Philippine aspirations to hit upper-middle-income country status were derailed by the COVID-19 pandemic, but economic planners remain optimistic that this target can be achieved by 2025. If a new era of global political and economic rebalancing is taking place, there are clear internal challenges and international economic opportunities for the Philippines to navigate.

The Philippine economy grew by 5.7 per cent in 2023. The International Monetary Fund recently reported that the Philippine economy had rebounded strongly from the COVID-19 pandemic despite disrupted supply chains, inflation pressures and dampened tourism revenues.

The country’s debt-to-GDP ratio jumped from about 40 per cent prior to the pandemic to over 60 per cent in its aftermath due to a combination of debt-driven pandemic recovery responses and severe economic contraction. But credit rating agencies and investors continue to affirm the country’s overall macroeconomic fundamentals.

Long-term forecasters remain bullish on the Philippines with its geographically critical location and young population. If these forecasts carry through, the Philippines will become a US$1 trillion economy by around 2033.

Despite these predictions, the Philippines continues to struggle with inequality, persistent poverty and human development deficits. Approved by Philippine President Ferdinand Marcos Jr in early 2023, the Philippine Development Plan 2023–2028 aims to reduce poverty to single digits by the end of the Marcos administration but hinges on producing enough high quality jobs. Without structural reforms that can move more Filipinos into higher productivity sectors, this has proved elusive.

A nationwide survey conducted in September 2023 found that about half of Filipinos or roughly 13.2 million families considered themselves poor — an increase from the 12.5 million families who rated themselves poor in June 2023. This figure is also much higher than the official 2021 poverty estimate of 18.1 per cent or roughly 3.5 million families.

There are also severe geographical imbalances in development and poverty reduction. While self-reported poverty reached as high as 70 per cent in Mindanao, official poverty figures note that about one third of farmers and fishers live in poverty. These are stark reminders of how disconnected many Filipinos are from the hyped development prospects often reflected in macroeconomic assessments.

Out of pocket costs for healthcare remain a major impediment to access for low income Filipinos. The COVID-19 pandemic exposed deep and lingering governance challenges in the health sector, with a very slow and uneven vaccine rollout and a lingering shortage of healthcare workers.

On the education front, the recently released 2022 Program for International Student Assessment results underscore how far Filipino children are behind students in other nations. Of the 81 participating countries, the Philippines ranked sixth from the bottom in mathematics and reading and third from the bottom in science. Another study revealed that nine out of ten Filipino children aged ten were unable to read simple text.

Creating enough high-quality jobs remains a major challenge for the Philippines, which continues to lag behind other ASEAN economies in attracting job-creating foreign direct investment. The Philippines’ 2022 foreign direct investment reached about US$9.4 billion — still lower than Thailand’s US$10.2 billion, Malaysia’s US$15 billion, Vietnam’s US$17.9 billion and Indonesia’s US$21.4 billion. On this front, the Philippines hopes to benefit from the rebalancing of global value chains driven in part by geopolitical tensions between the United States and China.

A ‘first of its kind’ US trade and investment mission is set to visit Manila in early 2024 to begin talks on a wide range of investment areas ranging from green metals to semiconductors and renewable energy. The Philippines’ recent foreign policy pivot to ramping up longstanding defence alliances — notably with the United States and Japan — can be leveraged to take advantage of recent friendshoring of manufacturing in Asia.

Promoting more inclusive and sustainable growth depends on reforms in education, health, food security, social protection and job creation. The recent passage of laws to institutionalise and strengthen social protection, universal healthcare and to provide free tertiary education aim to boost human capital investments in one of the youngest countries in Asia.

Under the banner of ‘Build Better More’, the infrastructure investment program of the Marcos administration continues to finance roads, bridges, airports, seaports and other key infrastructure in the countryside alongside a larger push for digitalisation. Concerns over leakages in the infrastructure purse have been raised by local leaders and academics, who argue that this risks watering down the impact of these investments. Similar concerns have been raised about the Maharlika Investment Fund, a sovereign wealth fund signed into law in July 2023.

Transparency International’s 2023 corruption report ranked the Philippines 116th out of 180 countries, showing little improvement from its 2021 ranking. A Pulse Asia survey commissioned by international think tank Stratbase ADR Institute revealed that 84 per cent of Filipinos believe that the Marcos administration needs to pursue stronger anti-corruption efforts.

But there are early positive signals. The US Millennium Challenge Corporation approved the development of threshold programs for the Philippines in December 2023 in recognition of its renewed commitment to advancing reforms in good governance, human rights, and anti-corruption. This signals a re-engagement with the Millennium Challenge Corporation, after ties were severed by the Philippine government in 2017 in light of concerns over human rights violations during its anti-drug campaign.

Reformists in the Marcos administration are also pushing for changes involving extensive digitalisation of the bureaucracy, which will promote greater efficiency and good governance. Recent and anticipated legislation — like the Tatak Pinoy bill pushing for more sophisticated industrial policy — is expected to contribute to the dynamism and inclusiveness of the Philippines’ industrial push in the post-pandemic world. Yet the crux will be in policy execution and good governance. President Marcos will need to ramp up technocracy and temper political accommodation to make inroads here.

President Marcos has also ordered a study on the possible need for constitutional amendments, with a focus on loosening the constitution’s economic provisions to attract more foreign direct investment. While touching the constitution has always generated controversy, it remains to be seen whether bolder steps like this can help take full advantage of the present global economic rebalancing.

Ronald U Mendoza, PhD is Senior Economist at the Ateneo Policy Centre, Ateneo de Manila University and former dean of the Ateneo School of Government from 2016 to 2022.

This article is part of an EAF special feature series on 2023 in review and the year ahead.