Small and medium-sized enterprises (SMEs) are emerging as a critical pillar in efforts to sustain the Philippines’ economic momentum and broaden the benefits of growth.

In a new report, the World Bank said the country’s private sector — particularly SMEs — has the potential to help cushion the impact of external uncertainties while driving job creation and innovation. It emphasized the need for structural reforms to help businesses scale up and compete in global markets.

One of the institution’s senior officials pointed out that improving infrastructure, addressing workforce skills gaps, and encouraging private investments are necessary steps to support enterprise growth. These, combined with more business-friendly regulations, could ensure more inclusive development in the years ahead.

The report noted that while the Philippine economy is projected to grow by 5.3 percent in 2025 — slightly slower than in previous years — strong employment numbers, low inflation, and supportive policy measures continue to underpin economic stability.

Mitigating the impact of uncertainty

“Boosting private sector growth and job creation can help the Philippines mitigate the impact of global policy uncertainty,” said World Bank Country Director for the Philippines, Malaysia and Brunei, Zafer Mustafaoğlu.

This growth, the World Bank noted, depends not only on macroeconomic fundamentals but also on long-term reforms that enable businesses — especially smaller ones — to expand, innovate, and engage with global markets.

SMEs currently comprise 63 percent of the country’s workforce and contribute 36 percent to gross value added.

However, many operate below capacity due to limited access to finance, inadequate infrastructure, and barriers to entry into global value chains.

Despite these constraints, the World Bank sees high-potential SMEs as the linchpin for driving greater economic dynamism, resilience, and innovation. By empowering them, the Philippines can weather external shocks and create quality employment opportunities across sectors.

“Firms that engage with international markets are generally more productive,” said Jaime Frias, Senior Economist at the World Bank, citing the role of exports and global value chains in accelerating learning and technology adoption.

Phl SMEs lagging behind SEA counterparts

Yet, the report finds that Philippine SMEs lag behind their East and Southeast Asian counterparts in export activity and integration with global supply networks. Obstacles include a lack of affordable testing and certification services, cumbersome regulations, and gaps in financing and market information.

The World Bank recommends targeted reforms to lower these barriers. These include investments in credit information systems and collateral registries to ease lending constraints, policy streamlining to improve certification access, and programs to connect SMEs with larger firms and global buyers.

Meanwhile, broader fiscal pressures continue to challenge the economy. The country posted a 7.3 percent fiscal deficit in the first quarter of 2025, driven by rising interest payments and local government transfers.

Still, the World Bank projects GDP growth at 5.3 percent this year — slightly below previous years but still solid — with public-private partnerships and infrastructure spending expected to fuel investment.

Growing policy challenge

“A growing policy challenge is how to manage fiscal consolidation while maintaining strong growth,” said Jaffar Al-Rikabi, World Bank Senior Country Economist.

As the Philippines navigates uncertain terrain, the World Bank stresses that the private sector — led by a revitalized SME ecosystem — must be front and center in building a more inclusive and resilient economy.