By Justine Irish D. Tabile, Senior Reporter
DEVELOPING more productive cities and connecting urban areas through economic corridors could help the Philippines sustain growth and move closer to high-income status, the World Bank (WB) said.
“Utilizing the economic potential of local governments, economic corridors, will help increase growth, will help make growth even stronger and more stable, and that will help also the Philippines continue advancing in the income scale,” said World Bank Division Director for the Philippines, Malaysia and Brunei Zafer Mustafaoğlu at a media briefing on Tuesday.
Based on the World Bank’s latest country income classification, the Philippines is now in the upper-middle income category with a gross national income per capita of $4,850.
“The upper-middle income status is a great achievement… but the key point is, of course, continue growing, continue moving up in the upper-middle income and reaching high-income status as soon as possible,” Mr. Mustafaoğlu said.
In its report titled “From Cities to Corridors: Unlocking the Philippines’ Urban Growth Potential,” the World Bank said the country has yet to fully leverage the benefits of urbanization, citing slower urban densification compared with its regional peers.
Although Metro Manila generates over 31% of national gross domestic product (GDP), its contribution to GDP growth remained broadly unchanged from 2000 to 2023, the report showed. Growth in output per worker also slowed during the period.
Citing the United Nations’ World Urbanization Prospects, the multilateral bank said the share of the population living in dense urban areas or cities was estimated at 42% in 2025 and is projected to rise to only 43.9% by 2050.
“This stagnant trend stands in sharp contrast to the aggressive growth of cities in Malaysia and Thailand over decades, which have seen their city-dwelling populations soar toward 60%,” it said, adding that Vietnam is projected to be on par with the Philippines by 2050.
The World Bank said the increase of less than two percentage points over the past 25 years suggests that the Philippines has made little progress in concentrating economic activity in cities, limiting their potential to become major drivers of national economic growth.
“The opportunity is to enhance Metro Manila’s productivity, and to further enable other urban centers across the country to contribute to the next phase of growth,” Mr. Mustafaoğlu said.
The push to unlock the economic potential of cities comes as the Philippines seeks to sustain its upper-middle income status following its recent graduation, even as economic growth slowed to 2.6% in the first half amid weaker household consumption growth and declining gross capital formation.
“After 15 years of strong, pro-poor growth and regional convergence, the country faces a more difficult external environment, slower GDP growth, and tighter fiscal space,” the World Bank said.
“This makes selectivity essential — public investment must be concentrated where it can generate the greatest productivity gains, regional spillovers, and inclusive job creation,” it added.
The report pointed to the role of interconnected local government units (LGUs), identifying 26 multi-LGU agglomerations covering 112 urban LGUs, consisting of 26 urban cores and 86 surrounding urban areas. The remaining 78 urban LGUs are standalone units.
“Promoting the development of multi-LGU agglomerations is particularly relevant for the Philippines where numerous and largely small LGUs cannot achieve the economy of scale on their own,” it said.
The World Bank also found that 136 of the country’s 190 urban LGUs have high or very high economic potential, while the remaining 54 have medium to low potential.
Stronger connections between urban centers and surrounding municipalities could help businesses access larger markets, attract investments and create more jobs, the report said.
It cited three structural factors that have limited the country’s ability to fully benefit from urbanization: the absence of broad-based industrial job creation, geographical constraints, and the lack of a comprehensive national urban policy.
It also identified weak local revenue generation, low investment execution capacity, and insufficient coordination among LGUs as major constraints to unlocking the economic potential of cities.
Capital spending accounts for only about 15% of annual LGU expenditures, while capital budget execution rates ranged from 47% to 55% between 2015 and 2018, the report showed.
The World Bank said many urban LGUs have accumulated cash reserves but continue to face difficulties in preparing and implementing infrastructure projects.
“As we all know, the Philippine geography is a constraint in itself. So, connectivity will continue to be a priority, physical connectivity, but economic integration, I think, is another side of the story,” said World Bank Senior Urban Development Specialist Narae Choi.
“So, corridors are not just made functional by connecting the dots. They have to be part of a functioning economy, and again, that requires a number of economic development strategies,” she added.
Ms. Choi said the World Bank is encouraging the development of region-specific economic strategies to bring together neighboring LGUs and strengthen economic integration.
To address the gaps, the report recommends a three-part reform agenda: aligning policies with urban realities, enabling LGUs to become more productive cities, and connecting them into regional economic corridors.
“Globally and also in the East Asia-Pacific region, dense and well-connected urban areas contribute a lot to economic growth and poverty reduction,” Ms. Choi said.
Amid the government’s limited fiscal space, Mr. Mustafaoğlu said fiscal consolidation remains important for maintaining macroeconomic stability and investor confidence.
However, he said improvements in revenue collection and more efficient government spending could create room for investments in urban development and regional connectivity.
Mr. Mustafaoğlu said that supporting economic corridors would not necessarily require new investments, as some projects could involve redirecting existing resources toward more strategic priorities.
For his part, Budget Secretary Kim Robert C. De Leon said the government should focus on improving the implementation of infrastructure projects rather than merely increasing budget allocations.
He said the proposed 2027 national budget allocates P1.527 trillion to LGUs, including P1.32 trillion in National Tax Allotment, while P58.53 billion is proposed for the Local Government Support Fund.
Mr. De Leon also called for stronger regional coordination, noting that only about 30% of Regional Development Council-endorsed proposals receive funding.
“We cannot promise to fund every proposal. Fiscal space is limited, and the government must make fiscal choices. But we can promise something essential: regional priorities should be heard easily, assessed seriously, and addressed transparently,” he said.
In line with this, he said the Department of Budget and Management and the Department of Economy, Planning, and Development have issued a joint circular to strengthen regional participation in preparing the 2028 budget.
