Country: Philippines Source: World Bank MANILA, June 19, 2025 – Stimulating private sector growth and job creation will enable the Philippines to enhance inclusive growth in the face of increasing global uncertainty and domestic risks, according to the World Bank.The Philippines Economic Update (PEU) released today finds that unlocking the potential of the country’s business sector, particularly that of its small and medium-sized enterprises (SMEs), will help the Philippines maintain its strong growth 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. "This will require improving infrastructure, bridging skills gaps, implementing business-friendly policies, and mobilizing private sector capital, as public funds alone cannot meet the country's development needs."The PEU forecasts that gross domestic product (GDP) will grow by 5.3 percent in 2025, down just 0.3 percentage points compared to the average for 2023-2024. This is thanks to a robust job market, stable and low inflation, and supportive fiscal and monetary policies, which are helping offset strong headwinds caused by increasing trade barriers and greater financial market volatility.Similarly, the government's commitment to public investment and public-private partnerships is expected to sustain investment growth in the coming years, with GDP projected to remain stable at 5.4 percent over the medium term.Significant challenges remain, however. Despite a recent bounce back in consumer spending, uncertainty in global markets has caused exports and foreign direct investment to decelerate. In addition, the first quarter of 2025 saw the fiscal deficit widen to 7.3 percent, as higher fiscal transfers to local government units, interest expense, and capital outlays drove a jump in public spending.“A growing policy challenge is how to manage fiscal consolidation while maintaining strong growth," said Jaffar Al-Rikabi, World Bank Senior Country Economist for Economic Policy. “Carefully managing expenditure disbursements will help bring the year-end deficit in line with expectations. Over the medium term, reforms to strengthen domestic revenue mobilization and improve public expenditure efficiency will enable the government to implement its medium-term fiscal framework and rebuild fiscal buffers.”The report says that the Philippines can further boost its growth prospects by implementing vital reforms that empower SMEs to flourish. SMEs account for 63 percent of the Philippines’ total employment and contribute 36 percent to its gross value added. By supporting the growth of high-potential SMEs, the country can unlock the potential for increased economic dynamism and resilience.At present, many SMEs in the Philippines operate at low productivity levels and encounter challenges in scaling up due to limited access to finance. As such, they export less and are less engaged in global value chains than their counterparts in East Asia and the Pacific region. This limits their opportunities to learn and grow through competition, as well as benefit from the spread of technology."Regional and global value chains are more than just sales outlets; they are platforms for creating quality jobs and more value-added through benefits from scale, increased competition, and learning," said Jaime Frias, Senior Economist for the World Bank's Finance, Competitiveness, and Innovation Global Practice*. "Firms that engage with international markets are generally more productive, in part because it takes high productivity to export, but also because exporting makes them more productive."*There are several constraints in developing exports by SMEs and linking them to regional and global supply chains. These include restricted access to testing facilities and certification services, limited availability of financing for equipment and quality upgrades, and insufficient market information to effectively match buyers and sellers.The report states that improving access to testing facilities and certification services necessitates investments to make these services more affordable. Equally important is the simplification of regulations for laboratories and the import of testing equipment, coupled with securing international recognition and compatibility of Philippine certifications and standards.Investing in credit information and collateral registries can help financial institutions better understand the financial burden of SMEs, thereby lowering borrowing costs. This, in turn, makes it easier for SMEs to invest in new equipment and improve the quality of their products.The government can enhance firms’ competitiveness by promoting information sharing, which benefits both SMEs and larger companies. This involves closing information gaps by providing easy access to export market data and establishing systems to connect SMEs with larger firms and multinational corporations.PRESS RELEASE NO: 2025/081/EAPContactsIn ManilaDavid Lloritodllorito@worldbank.orgIn WashingtonGeetanjali Chopragchopra@worldbank.org