THE Philippines must tap the digital and service economy more aggressively to accelerate its climb toward high-income status and avoid getting stuck in the middle-income trap, the Asian Development Bank Institute (ADBI) said on Thursday.
ADBI Dean and CEO Bambang Brodjonegoro said the main challenge for the Philippines and other upper-middle-income economies today is adapting to the digital transformation and artificial intelligence (AI) while maintaining the economic foundations needed to sustain growth.
‘AI itself actually is part of the digital economy and also part of service economy, meaning that if the Asian countries would like to escape the middle-income trap, they need to switch quickly to the service economy while still maintaining the foundation of manufacturing,’ Brodjonegoro told reporters on the sidelines of the 12th Annual Public Policy Conference.
The country’s digital economy already accounted for 9.8 percent of the total gross domestic product in 2025, generating P2.74 trillion in gross value added, according to the Philippine Statistics Authority (PSA).
It also employed 10.39 million people, equivalent to 21.2 percent of total employment.
Services, meanwhile, accounted for 64.6 percent of the Philippine economy in the second quarter of 2026, up from 63.3 percent a year earlier, although growth in the sector slowed to 4.5 percent from 6.9 percent.
Brodjonegoro said the shift toward digital and service activities is taking place under a much different global environment from the one faced by earlier Asian economies that successfully moved into the high-income group.
He noted that economies such as South Korea, Taiwan, Hong Kong, and Singapore benefited from manufacturing, export-oriented growth, and a more favorable geopolitical environment.
Today, however, geopolitical and geoeconomic fragmentation has changed the environment for developing economies.
‘There is no special interest from the bigger economy to help the middle-income Asia to be high-income,’ Brodjonegoro said, adding that a country now has to largely ‘fight for itself.’
Unlike during the Cold War, when major powers had stronger strategic incentives to support allied Asian economies, today’s global economy is more fragmented, he said.
This means upper-middle-income economies have less external support as they seek to move up the income ladder.
At the same time, the ADBI chief noted that today’s economies face challenges that earlier Asian economies did not confront at the same scale, particularly AI and climate change.
Brodjonegoro said AI is changing the role of services in economic development, giving Asian economies an opportunity to capture new sources of value through digital transformation while retaining their existing economic foundations.
Climate change, meanwhile, is putting additional pressure on public resources.
Countries such as the Philippines and Indonesia are experiencing more typhoons, floods and other hydrometeorological disasters, requiring spending on relief and reconstruction.
These pressures mean the path toward high-income status is now more difficult, Brodjonegoro said.
‘In general, you will see that opportunities are maybe the same or a bit shrinking, but the cost or effort will be much harder,’ Brodjonegoro said.
‘I would say that the challenge of current upper-middle-income Asia will be much more difficult than the past upper-middle-income Asia.’
The Philippines entered the World Bank’s upper-middle-income category on July 1 after its gross national income (GNI) per capita reached $4,850 in 2025, exceeding the $4,635 threshold for the income group.