Manila: The Philippines has experienced rapid economic growth primarily driven by capital accumulation since 2010, but productivity gains have lagged behind. Over 90% of the growth is attributed to capital accumulation, while total factor productivity and human capital contributions remain minimal. Despite the robust expansion, the limitations in productivity gains pose significant challenges for the nation’s long-term economic trajectory.
According to World Bank, the country has seen significant job creation, with over 11.7 million jobs added since 2010 and real wages increasing by an average of 24%. However, a majority of these jobs, about three out of four, are in non-tradable sectors, which typically exhibit slower productivity growth. Furthermore, the business environment is hampered by regulatory complexities and competition challenges, with top firms failing to create employment at scale. The scarcity of skills and lack of incentives constrain technology adoption, while climate shocks recurrently affect productivity and wages, particularly impacting small and medium enterprises.
The Philippines is on the cusp of achieving upper-middle-income status but faces a steeper economic path as traditional growth drivers like demographics, remittances, and infrastructure development are no longer sufficient for convergence with high-income economies. Global technological disruptions are reshaping labor markets, reducing the job intensity of growth, and recurring climate events are redefining competitiveness and investment prospects. Without structural reforms, the Philippines risks falling into the middle-income trap, where many countries stall before reaching high-income status.
The report outlines a strategic reform roadmap built around three key pillars: foundational investments in infrastructure and human capital, creating a more competitive and enabling business environment, and mobilizing private capital at scale. These reforms aim to preserve public investment in connectivity, improve education and job-relevant skills, streamline business regulations, strengthen competition policies, and enhance public-private partnership frameworks. The successful implementation of these reforms could raise long-term GDP growth by 1.4 percentage points and create an additional 5.1 million jobs by 2040.
With decisive reform, the Philippines has the potential to sustain faster and more durable growth, ensuring that economic progress is widely shared among its population. The transformation of the country’s growth trajectory hinges on the successful execution of the proposed reform package, which is crucial for overcoming current challenges and securing a prosperous future.
