Economic risk involves the likelihood that events, including economic mismanagement, will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a particular business enterprise. In other words, Economic risk is the danger that the economy could turn against your investment.
The Country Risk Tier (CRT) reflects A.M. Best’s assessment of three categories of risk: Economic, Political and Financial System Risk.
A.M. Best defines country risk as the risk that country-specific factors could adversely affect a business enterprise ability to meet its financial obligations.
The Philippines has high levels of economic, political and financial system risk. A.M. Best considers the majority of countries in Southeast Asia to be categorized as CRT - 3 or CRT - 4. The exceptions are Vietnam, the sole CRT - 5, and Singapore the sole CRT -1.
In 2007, Phillipines achieved a GDP growth rate of 7.3 per cent, the highest for the country in 30 years. This was attributed to the "positive growth" in all sectors of the economy, especially services and industries.
This impressive result continues the encouraging and positive trend of the past five years, and reflects the Philippines Government's impressive efforts on fiscal management. It has maintained fiscal discipline and recently increased spending in the social sector, agriculture and infrastructure.
If Philippines can maintain the growth trend, public and international confidence will strengthen further and provide confidence to the international investors that there is no economic risk of doing business in Philippines.
Clearly the most significant challenge is to continue to strengthen the fundamentals of the economy to ensure sustained high growth that will lead to a sustained decline in poverty.
However on the flip side, the economy faces challenges of implementing essential policy reforms particularly in areas like tax administration, tax revenue collection, public expenditure management, budget execution and transparency. The global meltdown would also pose a challenge to Philippines economy.
On the expenditure side, the continued rise in prices resulted in lower consumer spending at 0.8 percent in 2009 from 5.1 percent a year ago.