2018Governance Indicator

Economic Freedom Index

Indicator Overview

The Economic Freedom Index (EFI) measures the protection and value of the individual’s liberty to pursue his own economic interests. It assesses the countries in 12 specific categories that are grouped into four main pillars that affect economic freedom:

  1. Rule of Law (property rights, government integrity, judicial effectiveness)
  2. Government Size (government spending, tax burden, fiscal health)
  3. Regulatory Efficiency (business freedom, labor freedom, monetary freedom)
  4. Open Markets (trade freedom, investment freedom, financial freedom)

 

Originally, there were only 10 economic freedoms captured. However, in the 2017 edition, the Index included two more (judicial effectiveness and tax burden).

Each of the twelve economic freedoms within these categories is graded on a scale of 0 to 100. A country’s overall score is derived by averaging these twelve economic freedoms, with equal weight being given to each.

This indicator is not part of the Results Matrices for Chapters 5 and 6. Nonetheless, this index is still being monitored to determine the country’s performance on governance.

Philippine Performance for the Past Five Years

Year* No. of Countries Indicator
Overall ranking Overall score
2014 186 89 60.07
2015 178 76 62.20
2016 178 70 63.08
2017 180 58 65.61
2018 180 61 65.00

* Aside from the overall ranking, all are reflected as scores. The closer to 100, the better.

The Philippines’ economic freedom score is 65.0, making its economy the 61st freest in the 2018 Index. Its overall score has decreased by 0.6 point, with lower scores for the government integrity, monetary freedom, and property rights indicators outpacing improvements in trade freedom and judicial effectiveness. The Philippines is ranked 13th among 43 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

The strong growth of the Philippines’ economy has allowed the government to prioritize domestic law-and-order issues over economic policy concerns. A rapid decline in the president’s popularity caused investor confidence to wane by the end of 2017. An absence of entrepreneurial dynamism thwarts development. Some fiscal reforms have been adopted, but deeper institutional reforms are required in interrelated areas: business freedom, investment freedom, and the rule of law. The judicial system remains weak and vulnerable to political influence.

On Rule of Law:

The Philippines recognizes and protects property rights, but enforcement is weak. Property registration is tedious and costly, and records management is poor. Judicial independence is strong, but the courts are plagued by inefficiency, low pay, intimidation, delays, and long case backlogs. Corruption and cronyism are pervasive, and the country is a regional money-laundering hub. The President’s strong-arm tactics reinforce a culture of impunity.

 

On Government Size:

The top individual income tax rate is 32 percent, and the top corporate tax rate is 30 percent. Other taxes include value-added and environmental taxes. The overall tax burden equals 13.7 percent of total domestic income. Over the past three years, government spending has amounted to 18.9 percent of total output (GDP), and budget surpluses have averaged 0.4 percent of GDP. Public debt is equivalent to 33.7 percent of GDP.

On Regulatory Efficiency:

In 2016, the Philippines increased the transparency of its building regulations, making it easier to deal with construction permits. Local labor costs are relatively low, and workers are highly motivated. Reports of forced labor in the Philippines continue. The government has increased subsidies under President Duterte and maintains price controls on pharmaceuticals and some food and household fuel items.

On Open Markets:

Trade is significant for the Philippines’s economy; the combined value of exports and imports equals 65 percent of GDP. The average applied tariff rate is 2.1 percent. Nontariff barriers impede trade. Government openness to foreign investment is above average. The gradually modernizing financial sector remains relatively stable and sound. Since 2014, overseas banks have been allowed to acquire 100 percent equity in existing banks.

 

From Heritage.org: https://www.heritage.org/index/country/philippines

Philippine vs. ASEAN Performance (Current vs. Past Year)

Country* 2018

Overall Ranking

2018

Percentile Rank**

2017

Percentile Rank

Change in Percentile Rank

(2018 vs. 2017)

Brunei 70 61.11 80.56 +19.44
Cambodia 101 43.89 47.78 +3.89
Indonesia 69 61.67 53.33 -8.33
Lao PDR 138 23.33 26.11 +2.78
Malaysia 22 87.78 85.00 -2.78
Myanmar 135 25.00 18.89 -6.11
Philippines 61 66.11 67.78 +1.67
Singapore 2 98.89 98.89 0.00
Thailand 53 70.56 69.44 -1.11
Vietnam 141 21.67 18.33 -3.33

* 180 countries were measured.

** The closer to 100, the better the score.

The country is the fourth economically free country among its ASEAN neighbors. Singapore still leads the economic freedom ranking among Southeast Asian countries with 2nd in ranking worldwide. Malaysia follows in 22nd place with Thailand at a distant third in 53rd place. According to Heritage Foundation, the region saw on average, below world standards for market openness especially investment freedom and financial freedom. Action by populous countries like China and India to relax restrictions on foreign investment and open their banking systems to competition from around the world would improve the livelihoods of hundreds of millions of people. High-performing Asian economies like those of Hong Kong, Singapore, New Zealand, and Australia have shown the way.

Further Information

Frequency of update: Yearly

Publication of update: 2 February 2018

Period of study: Second half of previous 2 years through first half of previous year (e.g. For EFI 2018, most data covers the second half of 2016 to the first 1st half of 2017). Note: Some component scores are based on a historical information (i.e. weighted average rate of inflation from January 1, 2016 to December 31, 2017.)

Link to the main site: https://www.heritage.org/index/

Historical data: https://www.heritage.org/index/download