Title page 1

Contents 5

Foreword 4

Basic statistics of the Philippines, 2024 8

Executive summary 9

1. Sustaining growth and stability amid headwinds 18

1.1. Growth has returned to its pre-pandemic pace and inflation has receded 19

1.1.1. The Philippines is among the world's fastest-growing emerging market economies 19

1.1.2. Exports are lower than in peers, with a strong focus on services 20

1.1.3. Employment has recovered, but job quality and female participation remain low 27

1.1.4. Inflation has receded 29

1.1.5. Looking ahead, growth and inflation are expected to pick up gradually 30

1.2. The monetary policy framework has been effective but could be further enhanced 31

1.3. The financial system is robust, but risks related to mixed conglomerates warrant close monitoring 33

1.4. Fiscal reforms to mobilise revenue and enhance the efficiency of spending 37

1.4.1. The pandemic has driven up public debt 37

1.4.2. Mobilising more public revenues to meet rising spending pressures 38

1.4.3. Reforming public expenditures 44

References 51

2. Accelerating productivity growth through pro-competition reforms 54

2.1. The Philippines needs to accelerate productivity growth 55

2.2. Strengthening competition and improving the business climate 58

2.2.1. Barriers to competition remain high in some areas of the economy 58

2.2.2. Strengthening competition in network sectors 60

2.2.3. Reducing barriers to foreign investment and trade 65

2.2.4. Improving economic governance and strengthening the fight against corruption 68

References 72

3. Strengthening formal employment and social protection 74

3.1. Introduction 75

3.2. Poverty remains high and life expectancy low, despite improvements 76

3.3. Current social protection policies remain patchy 76

3.4. Policy reforms to expand social protection while reducing labour market segmentation 80

3.4.1. Moving to multi-tiered social protection 80

3.4.2. Reforming labour market regulations 84

References 89

4. Confronting Climate Change 92

4.1. Adapting to a challenging climate future 93

4.1.1. Natural hazards are already inflicting high costs 93

4.1.2. Macroeconomic, financial and social policies for adaptation 101

4.1.3. Insurance solutions for climate risks 107

4.1.4. Managing water in the context of a warmer future 111

4.2. Ambitious emission mitigation for more sustainable growth 113

4.2.1. Fossil fuels dominate the energy mix 117

4.2.2. Carbon pricing for cost-effective mitigation 119

4.2.3. Developing carbon markets 122

4.2.4. Encouraging negative emissions 122

4.3. Sectoral reforms to confront climate change 124

4.3.1. Delivering low-carbon electricity 124

4.3.2. Toward cleaner transport 128

4.3.3. Agriculture reform for food security 129

4.4. Financing climate adaptation and mitigation 131

References 133

Tables 6

Table 1. Real GDP growth will gradually pick up 13

Table 1.1. The economy is expected to grow around trend 30

Table 1.2. Low probability events that could entail major changes to the outlook 31

Table 1.3. Illustrative medium-term fiscal impact of reforms 49

Table 1.4. Sustaining growth and stability amid global trade headwinds: Policy recommendations 50

Table 2.1. Illustrative growth impacts of structural reforms recommended in this Survey 58

Table 2.2. Policy recommendations: Accelerating productivity growth through pro-competition reforms 71

Table 3.1. Social and labour market protection for informal workers is limited 80

Table 3.2. Fiscal implications of social protection reforms proposed in this chapter 84

Table 3.3. Strengthening formal employment and social protection: Policy recommendations 88

Table 4.1. Excise taxes vary across fossil fuels 119

Table 4.2. Policy recommendations to confront climate change 132

Figures 5

Figure 1. Reaching the 2040 income target requires boosting productivity 10

Figure 2. GDP is growing around the pre-crisis trend and inflation has come down 12

Figure 3. Few workers are covered by the social security system 14

Figure 1.1. Consumption-driven growth has rebounded 19

Figure 1.2. Services exports are high 21

Figure 1.3. Business services and semiconductors account for more than half of total exports 21

Figure 1.4. The current account balance has turned negative 22

Figure 1.5. Business process outsourcing accounts for a large part of the IT-BPM sector 23

Figure 1.6. Electricity prices are high 24

Figure 1.7. The Philippines has not taken advantage of the reconfiguration of supply chains 25

Figure 1.8. Inward FDI has remained below some regional peers 26

Figure 1.9. Employment has recovered 27

Figure 1.10. Inflation has receded 29

Figure 1.11. Declining food prices and monetary policy tightening have driven disinflation 33

Figure 1.12. Financial markets remain relatively shallow and bank-focused 34

Figure 1.13. Non-performing loans remain elevated, but capital ratios are adequate 35

Figure 1.14. Government debt has risen in the wake of the COVID-19 pandemic 37

Figure 1.15. Pro-growth reforms would put gross debt on a declining path 38

Figure 1.16. Revenues rely heavily on VAT and social contributions 39

Figure 1.17. VAT revenue efficiency is weak 40

Figure 1.18. The basic income tax allowance is in line with other emerging market economies 43

Figure 1.19. Public spending is somewhat above regional peers 45

Figure 2.1. The Philippines needs to boost labour productivity 55

Figure 2.2. Enhancing sectoral reallocation would boost productivity growth 56

Figure 2.3. Real GDP growth required to reach 2040 income target 57

Figure 2.4. Barriers to competition remain high 58

Figure 2.5. Regulation of network sectors and trade and FDI remains restrictive 59

Figure 2.6. Electricity is a key constraint on doing business 61

Figure 2.7. Telecom prices are high 62

Figure 2.8. Foreign equity restrictions remain pervasive, despite recent reforms 65

Figure 2.9. Corruption is still perceived as being high 69

Figure 3.1. Poverty and health indicators have improved but remain weak 76

Figure 3.2. Social expenditure is low, and only a minority of workers pays social contributions 77

Figure 3.3. Social contributions are around the OECD average 78

Figure 3.4. Combining contributory and non-contributory schemes for comprehensive social protection 83

Figure 3.5. A significant share of employees earns less than the minimum wage 85

Figure 3.6. Employers view employment protection laws as being restrictive 87

Figure 4.1. Natural disasters inflict large costs 94

Figure 4.2. Temperatures reach high levels in several provinces 95

Figure 4.3. Temperatures are projected to rise further in the Philippines 96

Figure 4.4. Rainfall levels vary markedly across provinces 97

Figure 4.5. The sea level is rising fast in Manila's South Harbour 98

Figure 4.6. The Philippines - Economic consequences of the high-end emissions scenario 99

Figure 4.7. The Philippines faces several nature-related challenges 100

Figure 4.8. Agriculture accounts for three quarters of freshwater withdrawals 112

Figure 4.9. The Philippines has a lower carbon emission intensity than its SE Asian peers 114

Figure 4.10. Cumulative emissions over 2020-2024 already exceed the objective for 2020-2030 115

Figure 4.11. Climate action is less stringent in the Philippines than in OECD countries 116

Figure 4.12. Consumption of fossil fuels is growing fast, especially coal 117

Figure 4.13. GHG emissions from electricity generation are high 118

Figure 4.14. Carbon pricing is insufficient in several sectors 120

Figure 4.15. Carbon pricing too low to reduce emission intensity 121

Figure 4.16. The direct effect of carbon taxation on low-income Filipinos is limited 122

Figure 4.17. Coal is the main source of electricity generation in the Philippines 124

Figure 4.18. Renewable energy targets could be more ambitious 125

Figure 4.19. Transport CO₂ emissions per capita have remained stable 129

Figure 4.20. Methane emissions from agriculture are lower than in other countries 130

Boxes 7

Box 1.1. Development of the BPO industry in the Philippines: History and prospects 23

Box 1.2. Barriers to female labour market participation 28

Box 1.3. The central bank's monetary policy toolkit 32

Box 1.4. Promoting capital market development 35

Box 1.5. Enhancing tax expenditure reporting 42

Box 1.6. Spending reviews in Denmark: An illustration of best practice 46

Box 2.1. The Philippines has made significant pro-competition reforms in recent years 60

Box 3.1. Definition and extent of informal employment 79

Box 3.2. Funding of universal healthcare in Spain 82

Box 3.3. Reforming employment protection legislation in the Italian Jobs Act of 2015 88

Box 4.1. Healthy biodiversity provides key economic services 100

Box 4.2. What Ministries of Finance can do to confront climate change 102

Box 4.3. Managing Public Assets in the Philippines with Inventories and Geotagging 110

Box 4.4. Zoning laws and enforcement challenges in the Philippines 111