Towards a new productivity push – Building on past progress to improve living standards in the Philippines 

The Philippines has strong economic fundamentals, but the population boost that has supported growth is fading, making reforms to competition, public finances and formal jobs increasingly important to keep incomes rising.

By Jens Arnold and Cyrille Schwellnus, OECD Economics Department

Over the past decade and a half, the Philippines has been among the fastest-growing emerging market economies. Output has more than doubled since 2010, and poverty has fallen sharply. Policy reforms, including the introduction of universal health insurance and greater openness in key sectors, have helped translate growth into rising living standards. 

The next phase will be more challenging. Population growth is slowing, global trade growth is weaker, and climate risks are rising. To meet its ambition of tripling income per capita relative to 2015 by 2040, the Philippines will need to raise productivity growth well above its recent pace. The recent OECD Economic Survey of the Philippines sets out how this can be achieved. 

Future spending needs call for rebuilding fiscal buffers

Economic growth slowed in the second half of 2025 after a strong start to the year. Private consumption remains resilient, supported by a tight labour market and easing inflation. Investment, however, has weakened, reflecting high borrowing costs and a temporary slowdown in public construction.

Public debt remains well above pre-pandemic levels (Figure 1). Fiscal policy should now rebuild buffers to prepare for future spending needs. Stepping up fiscal consolidation in 2026, and especially mobilising additional public revenues, would help put debt on a more prudent path while ensuring space for public infrastructure investment and future social spending.

Figure 1: Public debt has increased

Mobilising higher revenues could include phasing out VAT exemptions, most of which fail to help those with lower incomes, such as blanket exemptions for private healthcare, education or for all senior citizens. The removal of these exemptions could be combined with social transfers targeted to vulnerable households, which would shield them from bearing the costs of the reform. Shifting corporate tax incentives away from tax holidays toward expenditure-based incentives would reduce windfall gains and create stronger incentives for productivity-enhancing investment.

Raising productivity growth to reach ambitious income targets 

Slower population growth means future income gains will depend much more on productivity than on an expanding labour force. To reach the 2040 income per capita target, average productivity growth will need to rise to more than 5% annually, well above the rate of about 3% achieved over the past 15 years (Figure 2).

Stronger competition is central to this effort. Electricity prices remain high, reflecting persistent vertical integration between generation, distribution and retail supply. Requiring distribution utilities to divest generation assets and exit retail activities would strengthen competition and lead to lower electricity costs for firms and households.

Telecommunications services are similarly costly by regional standards. Mandating open and non-discriminatory access to network infrastructure at regulated tariffs, overseen by an operationally independent regulator, would encourage entry and improve service quality.

Foreign investment restrictions have eased, but administrative burdens remain heavy. Lengthy approval processes, overlapping mandates and decentralised permitting create uncertainty and deter investment. Establishing a single-window approval system with strict deadlines and digital tracking would significantly improve the business environment.

Persistently high perceptions of corruption further undermine investor confidence. Stronger prevention, well-resourced investigations and consistent prosecution are needed to reinforce accountability across all levels of government.

Expanding social protection while strengthening incentives for formal job creation

Around two thirds of workers are employed in informal jobs, which do not provide for full social and labour protections (Figure 3). High social contributions, binding minimum wages in low-productivity regions, and strict dismissal rules discourage formal hiring, particularly for low-wage workers.

Figure 3: The share of active contributors to a pension scheme is low

Moving to a two-tier social protection system would help address this challenge. A basic tier, financed from general tax revenues, could provide universal coverage with essential benefits, including non-contributory pensions and universal health insurance. A second, more generous tier, could be financed through social contributions and top up basic benefits for those with higher earnings. This approach would broaden coverage while reducing the cost of formal employment, especially for low-wage workers.

Labour market regulations also weigh on formality. In regions with low productivity, minimum wages remain high relative to earnings, and informal hiring can be one way around these rules. At the same time, complex dismissal rules and legal uncertainty raise hiring risks. Moderating minimum wage increases where wages are not well aligned with productivity and increasing predictability in employment protection, including by capping compensation payments, would further support formal job creation.

The time to act is now

The Philippines has strong fundamentals, but the demographic tailwinds that have supported growth in the past are now fading. A comprehensive reform package that strengthens competition, restores fiscal space and promotes formal employment would be an effective way to sustain rapid income growth over the coming years.

For more information, visit the Philippines economic snapshot page.

References:

OECD (2026), OECD Economic Surveys: Philippines 2026, OECD Publishing, Paris, https://doi.org/10.1787/f0e0c581-en.