Stimulating private sector growth and job creation is crucial for the Philippines to sustain inclusive growth amid global uncertainties, as highlighted by the World Bank in its latest report. The Philippines Economic Update (PEU) emphasizes the importance of unlocking the potential of small and medium-sized enterprises (SMEs) to maintain the country's strong economic trajectory.
"Boosting private sector growth and job creation can help the Philippines mitigate the impact of global policy uncertainty," said Zafer Mustafaoğlu, Division Director for the Philippines, Malaysia, and Brunei. He pointed out that improving infrastructure, bridging skills gaps, implementing business-friendly policies, and mobilizing private sector capital are necessary steps.
The PEU projects a GDP growth of 5.3 percent in 2025. This slight decrease from previous years is attributed to a strong job market, stable inflation, and supportive fiscal policies counteracting trade barriers and financial volatility. Public investment and partnerships are expected to keep investment growth steady with a projected GDP stability at 5.4 percent over the medium term.
Despite these positive indicators, challenges persist. Global market uncertainties have slowed exports and foreign investments. Additionally, increased public spending widened the fiscal deficit to 7.3 percent in early 2025 due to higher transfers to local governments and other expenses.
“A growing policy challenge is how to manage fiscal consolidation while maintaining strong growth," noted Jaffar Al-Rikabi, World Bank Senior Country Economist for Economic Policy. He emphasized managing expenditures effectively and reforming revenue mobilization as critical steps for aligning deficits with expectations.
The report advocates for reforms empowering SMEs since they account for significant employment and economic contributions but face productivity challenges due to limited finance access. Jaime Frias from the World Bank stressed that engaging with international markets boosts productivity through competition and learning opportunities.
Constraints hindering SME export development include restricted access to testing facilities, financing limitations for quality upgrades, and insufficient market information. The report suggests investing in testing services affordability, simplifying regulations for equipment imports, enhancing credit information systems, promoting information sharing among firms, and facilitating connections between SMEs and larger corporations as measures to overcome these barriers.