THE Philippines’s joining the club of upper middle income countries is spurring not just a push to reassess the yardsticks it uses for determining poverty and quality of life. It has triggered a desperate push to expand sources of economic growth in a country that prides itself in its demographic advantage and highly exportable labor force, but is stuck in the early phases of industrialization.
Can the country ever truly seize the initiative? It has no choice, the chief economist said before the weekend
There’s no question that the Philippines needs to diversify its sources of growth as it seeks to accelerate its climb toward high-income status, according to Socioeconomic Planning Secretary Arsenio M. Balisacan.
‘We need to diversify the sources of our growth to include, on the demand side, more investment and exports, and on the supply side, industry and agriculture,’ Balisacan said during the Economic Journalists’ Association of the Philippines (Ejap) economic forum on Friday.
He noted that Philippine growth over the past 15 years has been largely supported by household consumption, fueled in part by remittances and the information technology-business process management (IT-BPM) sector.
This contrasts with neighboring economies that have drawn growth from a broader mix of consumption, investment, and exports, Balisacan said.
‘We have been very successful in the first one, consumption, but quite comparatively poor in relation to the investment and exports,’ he said.
The weakness in investment has become more evident in recent quarters.
Gross capital formation, the investment component of the economy, contracted by 9.2 percent in the first quarter of 2026, reversing the 0.91-percent growth recorded a year earlier.
The Department of Economy, Planning, and Development (DEPDev) earlier said investment remained under pressure in the second quarter as delays in public infrastructure spending continued to weigh on economic activity (See: https://businessmirror.com.ph/2026/08/13/public-infra-could-have-yielded-5-growth-in-q2/).
The economy grew by only 2.3 percent in the second quarter, slower than the 2.8-percent expansion in the first quarter and bringing first-half growth to an average of 2.6 percent.
Balisacan also pointed to the economy’s increasingly services-heavy structure, with industry playing a smaller role in growth.
He said the Philippine economy is ‘behaving like a rich country,’ where services account for an increasingly large share of economic activity even though the country still has room to industrialize.
This was evident in the second quarter, when services contributed 2.8 percentage points to the country’s 2.3-percent GDP growth. Agriculture contributed another 0.2 percentage point, while industry dragged overall growth by 0.7 percentage point.
Balisacan, however, emphasized that the Philippines has not exhausted industrialization as a source of growth and could still strengthen industry while revitalizing agriculture to broaden the economy’s productive base.
The government’s push to broaden these growth engines comes as the Philippines moves from upper-middle-income status toward its longer-term ambition of becoming a high-income economy.
Balisacan said a faster growth pace would help shorten that transition.
The country’s chief economist compared the country’s trajectory with Malaysia, which is already nearing the high-income threshold after growing by around 4.6 percent annually, and Chile, which grew by around 8 percent and took 19 years to move above the high-income threshold.
He said that if the Philippines sustains its 5.1-percent average growth over the past 15 years, it could reach the threshold faster than Malaysia did.
‘If we sustain that, we’ll be able to cross that threshold at a faster time than Malaysia. But we need to grow much faster to become as close as Chile,’ he said.
Beyond expanding investment, exports, and industry, Balisacan said raising productivity would be crucial to sustaining faster growth over the longer term.
While the Philippines has accumulated more capital over the years, he said capital deepening remains ‘shallow,’ meaning the stock of productive capital has not increased sufficiently relative to the labor force.
As a result, labor productivity has not risen as quickly as in neighboring economies such as Vietnam.
‘In the longer term, it is really productivity growth, fueled by innovation that drives GDP growth,’ Balisacan said.
He also pointed to the need to upskill workers as emerging technologies, including artificial intelligence, reshape industries and the labor market.
Meanwhile, even as it has just attained UMIC status, the country still must reckon with the unrealistic parameters of its poverty-determining system, according to a former national statistician. The Philippines’s entry into the UMIC bracket should prompt a reassessment of whether the country’s poverty standard still reflects the living conditions expected of a more affluent economy, according to former National Statistical Coordination Board (NSCB) Secretary General Jose Ramon G. Albert.
This comes as the initial monthly poverty threshold for a family of five rose to P14,600 in 2025, an increase that Albert said appears to largely reflect higher prices rather than a higher standard of basic needs.
‘Official statistics may currently be understating both the number of poor Filipinos and the vulnerability of those just above the threshold,’ Albert earlier told the BusinessMirror.
Earlier this week, National Statistician Claire Dennis S. Mapa confirmed during a House committee hearing that the initial estimate of the poverty threshold, or the minimum income needed to meet basic food and non-food requirements, had risen to P14,600 for a family of five in 2025.