Overview of the Political, Economic and Legal Landscape in the Philippines (2025): Economic Growth and Challenges

In the 2025 IMD World Competitiveness Ranking, the Philippines rose to 51st out of 69 economies, though it remained 13th out of 14 in Asia-Pacific for the eighth straight year, which highlights ongoing regional competitiveness challenges, particularly in business efficiency.

The country improved in two of four pillars: economic performance climbed to 33rd from 40th, while infrastructure rose slightly to 60th. However, it declined in business efficiency (46th) and government efficiency (51st).

The modest overall improvement reflects growing competitiveness, but sustaining progress will require reforms in digital and physical infrastructure, bureaucratic efficiency, human capital, productivity in key sectors, energy costs and ease of doing business – areas critical to both national development and investment strategy.

Meanwhile, the Philippine economy grew by 5.4% year-on-year in the first quarter of 2025, driven by strong gains in wholesale and retail trade (6.4%), financial and insurance activities (7.2%), and manufacturing (4.1%). All major sectors expanded: services (6.3%), industry (4.5%) and agriculture (2.2%).

On the demand side, household consumption rose by 5.3%, government spending by 18.7%, capital formation by 4.0%, exports by 6.2% and imports by 9.9%. Gross National Income (GNI) increased by 7.5%, bolstered by a 24.6% rise in net primary income from abroad.

Despite recent economic improvements, in July 2025 the World Bank continued to classify the Philippines as a lower middle-income country, with a GNI per capita of USD4,470, just USD26 short of the USD4,496 threshold required for upper middle-income status. GNI reflects the total income earned by a country’s residents, both within the country and from abroad.

The USA remained the Philippines’ top export destination, accounting for USD12.12 billion or 16.6% of total exports in 2024. Imports from the US totalled USD8.1 billion, yielding a USD4 billion trade deficit. In February 2025 alone, exports to the USA reached USD986 million (15.8% of total exports).

Despite the 17% reciprocal tariffs imposed by US President Donald Trump on 2 April 2025, economic impact appears limited, with inflation contained at 1.4% in May 2025.

According to the Washington-based Information Technology and Innovation Foundation, the USA-China trade war is expanding its global reach and intensifying economic uncertainty. The Hamilton Index highlights China’s rapid rise in advanced industries, while the USA shows a relative industrial decline. Though the Philippines holds a small share of global output, it remains vulnerable, particularly if US tariffs target electronics and manufacturing inputs. Higher tariffs raise the cost of Philippine exports to the USA, potentially weakening demand and reducing domestic production.

However, as nearly 75% of Philippine exports to the USA are electronics, composed largely of imported components, a drop in US demand would also reduce related imports. This offset limits the net negative impact on the Philippine economy.

Approved Foreign Investments in the First Quarter of 2025

In the first quarter of 2025, total approved foreign investments (FI) in the Philippines amounted to PHP27.99 billion, representing a significant 82% decline from the PHP155.26 billion recorded in the same period of 2024.

South Korea emerged as the top source of FI pledges, contributing PHP12.36 billion or 44.2% of the total, followed by the USA with PHP3.08 billion (11.0%) and China with PHP2.88 billion (10.3%).

Among the sectors, real estate activities attracted the largest share of FI at PHP10.79 billion (38.5%), while manufacturing and administrative and support service activities received PHP6.14 billion (21.9%) and PHP5.35 billion (19.1%), respectively.

In terms of total approved investments, including those from both foreign and Filipino sources, the electricity, gas, steam and air conditioning supply industry accounted for the largest portion at PHP61.98 billion (34.1%), followed by manufacturing at PHP38.24 billion (21.0%) and real estate activities at PHP34.98 billion (19.2%).

These investments are expected to generate 31,848 jobs, reflecting a 4.7% decline compared to the 33,431 jobs projected in the same period of the previous year, with 60.6% of these employment opportunities attributed to foreign-led projects.

In response to these developments, the Department of Trade and Industry (DTI) announced plans to reassess its PHP1.75 trillion investment target for the year, citing the need to recalibrate in light of changing economic conditions.

To enhance the country’s investment climate, the DTI facilitated the ceremonial signing of the Investments Facilitation Network, which brings together 38 government agencies to streamline investment processes.

Further, the DTI is intensifying efforts to support local exporters by providing updated tools, digital solutions and opportunities for international engagement to help them navigate the increasing complexity of global trade.

Legislation to Improve the Economy

On 11 November 2024, Philippines’ President Ferdinand R Marcos Jr signed into law Republic Act No 12066, also known as the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act. This landmark legislation aims to enhance the Philippines’ attractiveness as a business destination by introducing a globally competitive, investment-friendly and more predictable tax incentives regime with heightened transparency and accountability.

A key feature of the CREATE MORE Act is the provision of a more competitive and generous package of fiscal incentives for strategic and highly desirable investments. Registered business enterprises may now opt, at the onset of their commercial operations, between a special corporate income tax of 5% or an enhanced deductions regime (EDR). The duration of these incentives has also been significantly extended, from the initial ten-year cap to up to 17 or even 27 years for qualified projects. Labour-intensive investments may further apply for an additional extension of five to ten years.

The law provides enhanced benefits for registered export enterprises and high-value domestic market enterprises with investment capital exceeding PHP15 billion, particularly those engaged in import-substituting activities or with export sales of at least USD100 million in the preceding year. Furthermore, the EDR framework now allows a corporate income tax rate of 20% reduced from the previous 25%, together with a 100% additional deduction on power expenses, up from the prior 50%, which is expected to significantly reduce operating costs (especially in the manufacturing sector).

In addition, on 10 April 2025, President Marcos Jr signed Republic Act No 12145 (RA No 12145), or the Economy, Planning, and Development Act, which reorganises the National Economic and Development Authority (NEDA) into the Department of Economy, Planning, and Development (DEPDev).

Through the years, NEDA has served as secretariat to key policymaking bodies such as the NEDA board and its subcommittees, the Regional Development Councils, the Legislative-Executive Development Advisory Council, the National Innovation Council and the Economic Development Group. Its reorganisation into the DEPDev and the creation of the DEPDev’s charter strengthens its institutional independence and enhances its capacity as the government’s central policy, planning, co-ordinating and monitoring agency for national economic development.

RA No 12145 institutionalises the use of futures thinking and scenario planning to help the government anticipate technological shifts, economic disruptions and global uncertainties. The DEPDev is further tasked with ensuring coherence between national and regional development plans, integrating long-term strategies into the national budget process, and promoting proactive, forward-looking governance.

On 29 May 2025, President Marcos Jr enacted Republic Act No 12214, or the Capital Markets Efficiency Promotion Act (CMEPA), which introduces comprehensive reforms aimed at democratising access to capital market investments.

The CMEPA streamlines and modernises the tax system for capital market transactions, making investing more accessible and inclusive for ordinary Filipinos. Key provisions include:

• the reduction of the stock transaction tax from 0.6% to 0.1%;
• a lower documentary stamp tax (DST) on the original issuance of shares, from 1% to 0.75%;
• DST exemptions for mutual fund and investment trust fund shares;
• a standardised 20% tax on interest income to eliminate arbitrage opportunities; and
• a uniform 0.75% DST on foreign-issued bonds and similar instruments.

Collectively, these legislative reforms are expected to enhance the Philippines’ investment climate, encourage market participation, improve capital market liquidity and support long-term, sustainable economic growth.

Maritime Disputes in the West Philippine Sea

The Philippines’ maritime territorial dispute with China in the West Philippine Sea (WPS) remains unresolved. During the 61st Munich Security Conference, held from 14 to 16 February 2025, representatives from both countries participated in the roundtable discussion titled “Making Waves: Maritime Tensions in the Indo-Pacific”. In this forum, the Philippines reaffirmed its commitment to upholding a rules-based international order and the rule of law, particularly emphasising adherence to the United Nations Convention on the Law of the Sea (UNCLOS).

The Philippine Maritime Zones Act formally declares the Philippines’ maritime zones in accordance with UNCLOS standards. It also provides a legal basis for the future designation of archipelagic sea lanes within Philippine waters, which will define maritime and air routes across the country’s archipelagic territory.

Complementing this, the Philippine Archipelagic Sea Lanes Act establishes a system of designated sea lanes and air routes through which foreign vessels and aircraft may exercise the right of archipelagic sea lanes passage. This measure ensures that such passage is conducted in a manner consistent with international law, while safeguarding Philippine sovereignty and maritime interests.

On 8 November 2024, President Marcos Jr signed into law two key measures aimed at strengthening the Philippines’ entitlement to and responsibility over its maritime zones: Republic Act No 12064, or the Philippine Maritime Zones Act, and Republic Act No 12064, or the Philippine Archipelagic Sea Lanes Act. These laws align the country’s domestic legal framework with international law, particularly the UNCLOS, and are intended to enhance national maritime governance, support economic development and bolster national security.

On 19 June 2025, the Philippine Coast Guard reported the presence of more than 50 Chinese maritime militia vessels near Rozul (Iroquois) Reef, an area located within the Philippines’ 370-kilometre exclusive economic zone. In response, the Department of Agriculture, through the Bureau of Fisheries and Aquatic Resources (BFAR), granted fishing rights under the Kabalikat ng Bagong Bayaning Mangingisda (KBBM) programme to fisherfolk from Palawan, the province closest to the disputed reefs. This initiative allows them to install payaos (fish-aggregating devices) in the WPS, encouraging Filipino fishermen to venture beyond the country’s territorial sea to increase their catch. The programme aims to improve the supply of fish in Metro Manila and other parts of Luzon, potentially reducing market prices. Moreover, it promotes increased civilian maritime presence in the WPS, an important strategy in reinforcing the Philippines’ sovereign rights and strengthening its claim over the disputed waters.

Geopolitical Developments

The Bangko Sentral ng Pilipinas (BSP) has revised its inflation outlook for 2025 downwards to an average of 1.6%, a notable decrease from the previous forecast of 2.4%. The downward revision for 2025 reflects a combination of domestic and external factors contributing to a more benign inflation environment. Chief among these is the sustained deceleration in food inflation, which has been observed throughout the first half of 2025. In addition, global oil prices have continued to decline and are projected to maintain this trend through the remainder of 2025. Slower domestic economic activity has also contributed to the easing of inflationary pressures.

However, the BSP’s projections for the following years have been slightly adjusted upward. Inflation is now expected to rise to 3.4% in 2026 and 3.3% in 2027. These upward revisions are attributed primarily to heightened global uncertainties, including the evolving trade policies of the USA and the ongoing conflict in the Middle East, both of which pose risks to commodity prices and global supply chains.

On 22 June 2025, the USA launched strikes on three major Iranian nuclear facilities – Fordow, Natanz and Isfahan – effectively drawing the USA into the Israel-Iran conflict. This could have major economic ramifications as the global price of oil could be impacted: the US strike on Iranian nuclear facilities could drive oil prices even higher and prompt a swift flight to safe-haven assets, as markets react to the potential ripple effects of this latest escalation on the global economy.

A spike in oil prices could lead to higher electricity rates and increased production costs in the Philippines. Compounding this is the possibility of higher rice tariffs, which could further increase food prices. The Philippine economy is particularly vulnerable to oil price shocks due to its persistent current account deficit, which has been exacerbated by rising import demand and weaker remittance inflows. These dynamics could place additional pressure on the peso and increase the cost of imported goods, thereby dampening overall economic growth.

Remittances from overseas Filipino workers (OFWs) may be negatively impacted by ongoing geopolitical tensions, especially in the Middle East, as well as by the protectionist policies of the USA. According to the BSP, personal remittances reached USD9.40 billion in the first quarter of 2025, a 2.7% increase from USD9.15 billion in the same period last year. This growth was driven by sustained global demand for Filipino workers, particularly in the healthcare, engineering and domestic service sectors.

Stricter US immigration policies under President Donald Trump and the USA’s broader protectionist measures may dampen remittances. According to the BSP, the USA is the top source of OFW remittances, followed by Singapore and Saudi Arabia.

Further, escalating tensions between Israel and Iran raise concerns for OFWs in the Middle East, particularly if the current ceasefire breaks down and the conflict intensifies or spreads. Such development could disrupt remittance inflows to the Philippines, affecting household spending and weakening domestic demand, which may slow overall economic growth. The risk is further compounded by the 1% tax on outward remittances imposed under President Trump’s One Big Beautiful Act, which could reduce the total remittances sent to the country.

Digital Transformation and Artificial Intelligence

The Philippines has made significant strides in its digital transformation, driven by both government initiatives and private sector investments. Central to these efforts is the e-Government Master Plan, which has expanded online accessibility to over 70% of government services, according to a 2024 report by the Department of Information and Communications Technology. These digital advancements reflect the government’s broader commitment to improving public service delivery and promoting innovation across sectors.

As part of enhancing governance through digital systems, the Governance Commission for Government-Owned and Controlled Corporations secured a PHP14.12 million grant from the Asian Development Bank for the development of a Common Reporting System (CRS). The CRS aims to strengthen the integrated corporate reporting mechanisms used by state agencies, thereby improving efficiency, transparency and data management.

The current administration also recognises the transformative economic impact of emerging technologies such as artificial intelligence (AI). With the Philippines ranking among the highest globally in mobile phone usage, e-commerce activity and internet penetration, the country is well positioned to experience rapid growth in AI adoption, cloud services and data storage, spurring increased demand for data centres.

To support this growth, the government has laid the groundwork through strategic policies such as the Philippine Digital Transformation Roadmap, the National Broadband Plan and the CREATE MORE Act, which collectively foster an enabling environment for digital infrastructure investment. These are further reinforced in the Philippine Development Plan 2023–2028, which prioritises telecommunications reform and digital infrastructure development.

A landmark measure under this reform agenda is the Konektadong Pinoy Bill, or the Open Access in Data Transmission Act, ratified by both houses of Congress in June 2025 and currently awaiting President Marcos Jr’s signature. This bill seeks to liberalise the telecoms sector by eliminating the legislative franchise requirement for building and operating data infrastructure. Instead, it introduces a streamlined registration process with the National Telecommunications Commission, thereby lowering network roll-out costs and improving the quality and accessibility of digital services.

The government is also focused on enhancing the security and capacity of digital infrastructure, especially for the storage and processing of critical, private and confidential data. This includes support for the establishment of hyperscale data centres across the country. In April 2025, President Marcos Jr inaugurated the Philippines’ first hyperscale and AI-ready data centre in Santa Rosa, Laguna. The VITRO Sta. Rosa Data Center, a 500-megawatt facility developed by VITRO Inc (a subsidiary of ePLDT under the PLDT Group), is powered by NVIDIA GPU servers and introduces the country’s first “GPU as a Service” offering. This allows businesses to access advanced AI computing capabilities without the need for substantial upfront investments.

Together, these initiatives mark a pivotal phase in the Philippines' digital modernisation, enhancing public service delivery, fostering innovation and positioning the country as a regional hub for data and AI technology.

Conclusion

Amidst ongoing economic challenges and geopolitical tensions, the Philippines is steadily emerging as a promising investment hub in Asia. Bold reforms and strategic initiatives reflect a strong commitment to future-ready growth. Supported by progressive laws and policies that attract foreign investment and streamline business operations, the country is laying a solid foundation for long-term economic resilience and enhanced global competitiveness.