World Bank Urges Reforms After Philippines Reaches Income Milestone

The World Bank projects the Philippine economy will grow by 3.7% in 2026, slower than previous years.

The Philippines has reached upper-middle-income country (UMIC) status, marking a major economic milestone after two decades of steady growth. The World Bank says the achievement reflects years of reforms and rising living standards, while warning that continued progress will depend on policies that encourage investment, create jobs and protect vulnerable households. The assessment is outlined in the latest World Bank Philippines Economic Update, which calls for reforms to sustain growth and reduce poverty in the face of new economic challenges.

Growth Faces Short-Term Pressures

The World Bank projects the Philippine economy will grow by 3.7% in 2026, slower than previous years. The slowdown is linked to policy uncertainty that has weakened investor confidence, reduced fixed investment and slowed foreign direct investment. Higher global energy prices have also pushed average inflation to 4.8% during the first half of 2026, increasing pressure on household budgets and employment.

The report notes that lower-income families have been affected the most by rising living costs. With appropriate policy measures, the World Bank expects economic growth to recover to 5.2% in 2027.

Reforms Needed to Protect Progress

The report identifies three immediate priorities for the government. It recommends expanding targeted social assistance, including temporarily extending the 4Ps conditional cash transfer programme to support near-poor households. The World Bank estimates that without additional support, rising energy costs could push around 2 million Filipinos into poverty.

It also calls for policies that keep inflation under control while supporting economic recovery and urges the government to restore investor confidence by improving infrastructure governance and reducing the cost of doing business.

World Bank Division Director for the Philippines, Malaysia and Brunei, Zafer Mustafaoglu, said the country's new income status reflects the achievements of the Filipino people, adding that continued reforms are needed to create more jobs and strengthen long-term economic growth.

Lower Energy Costs Could Drive Growth

The report highlights electricity prices as one of the country's biggest barriers to competitiveness, noting that power costs remain among the highest in ASEAN.

According to the World Bank, increasing renewable energy to 35% of the country's energy mix by 2030, together with investments in transmission, energy storage, grid flexibility and stronger market competition, could reduce residential electricity prices by up to 28% in the near term.

The same scenario is projected to create about 161,000 jobs and lift around 730,000 Filipinos out of poverty, strengthening both household incomes and business competitiveness.