In response to internal weaknesses and regional strategic challenges, the Philippines plans to modernize its air force and naval capabilities. Against this backdrop, the defense expenditure of the country is expected to increase at a compound annual growth rate (CAGR) of 9.41% between 2021 and 2025, says GlobalData, a leading data and analytics company.
GlobalData’s report, ‘The Philippine Defense Market - Attractiveness, Competitive Landscape and Forecasts to 2025’, reveals that the military spending of the Philippines, as a percentage of GDP, is expected to increase from the present 0.97% to 1.02% in 2025.
Hemant Bhandari, Aerospace & Defense Analyst at GlobalData, comments: “The Philippines plans to step up military spending to combat security threats such as terrorism, an illicit drug trade and territorial disputes in the South China Sea.”
Bhandari continues: “The acts of the Chinese armed forces in the South China Sea was a driving force for the President to approve the Horizon II program in 2018, with an expected spend of US$5.6bn between 2018-2022. The largest share of the program goes to the Air Force (US$2.61bn), followed by the Navy (US$1.44bn) and then the Army (US$ 890m). This split also explains the focus on multi-role and fighter aircraft, corvettes, submarines and other naval vessels and surveillance equipment.”
According to GlobalData, the defense imports, predominantly aircraft and naval vessels, to the Philippines are largely from South Korea (31.5%), Indonesia (20.8%) and the US (18.7%). Even though this trend is expected to continue, plans are in the works to expand the supplier base by procuring equipment from Italy, Japan, Spain, Poland, Australia and Israel.
Bhandari concludes: “The Philippines has been affected in many ways due to its exposure to Covid-19. The virus has not only led to an adverse impact on the economy as the country’s stock exchange witnessed a steep decline and the GDP growth rate projection has been sharply reduced to 5.5-6.5% from 6.5%-7.5%. The outbreak of the virus has also forced the cancellation of Exercise Balikatan 2020 and the Chief of Staff of the Armed Forces of the Philippines has tested positive for the virus. These will have a negative impact on the short to medium term on the defense budget and possibly defense preparedness.”