Against the backdrop of the global financial crisis and rising food, fuel, and commodity prices, addressing poverty and inequality in the Philippines remains a challenge. The proportion of households living below the official poverty line has declined slowly and unevenly in the past four decades, and poverty reduction has been much slower than in neighboring countries such as the People's Republic of China, Indonesia, Thailand, and Viet Nam. Economic growth has gone through boom and bust cycles, and recent episodes of moderate economic expansion have had limited impact on the poor. Great inequality across income brackets, regions, and sectors, as well as unmanaged population growth, are considered some of the key factors constraining poverty reduction efforts. This publication analyzes the causes of poverty and recommends ways to accelerate poverty reduction and achieve more inclusive growth. it also provides an overview of current government responses, strategies, and achievements in the fight against poverty and identifies and prioritizes future needs and interventions. The analysis is based on current literature and the latest available data, including the 2006 Family Income and Expenditure Survey.

This paper explores the relationship between external debt and poverty. A number of observers have argued that high external indebtedness is a major cause of poverty. Using the first-differenced general method of moments (GMM) estimator, the paper models the impact of external debt on poverty, measured by life expectancy, infant mortality, and gross primary enrollment rates, while duly taking into account the impact of external debt on income. The paper thus endeavors to bring together the literature that links external debt with income growth and poverty. The main conclusion is that once the effect of income on poverty has been taken into account, external indebtedness indicators have a limited but important impact on poverty.

This Selected Issues paper assesses potential spillover effects to the Philippines from US policy shifts and lower growth in China. The US fiscal expansion affects the Philippine economy through the interest rate and the trade channels. The net spillover impact on Philippine GDP is negative in the short term. Compared with the productive case, in which the net output impact is positive, the US nominal policy rate rises by less, but faster normalization of the US term premium leads to higher real interest rates. On the other hand, the gain from trade is smaller owing to the weaker domestic demand expansion in the United States.