The Problem With Growing Too Fast Too Soon

The Philippine economy posted a 7.6 percent GDP growth in 2022, well above its historical average of 6 percent. That number looked like a triumph — a fast rebound from the pandemic’s depths. But economists who tracked the composition of that growth saw something else: a burst fueled by catch-up spending and one-time factors, not the kind of structural expansion that lifts an economy for decades. The country’s growth trajectory since then has been marked by downward revisions, cautious forecasts, and a widening gap with regional peers. The lesson is not that growth is bad — it’s that the wrong kind of growth, pushed too hard and too fast, leaves an economy more fragile than it started.

Three Fault Lines Beneath the Surface

Rapid growth often masks underlying weaknesses. In the Philippines, three structural issues turned the 2022 spike into a warning rather than a milestone.

Why the Philippines Keeps Trailing Its Neighbors

The Philippines averaged 5.3 percent GDP growth between 2010 and 2024. That is a respectable number for many countries, but it falls short when stacked against South Korea and Malaysia, which posted 7 to 10 percent growth at similar stages of development. The gap is not just about speed — it is about what the growth is built on.

Economist Lanzona, who was cited in the BusinessMirror report, noted that the Philippines was ahead of the pack right after the pandemic simply because its neighbors were still rebuilding. As those countries recovered, they emerged in a much stronger position to meet global challenges. The Philippines, by contrast, had used temporary advantages rather than building durable competitive capacity.

This pattern repeats at the firm level. The World Bank’s Growth and Jobs Report found that the country’s top firms fail to grow and innovate, threatening the goal of reaching upper-middle-income status by 2040. When the largest companies cannot scale up productivity, the entire economy feels the drag.

When Small Businesses Can’t Borrow Their Way to Scale

The credit problem is not merely a compliance issue — it is a structural barrier that keeps growing firms from reaching their potential. Under the law, 8 percent of banking loans must go to micro and small enterprises, and 2 percent to medium-sized firms. As of end-June 2024, banks had lent only 1.82 percent to micro and small enterprises and 2.7 percent to medium-sized businesses.

Banks consider MSMEs risky because of limited financial history and higher vulnerability to economic downturns. The pandemic made repayment problems worse, and an information gap on smaller firms’ credit records hinders banks’ ability to assess risk. When small business owners do apply for loans, they are asked for personal financial statements, references from business networks, and detailed risk assessments — paperwork that many micro-entrepreneurs cannot easily produce.

This asymmetry between what banks know about large corporations versus small firms creates a lopsided lending environment. Rural and cooperative lenders, which are more familiar with their local clients, performed far better: they released 17.61 percent of their total credit books to micro and small enterprises and 9.26 percent to medium enterprises, exceeding the legal minimums. The gap between big banks and smaller lenders shows that the problem is not a lack of viable borrowers — it is a lack of data and trust.

Risks That Could Undo the Gains

Even the modest growth targets the government has set face serious headwinds. The Development Budget Coordination Committee adjusted its targets to 6 to 6.5 percent for 2024 and 6 to 8 percent for 2025 to 2028. Former Socioeconomic Planning Secretary Dante B. Canlas said the wide range signals great uncertainty about the country’s growth prospects. He pointed to US tariffs, which could slow export growth, and geopolitical risks that could reduce income and remittances from Filipinos overseas.

Economist Maria Ella Oplas argued that the high end of the target — 8 percent — may already be out of reach, and the economic team should have set a more grounded range of 6 to 7 percent or at most 7.5 percent. She cited threats such as protectionist policies under the Trump administration, Philippine Offshore Gaming Operations leaving the country, and climate change as reasons why 7 percent growth is unlikely.

Lanzona described the adjusted targets as a feeble attempt to cover up the reality that “Covid-19 changed everything, including the global economy.” The pandemic did not just cause a temporary dip — it reshaped the playing field, and the Philippines has not yet adapted.

What Needs to Change: A Reform Agenda

The World Bank’s Growth and Jobs Report lays out 47 targeted recommendations that could boost average annual growth by 1.4 percentage points from 2025 to 2040 and create 5.1 million better-paying jobs. The reform package focuses on three areas: expanding opportunities through investment and innovation, building capabilities through education and skills training, and strengthening the institutional environment through better local government revenue mobilization, streamlined business regulations, deeper capital markets, and modernized procurement.

On the lending side, the solution is not simply to mandate higher quotas. A good credit information bureau serving all banks would create a level playing field by giving lenders reliable data on small borrowers. Data-driven and risk-based lending would allow banks to expand their MSME base without taking on unacceptable risk. BDO Network Bank noted that big banks focus mainly on term loans; diversifying into revolving lines of credit and quick-rollover loans would better support MSME growth, as would flexible collateral requirements and financial literacy programs that reduce the intimidation small business owners feel when approaching formal lenders.

Canlas also argued that the government should force large corporations and wealthy individuals to pay their share in the cost of recovery, rather than relying disproportionately on indirect taxes that burden low- and middle-income classes. Oplas pointed to new investments that could make the goal of raising P1 billion more in revenues every day in the medium term a reality.

Frequently Asked Questions

Fast growth is not the enemy. The enemy is the kind of growth that skips the hard work of building productive capacity, deepening capital markets, and extending credit where it is actually needed. The 7.6 percent spike was a reminder that the Philippines can grow quickly — but without the right foundations, that speed becomes a liability. The reforms that matter most are not the ones that chase a higher GDP number next quarter, but the ones that build a system where small firms can borrow, top firms can innovate, and growth lifts everyone who works for it. If this was useful, you might also want to read how weak rules hurt Philippine businesses.

Sources

Growth Goals a Tough Climb, Say Economists — BusinessMirror, 2024.

Small Philippine Firms Fail to Scale in Absence of Capital — BusinessWorld, 2024.

Running Uphill: Growth, Jobs, and the Quest for Productivity in the Philippines — World Bank, 2025.

Philippine Economic Updates — World Bank, various years.