Philippine growth at risk as ADB and OECD flag governance, power costs, climate threats

ADB warns 2026 growth hinges on institutional reform, while OECD says weak competition, corruption, and climate risks continue to strain households and businesses.

The Philippine economy still looks healthy, at least on paper. Growth forecasts remain solid, inflation is contained, and international institutions continue to rank the country among Asia’s better-performing economies. But beneath the data, a harder truth is emerging. Growth in 2026 hinges less on demand or demographics and more on whether the country can fix how it governs, spends, and competes.

The clearest warning comes from the Asian Development Bank (ADB), which has kept its 5.3% GDP growth forecast for the Philippines. That projection, however, comes with conditions. Services exports, especially offshore and outsourcing, continue to carry the economy, but that pillar alone cannot sustain momentum if public institutions fail to deliver.

“I think the main game changer or the enabler for growth in 2026 will really be governance and institutional reform. If the government fails to continue this promise to really come up with a system to ensure efficiency, transparency and good governance in public investment, I think we will miss the growth opportunity for 2026,” said ADB regional lead economist James Villafuerte.

‘Governance weakness in the management of public investment’

That risk showed itself last year. The Philippines posted 4.4% growth in 2025, a slowdown that pushed the country from the second- to the fifth-fastest-growing economy in Southeast Asia. The slip signaled weak execution, delayed projects, and persistent doubts about how public money is planned, spent, and monitored.

ADB has also drawn a direct line between corruption and climate risk. Government inquiries into flood-control projects exposed what Villafuerte described as “governance weakness in the management of public investment,” a failure that erodes confidence and leaves communities exposed. When infrastructure breaks down, the damage moves quickly from spreadsheets into daily life. This often translates to higher operating costs for businesses, lost workdays, disrupted supply chains, and households forced to absorb repeated shocks.

Public investment, according to ADB, is expected to remain soft for at least two more quarters as scrutiny tightens. The pause may improve oversight, but it also delays urgently needed spending. Villafuerte stressed that future growth depends on shifting investment toward human capacity, particularly education and health, alongside upgrades in production capability. Power remains a major bottleneck. “The cost of power is really one of the highest in the region,” he said, pointing to the need to address transmission constraints and lay groundwork for advanced manufacturing.

Remarkable strength and resilience

A similar tension runs through the latest assessment from the Organisation for Economic Co-operation and Development (OECD). The organization projects the Philippine economy to grow by 5.1% in 2026, with inflation rising to 2.6%, still within the central bank’s target range. Long-term progress is undeniable. Since 2010, output has more than doubled and poverty has more than halved.

“The Philippines’ economy has demonstrated remarkable strength and resilience: since 2010, output has more than doubled and poverty has more than halved,” said Mathias Cormann, as the organization released its inaugural OECD Economic Survey for the Philippines.

Yet the OECD’s optimism comes with sharp caveats. Weak competition in electricity and telecommunications continues to push prices higher, quietly draining household budgets and squeezing business margins. Power and data costs ripple through the economy, raising the price of food, transport, and basic services. These are daily expenses that determine whether growth feels real or theoretical.

The OECD also flagged corruption in public investment as a persistent drag on confidence and value. While fiscal discipline is improving, including moves to phase out VAT exemptions and tighten spending efficiency, governance gaps still dilute the impact. Addressing corruption, the OECD said, would improve spending efficiency and strengthen the investment climate at a time when regional competition is intensifying.

Follow-through trumps forecasts

Climate risk compounds the problem. Floods and extreme weather increasingly threaten jobs, assets, and supply chains, with the heaviest burden falling on communities already stretched thin. The OECD called for stronger climate adaptation, better flood management, and reforms in electricity and telecommunications to reduce systemic vulnerability. Open-access telecom rules, electricity market separation, and streamlined administrative procedures were highlighted as steps that could lower costs and unlock investment.

Both institutions make it apparent that growth in 2026 will be decided less by forecasts and more by follow-through. An economy built on outsourcing and consumption remains exposed when governance falters, power stays expensive, and climate shocks erase gains faster than they are created.

Without credible reform, the costs move to the shoulders of Filipinos through higher prices, weaker services, and repeated disruptions. Neighboring economies are moving faster on execution, competition, and infrastructure. If the Philippines fails to keep pace, growth will continue to look strong in projections while feeling increasingly fragile in everyday life.

 

 

The OECD projects solid growth for the Philippines but warns that weak competition, high electricity costs, and climate risks continue to strain households and businesses.

 

 

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