World Bank says job reforms to drive PHL growth to nearly 7%

Reforms to enhance job creation and quality could propel Philippine economic growth to close to 7% and transform it into a middle-class economy by 2040, the World Bank said.

“To stay on a path to upper middle-income status and to realize the national ambition of a middle-class society free of poverty by 2040, the country needs a new wave of reforms. Faster, broader, deeper,” World Bank Country Director for the Philippines, Malaysia, and Brunei Zafer Mustafaoğlu said.

In its maiden launch of the Country Growth and Jobs Report for the Philippines on Tuesday, the World Bank said that it is “feasible” for economic growth to accelerate to 6.8% by 2040, along with ramping up employment and wages.

“The implementation of the set of reforms recommended in this report is estimated to increase annual gross domestic product (GDP) growth to 6.8%, create over 5.1 million additional jobs, and boost real wages by 12.9% by 2040,” according to the report.

World Bank models show the Philippines growing by an additional 1.4 percentage points (ppts) if its recommended reforms are implemented.

Broken down, economic growth could increase by 0.78 ppt annually through reforms aimed at productivity and human capital; by 0.45 ppt through deeper capital reforms; and by 0.18 ppt by boosting labor force participation.

The report has about 45 actionable recommendations, with the reforms focused on those three main pillars.

The World Bank said reforms are needed to boost project infrastructure investment, especially in connectivity.

“In an archipelagic economy like the Philippines that has spent so much in connectivity infrastructure, keeping restrictions to inter-island transport, the form of cable path restrictions, is sort of a big distortion, a big cost,” World Bank lead economist for Brunei, Malaysia, the Philippines and Thailand Gonzalo J. Varela said.

“Lifting restrictions to inter-island shipping, domestic shipping, is something that is also going to help the economy grow, and a lot of the growth happens at local levels.”

The multilateral institution also recommended policies to lower entry barriers for businesses; open domestic shipping to lower inter-island transport costs; and strengthen service delivery by local government units.

“Ensuring that local governments have the capacity to deliver the key services that they are mandated to deliver is also going to be crucial,” Mr. Varela added.

To further mobilize private capital, there is also a need to support small and medium enterprises and multinational companies linkages and deepen capital markets.

“The Philippines has received more foreign direct investment in the last few years, and we are yet to see that small and medium enterprises are connecting to these multinationals, that they are gaining from that connection as suppliers, gaining productivity,” he said.

FASTER GROWTH

With these reforms implemented, growth can further accelerate. “What it does is it brings that baseline that we had estimated at 5.4%, closer to that Philippine Development Plan target,” Mr. Varela said.

“It means that if these reforms are implemented by 2040, the Philippine economy would be 24% larger than it would have been otherwise,” he added.

The government is targeting 5.5-6.5% GDP growth this year and 6-7% from 2026 to 2028, according to latest Development Budget Coordination Committee  estimates.

Under the Philippine Development Plan, the government had placed an upper bound of 8% on economic growth targets until 2028.

“To achieve its goal of becoming a middle-class society, the Philippines needs to sustain annual growth of 6-10% for decades,” the World Bank said.

It noted that though job quality remains a concern despite an increase in the number of jobs.

“Despite impressive gains, productivity growth remains weak. Job creation has tilted heavily toward non-tradable sectors, while the tradable economy — so critical for long-term growth and innovation, is shrinking,” Mr. Mustafaoğlu said.

“Top firms are not expanding fast enough. Competition is limited and too many workers remain in low-quality, low-wage jobs.”

The latest data from the local statistics agency showed the Philippines’ unemployment rate went down to 3.9% in May from 4.1% in April, with the number of individuals in the labor force hitting an all-time high of 52.32 million.

“The middle-class society by 2040 national ambition is not a utopia. It is something that is achievable if there is a commitment, both from the public sector to double down on reforms, and from the private sector to innovate and compete,” Mr. Varela said.

Based on the World Bank’s latest income classification, the Philippines still remains a lower middle-income economy, narrowly missing the threshold to achieve upper middle-income status.

The Philippines posted a record gross national income per capita of $4,470, only $26 shy of the World Bank’s upper middle-income threshold of $4,496-$13,935.

ARTIFICIAL INTELLIGENCE

Meanwhile, the World Bank also flagged the impact of disruptive technologies such as artificial intelligence (AI).

“Some jobs in the Philippines are at risk of technology displacement. AI exposure and AI’s potential complementarity can affect employment. The Philippines has slightly fewer jobs comprising routine tasks than its peers,” according to the report.

“However, the Philippines is more exposed to AI’s displacement effect than other East Asia and the Pacific countries due to its higher engagement in cognitive services sectors, such as contact centers in the IT-BPO sector.”

Mr. Varela said these technologies are “fast moving” and so far, they have yet to see displacement in the implementation of AI.

“At the moment, that is not yet happening. The sector is looking at it very carefully, but neither in the Philippines nor in other countries that have a large share of the economy and productivity, we see that these are at the moment being displaced.”

“What AI will do is it will create new jobs, similar to what we saw with other technological changes that created some new jobs and displaced others.”

Mr. Varela said it will be crucial to have labor market institutions that facilitate the movement of people across sectors and activities.

“It’s also having the skills to do that. So, there’s an agenda on skilling and upskilling workers… science, technology, engineering, mathematics, are also going to be increasingly important with AI.”

Mr. Mustafaoğlu said that there is a “very good opportunity” for the Philippines to benefit from the shift to AI.

“It has a young population, and things are happening a lot in the case of Asia and the East Asia region. If we can take that opportunity to actually benefit from this new development of AI and integrate AI and technologies in a way that firms increase their capability… and the economy continues to benefit and grow.”

“That will also attract FDI (foreign direct investment), because when you have those capabilities, foreign firms will also come and invest here with new technologies,” he added.

Source: Business World

Jobless rate improves to 3.9%

The Philippine labor market improved in May, latest Philippine Statistics Authority (PSA) data showed, with the labor force participation rate rising to its highest in 20 years and both unemployment and underemployment going down.

The jobless rate eased to 3.9 percent from 4.1 percent in April and a year ago, with the count of those without work falling to 2.03 million from 2.06 million and 2.11 million a month and a year earlier.

Underemployment, which counts those wanting additional hours of work, additional job, or a new job with longer hours, slipped to 13.1 percent from 14.6 percent in April.

It was, however, well above the 9.9 percent recorded in May last year.

In terms of magnitude, 6.60 million of the 50.29 million individuals with jobs were classified as underemployed. Of this, 59.2 percent worked fewer than 40 hours a week, the PSA said, while the remaining 40.8 percent were employed for 40 hours or more.

The number of employed persons rose from 48.67 million in April and 48.87 million in May 2024. This brought the employment rate to 96.1 percent, slightly higher than the 95.9 percent recorded in both April this year and May 2024.

The services sector remained the dominant source of employment, accounting for 61.8 percent of all jobs in May. This was followed by agriculture at 21.1 percent and industry at 17.1 percent.

Wholesale and retail trade and the repair of motor vehicles accounted for the largest share of jobs at 19.8 percent, followed by agriculture and forestry at 18.8 percent and construction at 9.5 percent.

The biggest year-on-year gains in employment were seen in wholesale and retail trade, which added 489,000 jobs. This was followed by agriculture and forestry with 469,000, administrative and support service activities with 371,000, accommodation and food services with 365,000, and other service activities with 175,000.

The manufacturing sector suffered the most job losses, shedding 374,000 positions from the previous year. Construction followed with a loss of 298,000 jobs while mining and quarrying, public administration and defense and water supply and waste management also recorded annual declines.

The labor force participation rate (LFPR), meanwhile, climbed to 65.8 percent in May, up from 64.8 percent in the same month last year and 63.7 percent in April 2025. This translates to 52.32 million Filipinos aged 15 years and older who were either employed or actively seeking work — the largest labor force recorded since April 2005.

Socioeconomic Planning Secretary Arsenio Balisacan said this was the highest LFPR since 2005.

“We welcome this development in labor force participation because it indicates a healthy and competitive Philippine labor market,” Balisacan said in a statement.

“Generally, a larger workforce can lead to increased economic output and potentially higher GDP (gross domestic product) growth, as more people contribute to the economy.”

Balisacan said the government’s ongoing push for key infrastructure flagship projects would help close development gaps and attract more investments that can generate jobs.

He also stressed the need to improve how public funds were being used by focusing limited resources on priority areas such as quality education, healthcare, food security and connectivity infrastructure.

Source: Manila Times

SME support to lift PH growth prospects

Providing support to high-potential small and medium enterprises (SMEs) could boost economic activity and make the Philippines more resilient, the World Bank said.

"The Philippines can further boost its growth prospects by implementing vital reforms that empower SMEs to flourish," the Washington-based multilateral organization said in its Philippine Economic Update report.

As SMEs account for 63 percent of the country's total employment and contribute 36 percent to gross value added, supporting these small businesses can unlock the potential for increased economic dynamism.

The World Bank has trimmed its forecast for Philippine economic growth to 5.3 percent for this year from 6.1 percent previously. Marginal gains of 5.4 percent and 5.5 percent are expected for 2026 and 2027, but all projections fall below the government's 6.0- to 8.0-percent target.

Many SMEs still have low productivity and face difficulties in growing due to limited access to financing, the World Bank said. As a result, they export less and are less involved in global value chains compared to other SMEs in East Asia and the Pacific.

"Regional and global value chains are more than just sales outlets; they are platforms for creating quality jobs and more value-added through benefits from scale, increased competition, and learning," World Bank senior economist Jaime Frias said.

"Firms that engage with international markets are generally more productive, in part because it takes high productivity to export, but also because exporting makes them more productive," Frias added.

The World Bank said SMEs faced several challenges in growing their exports and joining regional and global supply chains. These include limited access to testing and certification services, lack of financing for equipment and quality upgrades and not enough market information to connect with buyers.

It stressed that improving access to testing and certification services would require investments to make this more affordable.

The World Bank also called for simpler rules for laboratories and importing testing equipment and efforts to gain international recognition for Philippine certifications and standards.

Investing in credit information and collateral registries, it added, can help lenders better assess SME risks. This can lower borrowing costs and allow SMEs to invest in better equipment and improve product quality.

"The government can enhance firms' competitiveness by promoting information sharing, which benefits both SMEs and larger companies," the World Bank said.

"This involves closing information gaps by providing easy access to export market data and establishing systems to connect SMEs with larger firms and multinational corporations."

Source: Manila Times