The World Bank said in its latest report if the Philippines aims to become a high-income, middle-class society by 2040, it must double down on reforms to open markets, deepen competition and raise productivity.
At the presentation of the World Bank’s new Philippine Growth and Jobs Report launched on Tuesday, July 15, the bank’s lead economist Gonzalo Varela framed the country’s development path as a story of progress—but one with “unfinished business.”
“In just over a decade, the Philippine economy shifted into a higher growth gear,” Varela said, citing faster GDP expansion and improved labor market outcomes. “But while growth has been strong, it must now be faster and sustained for longer to meet the country’s 2040 vision.”
The report noted that the Philippines grew by 5.2 percent annually in recent years, doubling its GDP in 13.5 years—far better than the 3.8 percent pace in earlier decades. This economic surge was fueled by rising public investment and pro-investment reforms, which in turn helped create 11.7 million jobs since 2010, mostly in wage employment.
However, Varela warned that without new reforms, the country risks settling into a slower trajectory—one that would bring it closer to today’s Brazil rather than to the likes of Poland or South Korea.
Inward-looking growth
Varela emphasized four features that defined the Philippines’ recent growth: rising regional inclusivity, a surge in investments, modest structural transformation, and a concerning inward orientation.
While workers have steadily moved out of agriculture into services and construction, the country’s most productive firms—especially in manufacturing—have not expanded their hiring footprint. “The top 20 percent of firms used to employ half of the country’s workers. That number has declined,” Varela said.
He linked this trend to limited competition. “Lack of market contestability means our most productive firms have few incentives to scale up,” he added.
In addition, the report flagged a shrinking number of manufacturing exporters and a heavy dependence on non-tradable sectors like retail and domestic services for job growth. This “inward-looking” growth model, while job-generating, weakens the long-term productivity outlook.
“Exporting firms are more productive, learn faster, and benefit from scale. The country’s turn away from global value chains is holding back its potential,” Varela said.
Fix the foundations
To move closer to its 2040 goal, the Philippines must unlock faster, more inclusive growth by investing in infrastructure and skills, streamlining regulations, and creating a more competitive business climate, the World Bank said.
Among its 45 actionable recommendations, the report emphasized protecting infrastructure spending despite fiscal constraints, scaling up digital and physical connectivity, and addressing the skills mismatch that hampers innovation. Varela likened the Philippine economy to a plane flying fast but on just one engine—physical capital—while its productivity and human capital engines lag behind.
It cited other key reforms that need to be implemented: reducing business registration and permitting bottlenecks; liberalizing inter-island shipping to lower logistics costs; srengthening local government capacity for service delivery; supporting small firm linkages with multinationals; and deepening venture capital markets.
If implemented, these reforms could raise GDP growth by 1.4 percentage points, generate mor than 5.1 million additional jobs by 2040, and lift real wages by nearly 13 percent, the World Bank said.
“These reforms are not just desirable—they are transformational,” Varela said. “The goal of becoming a middle-class society is not utopian. It’s within reach, but only if the public and private sectors commit to pushing forward.”
