World Bank Urges SME Empowerment to Boost Inclusive Growth in Philippines

As global economic uncertainty and domestic fiscal risks intensify, the World Bank has called for a renewed focus on empowering the private sector, particularly small and medium-sized enterprises (SMEs), to help the Philippines sustain its growth trajectory and advance inclusive development.

In its latest Philippines Economic Update (PEU), the World Bank emphasized that stimulating job creation, strengthening SMEs, and attracting private capital will be essential for the country to weather headwinds from global trade tensions, financial volatility, and a widening fiscal deficit.

“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 at the World Bank.

Robust Growth Outlook, But Emerging Challenges

The World Bank’s PEU projects the Philippines’ gross domestic product (GDP) will grow by 5.3% in 2025, slightly down from the 2023–2024 average. The projection reflects continued strength in employment, low and stable inflation, and supportive fiscal and monetary policies.

Growth is expected to remain steady over the medium term at around 5.4%, supported by public investment and sustained commitment to public-private partnerships (PPPs).

However, the first quarter of 2025 brought some red flags:

• The fiscal deficit widened to 7.3%, driven by higher spending on fiscal transfers, interest payments, and capital outlays.

• Exports and foreign direct investment (FDI) slowed, reflecting growing uncertainty in global markets.

“A growing policy challenge is how to manage fiscal consolidation while maintaining strong growth,” said Jaffar Al-Rikabi, Senior Country Economist at the World Bank. “Strategic expenditure management and better revenue mobilization are key.”

SMEs: The Engine of Inclusive and Sustainable Growth

SMEs are the backbone of the Philippine economy, accounting for 63% of total employment and contributing 36% of gross value added (GVA). Yet, they remain underperforming and underserved, limiting their potential to stimulate growth, innovation, and global competitiveness.

The World Bank’s report highlights several systemic challenges faced by SMEs:

• Limited access to finance and affordable credit

• Restricted access to testing and certification services

• Insufficient connections to global value chains

• Low productivity and limited technological absorption

“SMEs in the Philippines export less and are less integrated into regional value chains than their East Asian counterparts,” explained Jaime Frias, Senior Economist at the World Bank. “This stifles competition, learning, and innovation.”

Unlocking Growth Through Targeted Reforms

To unleash SME potential and expand their global participation, the report recommends a comprehensive reform strategy, including:

1. Improved Access to Certification and Quality Standards

• Invest in affordable testing and certification facilities

• Simplify regulations governing laboratories and imports of testing equipment

• Ensure international recognition of Philippine certification standards

2. Easier Access to Finance

• Develop credit information systems and collateral registries

• Reduce SME borrowing costs by improving transparency and risk assessments

• Promote SME access to equipment financing for productivity upgrades

3. Better Market Information and Matchmaking

• Bridge information gaps with real-time export market data

• Create systems that link SMEs to larger firms and multinational corporations

• Encourage public-private collaboration to enhance market intelligence

Tapping Into Regional and Global Value Chains

Participation in regional and global value chains (GVCs) can provide SMEs with access to new markets, technologies, and expertise, increasing competitiveness and generating higher-quality jobs.

“Global value chains are more than sales platforms. They foster scale, innovation, and productivity,” Frias emphasized. “Exporting firms are generally more productive, not just because productive firms export, but because exporting itself drives productivity.”

Mobilizing Private Capital for Sustainable Development

The report stresses that public resources alone are insufficient to finance the country’s development needs. Instead, private sector investment must be mobilized, and this requires a business-friendly environment, robust infrastructure, and skilled labor.

Reforms in these areas will support:

• Faster SME formalization

• Improved access to global supply networks

• Reduced barriers to competition and investment

The World Bank supports the government’s commitment to its medium-term fiscal framework (MTFF), which aims to rebuild fiscal buffers while maintaining growth. This requires balancing the need for fiscal consolidation with investments in infrastructure and human capital.

A Strategic Path Forward

To ensure sustainable, inclusive growth, the Philippines must enable its SMEs to move up the value chain, integrate into regional and global markets, and contribute more effectively to national development.

“The private sector has a critical role in building economic resilience,” Mustafaoğlu concluded. “With the right reforms and investments, the Philippines can harness the full potential of its entrepreneurial base to achieve long-term prosperity.”