IMF: Philippines faces challenges in business, demographics

MANILA, Philippines —   The Philippines is grappling with critical gaps in its business environment, infrastructure and labor market, which threaten its potential to attract private investment and boost productivity growth, according to the International Monetary Fund.

In a report, the IMF said that the Philippines has room to improve its business environment and infrastructure relative to its Association of Southeast Asian Nations (ASEAN) peers.

“While the Philippines is comparable to peers on complexity and diversification, it lags on economic openness, business regulation reform, electricity access and logistics,” the multilateral lender said.

“These are key to private investment and productivity growth in sectors which the Philippines wishes to expand capacity, including the industrial and manufacturing sectors,” it said.

The IMF also noted that Philippine Development Plan 2023-28 highlights infrastructure gaps beyond conventional measures, including education facilities and equipment shortages that limit learning opportunities for students, particularly in underfunded areas. 

Poor or remote communities often lack basic road infrastructure, impeding service delivery and economic activity, the IMF said. 

Moreover, internet costs remain prohibitive, with fixed broadband prices four times higher than in Vietnam and more than double the Southeast Asian average.

Recent legislative reforms and public-private partnerships (PPPs) aim to address these deficiencies, particularly through initiatives such as green lanes to fast-track strategic investments.

“On the positive side, financial markets in the Philippines appear to be operating at least as well, if not better than upper-middle-income countries, with regards to credit provision and financial market regulation, but less well than ASEAN peers,” the IMF said.

The Philippines is also in the midst of a demographic dividend era, with dependency ratio expected to fall below 50 percent by the end of 2024. The dependency ratio is the ratio of the population ages 0 to14 plus 65+ divided by the population of ages 15 to 64.

The working age population is also seen to grow until around 2045. Under the right policy settings, this could liberate resources for investment in economic development and family welfare, spur growth and increase per capita income.

However, the Philippines needs to create 12 million jobs by 2050, equating to roughly 450,000 new jobs annually.

Key policy priorities include expanding access to quality education and health services, strengthening employment opportunities and addressing skills mismatches between graduates and labor market demands.

“While labor market regulations in the Philippines are more pro-growth than peers, labor productivity and labor force participation are lagging,” the IMF noted. 

Addressing governance issues is also critical to building investor confidence. Although the Philippines outperforms G20 emerging markets in regulatory quality, accountability and effectiveness, the country still lags behind ASEAN peers.

Strengthening anti-corruption efforts and improving the rule of law can enhance business certainty, ensure fair contract enforcement and protect property rights, the IMF said.