To achieve the AmBisyon Natin 2040, thePhilippines needs to triple its income per capita in thenext two decades. The AmBisyon Natin 2040 is thegovernment’s plan to transform the country into a prosperousmiddle-class society free of poverty by 2040. This impliesthat the Philippine economy needs to grow at an annualaverage of 6.5 percent in the next 22 years, faster than theaverage growth of 5.3 percent since 2000—a challenge thatonly the Asian Tigers and China have managed to accomplishin the past. This report shows that sustaining high growthcan only be achieved if the Philippines succeeds insustaining high Total Factor Productivity (TFP) growth whileaccelerating capital accumulation. To achieve the GDP percapita target by 2040, numerous scenarios regarding thepotential mix of growth drivers were evaluated. The firstkey finding is that sustaining high TFP growth will becrucial to achieve the target. Specifically, the Philippinesneeds to sustain an average annual TFP growth rate of 1.5percent or higher in the next 22 years, more than double theworld average since 2000. Such a high rate of TFP growthwill require deep structural reforms to remove constraintsand distortions faced by the private sector. The second keyfinding is that accelerating capital accumulation in themedium term will be essential to reduce currentinfrastructure and capital constraints to growth. ThePhilippines can meet the capital accumulation requirement bydoubling the growth rate in the physical investment-to-GDPratio over the next five years through higher private andpublic investment, which would require the implementation ofimportant reforms that are highlighted in this report. Thetop three policy reform areas for sustaining high growth andproductivity, prerequisites for achieving Ambisyon Natin2040 are: (i) improving market competition throughregulatory reforms; (ii) improving trade and investmentclimate policies and regulations; (iii) reducing labormarket rigidities and costs. By creating competitive andflexible markets, poverty alleviation is likely toaccelerate through more jobs, higher labor productivity, andlower consumer prices. An equal playing field and aregulatory environment that makes it easy to do businessencourage firms to enter the market, invest, grow, createjobs, and innovate, leading to higher productivity. Marketcompetition coupled with flexible a labor market andabundant labor supply allows higher productivity to reduceproduct prices, which increases workers’ real income. As aresult of more and higher paid jobs, more people will moveout of poverty, helping achieve the AmBisyon Natin 2040vision of a society free of poverty.
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