewise, poverty-reduction programs designed without taking into account the characteristics of poverty have not helped.

The Philippines’ GDP grew no less than 4 per cent in six consecutive years, averaging 4.6 per cent from 2003 to 2009. The experience that comes closest to this was during the Ramos administration in 1994 to 1997 when the country sustained a growth rate of 4 per cent and above for four consecutive years. Poverty rates for the first time went up continuously, from 24.9 per cent in 2003 to 26.4 in 2006, and then to 26.5 in 2009. This rise amidst high economic growth is puzzling. Even when the economy performed sluggishly, poverty rate was on a downward trend. So what factors accounted for the rise in poverty during faster economic growth?

First, significant economic growth happened in sectors and areas far from where the poor are. Poverty in the Philippines is still very much an agricultural phenomenon. Unfortunately, the agricultural sector continued to decelerate while industry and especially services sectors took centre stage. The sector slowed down consistently to 3.3 per cent and 2.4 per cent average annual growth during 2003–2006 and 2006–2009 respectively. The majority of the households who experienced a fall in real income were engaged in agricultural activities.

Economic growth did not happen in the poorest regions in the country. If it did, it happened in regions where there are no concrete redistributive efforts (none that make marks on the charts) that can complement the growth effects, rendering these useless in terms of poverty reduction. Take for instance Central Luzon Region, a largely-urban area north of Manila. It contributed to over one-tenth of the total increase of poor individuals during 2003 to 2009. Although, at some point, real income growth helped this region’s poverty rate to decline, the resulting redistribution of income worked the opposite way, cancelling out the effects of growth to poverty. On the other hand, persistent poverty in Mindanao like the Autonomous Region in Muslim Mindanao (ARMM) and Caraga continue to make an impact on the aggregate poverty rate. ARMM alone was responsible for 17 per cent of the increase in the number of poor in the entire country during 2003 to 2009. This is too big for a region that barely contributes 5 per cent of the total population.

Various kinds of man-made and natural crises have also struck the country recently. The food crisis in 2008 pulled the poor into an even more desperate situation, and those on the periphery into poverty, because food is the most basic of all needs. A price increase in rice, the Filipino staple food, can send an ordinary Filipino earning minimum wage into poverty. At the same time, the country suffers from the effects of typhoons year after year, bringing constant struggle to farmers.

These crises, combined with poverty reduction programs that come only in bits and pieces lacking effective convergence across and within sectors, have resulted to this major setback that we are facing right now. One problem is that these efforts do not consciously take action targeted to address the type or nature of poverty the Philippines is facing. The poor is not a homogeneous group. There are chronically poor people and there are those who were previously not poor, but, because of certain shocks or crises, fell into poverty (transient poor). The majority (52 per cent) of the poor are transient poor. The chronic poor need more long-term interventions that would give them the capacity and opportunities to move out of poverty. For a large segment of the population, appropriate safety nets during times of crises may prevent them from falling into poverty. It is essential to take this into account in designing policies and programs to significantly reduce the poverty rate.

The bottom line is this: growth alone is not sufficient to lift the poor out of poverty. The Philippines’ so-called ‘growth elasticity’ of poverty reduction is not only way below international standards but also below the average for developing countries. Higher income growth is of little help in reducing poverty because of the relationship between growth and poverty in the country.

The nature of growth must be inclusive, with the poor participating and benefiting from the growth, in order for poverty to decline significantly. And appropriate safety nets that can be quickly implemented would help avoid the number of poor to swell during times of shocks.

Celia Reyes is a Research Fellow at the Philippine Institute for Development Studies (PIDS). Aubrey Tabuga is Supervising Research Specialist at the PIDS.