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Overcoming poverty in the Philippines

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Overcoming poverty in the Philippines

By Xubei Luo

First of two parts

FATIMA ESMAEL, a young mother of two in Cotabato, dreams of having a house of their own. Her husband, a pedicab driver, earns six dollars on a good day, just enough to pay for rice and bare necessities, forcing them to stay with relatives. “My wish is for us to escape poverty,” she said.

Eliminating poverty has always been a major challenge in the Philippines. Across generations, the country’s leaders vowed to bring the poverty numbers down but it seems to have remained daunting.

In the last decade, however, there were strong indications that the Philippines has started to make a serious dent on poverty, raising hopes for the likes of Fatima that the country can eventually lick the problem.

Our recent study titled Making Growth Work for the Poor: A Poverty Assessment for the Philippines has found out that the national poverty rate fell to 21.6% in 2015 from 26.6% in 2006, based on the latest Family Income and Expenditure Survey. Poverty decline was more rapid particularly in 2012 until 2015. With a strong economy, it’s likely that this trend continues up to this day.




What drives poverty reduction in the past decade? Three things stand out.

First is the increase in farm wages and the rising number of Filipinos getting incomes outside agriculture. This accounts for two-thirds of the decline in poverty.

Agriculture’s share of the employment is declining by nearly 1 percentage point each year. While many of the poor who left agriculture landed informal services jobs, they still get incomes a bit higher than what they would get from farm-related work. Most of the poor are still doing farm work.

The second reason for the poverty reduction are transfers from social programs, contributing 25% in the reduction of poverty. Foremost of these transfers is the Government’s Pantawid Pamilya, the government’s primary social assistance program. Expanded in the last few years, Pantawid extends cash grants to 77% of poor households and contributes to reducing poverty and to building of human capital — meaning that the children of poor families remain in school and stay healthy. This trend is consistent with the global experience with the impact of social safety nets on poverty.

And the third reason: remittances from both domestic and foreign sources contribute about 12% and 6% of poverty reduction. Two-thirds of Filipinos, or 15 million households, receive domestic and foreign remittances.

School enrollment has notably increased in recent years, with universal and mandatory kindergarten as well as two years of senior high school added to the education cycles. Pro-poor policies and changes to health insurance coverage have resulted in increased use of health services. Access to clean water and sanitation and electricity has improved. Social safety nets were expanded to cover most of the poor.

poverty

Despite these gains, however, there are still around 22 million Filipinos living below poverty line as of 2015.

Compared to its neighbors in the Southeast Asian region, the country isn’t reducing poverty fast enough. While Vietnam, Indonesia, and China have been reducing poverty at 2.1 to 2.4 percentage points per year measured by the international poverty line, the Philippines’ rate of poverty reduction has been less than 1 percentage point each year in the past decade.

Several challenges prevent the country from accelerating poverty reduction.

One challenge is the pattern of growth that is less pro-poor than the country’s neighbors. The country’s agricultural sector which employs most of the country’s poor has seen minimal productivity growth.

Workers moving out of agriculture in the Philippines have generally ended up in low-end service jobs. This contrasts to the experience of countries like China, Indonesia, Malaysia, and Thailand which generated larger number of manufacturing jobs to absorb those leaving the farm sector.

Inequality is another hurdle.

In the Philippines, the top 1 percent controls more than half of the nation’s wealth. This high concentration of income and wealth limits equality of opportunity and impedes equitable public service delivery necessary for inclusive growth.

Poor people start life at a disadvantage. Malnutrition, lack of resources, poor access to quality health care, low education, and skills limit their lifetime earnings.

Also, frequent natural disasters and persistent conflict in parts of Mindanao continuously push vulnerable groups into poverty and jeopardize long-term development of the poor’s human capital.

“I lacked education; I only finished high school so I ended up selling street food here in Manila,” says Rommel Punzalan, father of four. “I wanted to become a mechanic. I need to work very hard so I can send all my four children to school. I want them to finish college.”

The country needs to do much more to help the likes of Fatima and Rommel escape poverty.

 

Xubei Luo is a Senior Economist of the World Bank.

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