Philippines seeks productivity boost to sustain upper-middle income status

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Philippines seeks productivity boost

Highlights

World Bank flags the Philippines' gross national income per capita at $4,850, surpassing the upper-middle income threshold but well below the $14,375 high-income benchmark.
World Bank economists stress that capital accumulation alone is insufficient, urging increased productivity through stronger competition, upgraded infrastructure, and improved human capital, especially after pandemic-era educational losses.
Philippine GDP growth is projected to slow to 3.7% in 2024 from 4.4% in 2025, lagging behind the 4.5% 2026 forecast for East Asia and the Pacific, with infrastructure gaps and high transport costs cited as headwinds.

World Bank flags next phase of growth

As reported by BusinessWorld Online, World Bank Senior Country Economist for the Philippines Jaffar Al-Rikabi says capital accumulation has accounted for more than 90% of the country’s growth since the global financial crisis, even as GDP has doubled, 9.1 million jobs have been created and the employment rate has risen by nearly seven percentage points.

He says that model is no longer enough for an economy that has entered the upper-middle income bracket and wants to reach high-income status. The World Bank’s latest income classification shows the Philippines posted gross national income per capita of $4,850, above the lower threshold for upper-middle income economies of $4,636 and below the high-income benchmark of $14,375.

Al-Rikabi identifies competition, human capital and infrastructure connectivity as the main levers for lifting productivity. He says the Philippines already has relatively strong competition laws and policies, but enforcement gaps, including long business registration and licensing procedures, continue to hold back investment and market rivalry.

He also says the country needs to rebuild foundational learning and workforce skills after prolonged pandemic-era school closures weakened educational outcomes. While he points to the government’s Academic Recovery and Accessible Learning Program as a positive step, he says improvements in mathematics, reading and other core skills are still needed alongside artificial intelligence, or AI, capabilities.

Infrastructure and domestic demand shape longer-term outlook

Infrastructure remains another core requirement, with Al-Rikabi saying the Philippines must continue investing in roads, bridges, ports and digital networks to narrow the gap with regional peers such as Malaysia and Thailand. He says stronger connectivity can unlock sector-specific growth, including in tourism, where the Philippines still trails pre-pandemic visitor levels while Vietnam has posted stronger gains.

He adds that high transportation costs make the Philippines a relatively expensive destination compared with other Southeast Asian markets, reinforcing the case for further logistics and transport upgrades. The World Bank expects Philippine GDP growth to slow to 3.7% this year from 4.4% in 2025, below the 4.5% forecast for East Asia and the Pacific in 2026.

World Bank Chief Economist for Asia Franziska Ohnsorge says economies across Asia increasingly need stronger domestic sources of growth as populations age and the global trade environment becomes more difficult. She says export-led expansion should be complemented, not replaced, by domestic demand and higher productivity through technology adoption and more efficient allocation of labor, land and capital.

Ohnsorge says stronger competition can help resources move toward more productive activities and create a more level playing field for smaller firms. For emerging economies such as the Philippines, she says the largest productivity gains are likely to come from adapting AI to local needs rather than developing frontier technologies.

In our earlier article, we examined the Philippines’ planned government bond pricing changes and expected inclusion in J.P. Morgan’s emerging-market bond index, and why these steps could improve liquidity without automatically lifting real-economy investment. We also noted that deeper capital markets and stronger investor trust still need to be paired with structural reforms—better infrastructure execution, governance, and competition—so financing can translate into productivity gains and job creation.

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