The World Bank urged the Philippines to accelerate power sector reforms to lower electricity costs and reduce its dependence on imported fuel, saying cheaper and more reliable power has become critical to sustaining economic growth, attracting investments, and reducing poverty after the country’s transition to upper-middle-income-country (UMIC) status.

In its latest Philippines Economic Update (PEU) titled “Powering Progress: Electricity, Competitiveness, and Growth Pathways,” the first PEU edition released since the country attained UMIC status, the World Bank said the prolonged war in the Middle East—which disrupted global energy markets and heightened concerns over oil supply—underscored the country’s vulnerability to external shocks and reinforced the need to strengthen energy security through accelerated investments in renewable energy (RE), transmission infrastructure, energy storage, and more competitive electricity markets.

“Because the Philippines is a net energy importer, when there is a global price spike in oil and gas... the costs of its imports have risen up significantly,” World Bank Philippines senior country economist Jaffar Al-Rikabi, the midyear 2026 PEU’s lead author, noted during the report’s launch on Monday, Aug. 3.

The Washington-based multilateral lender cited that the Philippines imports nearly 98 percent of its crude oil requirements from the Middle East, while about 78 percent of the country’s electricity generation comes from fossil fuels. It also warned that domestic natural gas production from the Malampaya field is expected to begin declining as early as 2027, increasing the urgency of reducing reliance on imported fuels.

According to the report, Philippine electricity prices remain among the highest in Southeast Asia due not only to fuel costs but also to structural issues such as concentrated power generation, transmission constraints, and limited market competition. These high power costs weaken manufacturing competitiveness, raise business operating costs, and leave the country more exposed to external price shocks.

Residential electricity tariffs in the Philippines average about $0.21 per kilowatt-hour (kWh), compared with around $0.13/kWh in Thailand, $0.09/kWh in Indonesia, and $0.05/kWh in Malaysia.

The World Bank said implementing an accelerated least-cost power development pathway could raise the country’s gross domestic product (GDP) by more than one percent by 2030, generate more than 161,000 additional jobs, and lift around 730,000 Filipinos out of poverty while lowering electricity prices, improving supply reliability, and reducing exposure to imported fuel.

The report said the reforms include accelerating the rollout of least-cost RE, expanding transmission infrastructure, investing in battery energy storage systems (BESS), strengthening competition in the Wholesale Electricity Spot Market (WESM), and improving procurement and planning across the power sector. It also projects electricity demand to increase sharply over the coming decades, driven by the rapid expansion of data centers, artificial intelligence (AI), electric vehicles (EVs), and urbanization.

Beyond the power sector, the World Bank said the Philippines’ transition to UMIC status does not eliminate longstanding structural challenges, warning that sustaining faster growth and reducing poverty will require deeper reforms.

The lender forecasts Philippine gross domestic product (GDP) growth to slow to 3.7 percent this year from 4.4 percent in 2025 before recovering to 5.2 percent in 2027 as inflation eases, public investment improves, and private demand gradually strengthens. Inflation is projected to average 5.8 percent in 2026, well above last year’s 1.7 percent and the government’s two- to four-percent target.

Despite the country’s graduation to UMIC status, the World Bank expects poverty reduction to proceed at a slower pace over the next two years as elevated inflation and below-trend economic growth continue to weigh on lower-income households. The lender projects the national poverty rate to decline only gradually—from 15.5 percent in 2025 to 15.3 percent in 2026 and 14.9 percent in 2027—equivalent to about 17.3 million Filipinos living below the poverty line this year before easing to around 17.1 million next year.

According to the World Bank, sustaining faster poverty reduction will require stronger and more inclusive economic growth, better-quality jobs, and reforms that raise productivity—including lower electricity costs, which it identified as a key constraint to investment, competitiveness, and employment generation.

Among the key risks cited by the World Bank are a prolonged disruption in Middle East oil supplies, renewed geopolitical tensions, weaker global demand, and a sharper-than-expected slowdown in the global AI investment cycle, all of which could dampen the Philippines’ growth prospects.

“The national ambition of having a middle class society where nobody’s poor is achievable within a generation. It requires a commitment to reforms and to their implementation,” Gonzalo Varela, World Bank lead economist covering the Philippines, Malaysia, and Brunei, said during the report’s launch. - Danielle T. Bayani