Manila: The Philippines' transition to upper-middle-income status is a recognition of decades of reforms to sustain growth, but programs focusing on infrastructure, human capital, and the energy sector will help the country unlock its higher growth potential, the World Bank said on Monday. In its latest Philippine Economic Update (PEU) released on Monday, the World Bank said sustaining its growth momentum will require reforms that will help the country navigate current headwinds.
According to Philippines News Agency, over the past 15 years, the Philippines has become one of the world's fastest-growing middle-income economies. Since 2010, GDP per capita growth has been broadly pro-poor, averaging 3.5 percent a year, among the top quartile of middle-income countries, World Bank Division Director for Philippines, Malaysia, and Brunei, Zafer Mustafaoglu, said during the public launch of the PEU report held at the Makati Shangri-La. While the country has demonstrated resilience in the face of major shocks, including the pandemic, extreme weather events, and global uncertainties, Mustafaoglu said it is once again navigating economic headwinds.
The World Bank expects Philippine economic growth to slow to 3.7 percent this year mainly due to the surge in global energy prices, which accelerated inflation. The policy uncertainty also affected investments and private sector confidence. "These are not insurmountable challenges. Good policy can address that. The Philippines has shown time and again that it has the institutions, capacity, and resources to navigate difficult moments. Our reports identify two broad areas where decisive action will make the difference," Mustafaoglu said.
According to the World Bank, the Philippines should protect the most vulnerable by expanding targeted social assistance, including broadening the 4Ps conditional cash transfer program to near-poor households. Mustafaoglu said this also requires managing inflation, ensuring that monetary policy prioritizes keeping prices under control. The second priority is to ensure the economy comes back to a growth and job creation path.
Restoring investor confidence and resolving uncertainty around infrastructure procurement through clear, transparent, and consistently enforced standards can help restart investment and put growth back on a higher trajectory. Lowering the cost of doing business in money, time, and predictability is also crucial. This would send a strong signal to Filipino entrepreneurs and global investors alike that the Philippines is a dependable, competitive place to invest and grow, Mustafaoglu added.
According to the World Bank, economic growth will accelerate to 5.2 percent in 2027 and 5.5 percent in 2028 if the government implements the right policy responses. While inflation is projected to remain elevated this year and will likely average 5.8 percent, World Bank Senior Country Economist Jaffar Al-Rikabi said government interventions, such as providing cash assistance, helped shield millions from poverty. "In fact, we estimate that without intervention, almost two million people are vulnerable to this shock of falling into poverty. So this intervention really is very critical," he said.
Risks to growth include the prolonged conflict in the Middle East and the reversal in the global artificial intelligence investment cycle. Looking ahead, Al-Rikabi said bringing down the country's electricity costs will help boost competitiveness and household living standards. World Bank lead economist for the Philippines, Malaysia, and Brunei, Gonzalo Varela, said that with the right reforms, the country's economic growth potential could also be as high as 6.8 percent, making the Philippines a high-income status by the early 2050s.
These include reforms that promote spatial convergence, help firms become more productive, ensure resources are allocated to their most productive uses, and facilitate the full implementation of free trade agreements. Meanwhile, the government vowed it will continue to implement reforms that will help sustain growth. "We remain committed to fiscal consolidation, ensuring our fundamentals stay robust so that we can sustain investments in education, health, critical infrastructure, and other priority sectors," Finance Secretary Frederick Go said.
Go said the government is also directing infrastructure, investment, and reform toward the regions so the gains of the upper-middle-income status are felt nationwide. "The government must continue to be a robust enabler of growth, improving the ease of doing business, and fostering a highly competitive environment," Go said. Department of Economy, Planning and Development (DEPDev) Secretary Arsenio Balisacan, for his part, also assured the government is ramping up efforts to ease doing business in the country. "We are doing the best we can to speed up the reforms in government to ensure that the ease of doing business in the country is improved tremendously," he said. Balisacan added the government is also focusing on reforms to strengthen energy security and reduce the cost of power in the country.
