Southeast Asia

The economy has grown steadily in the past 2 years. GDP grew at 5.4% because of strong services performance and the sustained momentum of manufacturing. Record levels of remittances ($12.8 billion) from overseas workers have allowed higher household spending. Increased merchandise exports have also driven growth.

Fiscal consolidation has been moving well with better tax collection and tighter government spending. The aggressive tax reform program, begun in 2005, produced significant results. Gains in fiscal consolidation keep the Government on track for achieving its target of a balanced budget by 2008. The significance of the success with fiscal consolidation extends well beyond contributing to macroeconomic stability. It has the potential to be the tipping point that moves the Philippines onto a path of accelerated growth performance in the medium term. Already, the improved fiscal situation has given space for new ADB program loans in the power and finance sectors; it has also provided the headroom for the Government to expand spending in infrastructure and social expenditure needed by the poor.

The country strategy and program (2005–2007) is designed to support high-impact projects. Key features include a strategic focus on the most urgent development constraints, including fiscal consolidation, an improved investment climate, and achieving the Millennium Development Goals; alignment of ADB’s program with government strategy and priorities; reducing transaction costs through harmonization with domestic systems and activities of other development partners; and working within a results framework emphasizing development impacts and outcomes. Implementation of reforms, especially macroeconomic reforms, has improved, as recent ADB-supported policy-based operations have indicated.

ADB approved two program loans for power and finance totaling $650.0 million, the highest annual lending since 1998. In addition, ADB approved five technical assistance projects (including one supplementary) for $4.7 million, and three investment grants, funded by the Government of Japan, for $4.4 million. The latter included support for the Southern Leyte landslide disaster under a $3 million investment grant financed by the Japan Fund for Poverty Reduction. ADB also reprogrammed $570,000 from approved but unused technical assistance grants for disaster-related assistance to finance the rehabilitation work following the landslide in Southern Leyte in early 2006 and in the Mayon area after a typhoon, and for country-wide long-term disaster preparedness.