Recently, the World Bank classified the Philippines among upper-middle-income economies. The real test is whether the country will be able to achieve inclusive development.
AS the Philippines’ 2025 gross national income per capita reached $4,850, above the new threshold, President Ferdinand Marcos Jr. stated that “this milestone affirms that the economic policies that we have pursued over the past four years have been effective.” He added, it is a “vote of confidence in our country’s future,” which will result in “more investments.”
In effect, the upgrade follows several years of average GDP growth of nearly 6 percent (not the current government’s pace of less than 3 percent). And foreign investment is not booming, but tumbling.
As recent business headlines evidence, the Philippines’ realized foreign direct investment (FDI) net inflows are plummeting. This has left the country lagging behind regional rivals, which are benefiting from a historic multibillion-dollar surge in foreign capital.
As foreign multinationals maintain their core manufacturing and sourcing in China, they are diversifying parts of their supply chain in other locations — but Manila is not the first priority.
So, why this gross discrepancy between official rhetoric and actual realities?
A statistical milestone, not a developmental destination
The World Bank’s reclassification is an important statistical milestone. But statistics do not vote, feed families or determine whether economic progress is broadly shared.
The country’s new status reflects a higher average level of national income; not a more prosperous society.
This year’s World Bank reclassification also elevated Vietnam into the upper-middle-income category. But Vietnam reached the same threshold through three decades of export-oriented industrialization, manufacturing upgrading, aggressive attraction of FDI and deep integration into global production chains.
The Philippines, by contrast, continues to rely heavily on remittances, business-process outsourcing, domestic consumption and services.
Worse, the economy continues to erode. Manufacturing remains relatively weak, productivity growth uneven and investment rates below those of Asia’s successful industrializers.
Upper-middle-income status therefore says relatively little about the underlying quality of development.
Inequality tells the real story
Government officials understandably portray the upgrade as proof that current policies are working. Realities are more challenging.
Inflation in food, housing and transportation has disproportionately burdened lower-income households over recent years, while real wage growth has lagged behind productivity in several sectors.
Development economists have long warned against relying on averages. When a country exhibits high inequality, national averages increasingly describe the experience of upper-income households rather than that of the median citizen.
Half of Filipinos collectively receive only about one-sixth of national income while owning less than 5 percent of national wealth. By contrast, the richest tenth capture nearly half of all income and roughly three-fifths of all wealth.
This concentration helps explain persistent financial exclusion. Large segments of Filipinos remain outside formal banking, possess limited financial assets, rely on informal credit and accumulate little wealth across generations.
Wealth concentration also translates into unequal access to education, health care, political influence, business opportunities and productive capital.
Economic growth without broad asset accumulation produces consumption, but not necessarily upward mobility. Hence, the discrepancy between optimistic rhetoric and ordinary Filipinos’ concerns, which now also include stunting that is soaring after a decade of improvement.
Average national income has increased. Yet median household welfare has not risen at the same pace. Public surveys show that more than half of Filipinos identify themselves as poor or economically vulnerable.
So, who’s pocketing the difference?
Corruption and institutional credibility
The country’s new classification arrives amid one of the most politically contentious periods in recent Philippine history.
Thanks to the flood control corruption debacle, the administration faces sustained criticism over allegations of selective prosecution, political polarization and uneven application of legal institutions. Whether justified or not, such perceptions matter economically.
Investors value more than just economic growth. They seek predictable institutions, impartial regulation, independent courts and transparent procurement.
In the past few years, corruption has surged in the Philippines. It acts as a hidden tax on investment. It raises transaction costs, discourages long-term capital formation and diverts public resources away from infrastructure, education and technological upgrading.
Upper-middle-income status doesn’t compensate for institutional deterioration. Indeed, countries frequently become trapped at middle-income levels precisely because governance fails to evolve alongside economic complexity.
History repeatedly shows that escaping the middle-income trap requires institutional modernization as much as economic expansion.
Geopolitical partnerships — or constraints?
Economic development also depends increasingly on geopolitical choices.
The Marcos administration has expanded strategic partnerships with several G7 countries. The price has been deepening security cooperation under what critics increasingly describe as “Pax Silica” — a broader framework linking military access, strategic infrastructure, semiconductor supply chains and regional security architecture.
Supporters argue these arrangements enhance deterrence, attract investment, strengthen technological cooperation and improve supply chain resilience.
Critics worry that extensive strategic alignment could gradually narrow the country’s economic autonomy, increase exposure to great-power rivalry and redirect scarce fiscal resources toward security rather than industrial upgrading. That would further undermine inclusive development.
History offers cautionary lessons. Few countries have achieved sustained convergence primarily through military alignment.
Nearly all successful catch-up economies — from Japan and South Korea to Taiwan and China — ultimately depended on industrial policy, technological learning, export competitiveness, educational upgrading and domestic capital formation.
Security may create stability. But only productive investment creates lasting prosperity.
If geopolitical commitments begin constraining trade diversification or increasing external vulnerability, the economic costs could gradually outweigh strategic benefits.
The real challenge ahead
Upper-middle-income status is neither illusion nor triumph. It’s just a new starting line. The Philippines now faces the much harder task of becoming a genuinely prosperous upper-middle-income society.
The next decade will depend less on statistical thresholds than on whether the country can expand manufacturing, raise productivity, deepen technological capabilities, reduce corruption, strengthen institutions, broaden financial inclusion and distribute growth more equitably — and achieve this all under peaceful conditions.
If peace and stability continue to be surpassed by lingering economic uncertainty, political volatility and security deficits, the Philippines is likely to join those economies that grow rapidly to reach a middle-income level but then permanently stagnate.
Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net.