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

Philippine jobs ‘exposed’ to AI risks estimated at 35-37%

Between 35% and 37% of Philippine jobs are at risk of displacement to artificial intelligence (AI), the World Bank said.

“About 35% to 37% are exposed” to AI risks, World Bank Group Lead Economist and Program Leader for the Prosperity Unit for Brunei, Malaysia and the Philippines, Gonzalo Varela told a panel.

He also noted the high adoption of generative AI in the operations of the Information Technology Business Process Management industry.

The IT and Business Process Association of the Philippines in December reported that 67% of its surveyed members are already using AI in customer service, data entry, and quality assurance, though challenges persist.

However, 8% of its members surveyed reduced their workforce because of AI.

In a separate report in August, the bank said the Philippines ranked fourth in ChatGPT traffic as of March 2024.

The World Bank noted that five middle-income countries — Brazil, India, Indonesia, Mexico and the Philippines — showed “generative AI traffic levels significantly higher relative to the US than their other metrics would suggest.”

Bilal Khan Muhammad, social sector economist at the Asian Development Bank, noted that AI advancements are now impacting white-collar jobs, with many tasks being performed by AI tools.

“But then with the recent advancements in AI, we also see white-collar jobs have also been replaced by these AI tools where we are seeing a lot of tasks now can be performed by the AI itself.

You just ask the AI to help you with the representation or format a document or help you prepare a draft,” he said.

Mr. Varela said AI could be a “productivity shock” and provide opportunities for workers in the Philippines.

The government’s Trabaho Para Sa Bayan plan needs to explore how “to take advantage of the technological changes that are going to affect job creation,” he added.

At the same event, the departments of Economy, Planning, and Development (DEPDev), Trade and Industry and Labor and Employment, launched the Trabaho Para sa Bayan Plan 2025-2034.

The 10-year plan aims to strengthen and future-proof the workforce.

The plan includes a research agenda to gauge the impact of AI on labor demand across various industries, job roles, and skill levels, and identify vulnerable occupations.

Labor Secretary Bienvenido E. Laguesma said the government has yet to firm up a national policy on AI.

“We believe that AI can supplement, can complement, but cannot replace,” he told reporters. 

Mr. Laguesma noted that the National Innovation Council, chaired by President Ferdinand R. Marcos, Jr., approved the creation of a think tank which will create a roadmap for AI use.

The think tank, whose lead agency will be the Department of Science and Technology, will guide the drafting of AI policy.

“Protection does not mean retention. It could mean upgrading, looking for another job, facilitating their employment, and the provision of social safety nets. That’s where we are,” Mr. Laguesma said.

Meanwhile, DEPDev Undersecretary Rosemarie G. Edillon noted that the low exposure of AI stems from the overall low level of technology adoption in the Philippines.

“Underlying all this, especially on the part of data and then creating models, this is really where you will need this policy on ethics, on the use of AI,” she added.

Source: Business World

World Bank: PHL needs reforms in education, health

The Philippines should focus on reforms that will improve learning and health outcomes, as well as boost private sector competitiveness to sustain economic growth, a World Bank official said.

“I see the Philippines has good opportunities. But of course, [it] will also need to invest in reform efforts and continue boosting with reforms and opening up its market,” World Bank Country Director for the Philippines, Malaysia, and Brunei Zafer Mustafaoğlu said.

He said these reforms are needed for the Philippines to sustain growth amid global uncertainty.

He pointed to reforms that would improve health and learning outcomes, enhance competitiveness of the private sector, boost community resilience and address gaps in infrastructure.

The Philippines has seen low learning outcomes, especially after the strict lockdowns during the coronavirus disease 2019 pandemic.

“We see that at the age of 10… Almost 90% of them are having difficulty in comprehending what they read. This, of course, is an area that we are focusing very much on improving educational outcomes,” Mr. Mustafaoğlu said.

A World Bank report previously showed that around 91% of 10-year-olds in the Philippines cannot read and understand an age-appropriate text, which is known as “learning poverty.”

Mr. Mustafaoğlu also noted that a child born in the Philippines today will be able to achieve only around 52% of their productive potential by age 18 due to the lack of education and adequate health services.

The Philippines is seeking a $600-million loan from the World Bank to fund a project aimed at improving learning outcomes in public schools.

“We are focusing on improving regulatory business environments, its implementation, deepening financial markets that both provide access to finance but also stability, and also firm entry into the markets to create more product firms and help them grow,” Mr. Mustafaoğlu said.

He said the World Bank is also prioritizing funding projects that will support resilient communities amid climate risks, as well as projects that will address infrastructure gaps.

“We all know that the Philippines suffers from infrastructure gaps, both in terms of physical renewable energy and digital transformation,” Mr. Mustafaoğlu said.

Asked about the possible impact of the global trade war on the Philippines, he said the economy is still expected to be one of the top performers in the region.

“If you look at its growth performance over the past decade, it did very well and also it created jobs. It is a good opportunity for its future. It is a young population… We expect the Philippines to continue growing in the next years,” Mr. Mustafaoğlu said

“And in that sense, it is likely to achieve its upper middle-income status by 2026.”

The World Bank expects the Philippines to be the second-fastest growing economy in the Southeast Asian region until 2026.

The Philippines is expected to grow 6.1% this year, just behind Vietnam at 6.6% and ahead of Cambodia (5.5%), Indonesia (5.1%), Malaysia (4.5%), Laos (3.7%), Thailand (2.9%), and Myanmar (2%).

Source: Business World