MANILA, Philippines – The Philippines is now officially an upper-middle-income country, a milestone decades in the making, but one that sits uneasily alongside the uneven development and daily insecurity still experienced by millions of Filipinos.

After nearly four decades as a lower-middle-income economy, the country finally crossed the World Bank’s (WB) income threshold, with gross national income or GNI per capita reaching $4,850, above the $4,636 cutoff for upper-middle-income economies.

But for millions of Filipinos, the new classification feels like a label that doesn’t necessarily reflect their economic reality, a gap even the country’s chief economist acknowledges.

“Upper-middle-income status is not our destination. It marks another stage in our development journey,” Department of Economy, Planning, and Development (DEPDev) Arsenio Balisacan said during a press chat on Monday, July 6.

“Development is not measured by average income alone. It’s measured by whether growth creates quality jobs, increases productivity, expands opportunities, reduces poverty, and improves the quality of life of our people.”

What does upper-middle income mean?

The WB groups economies into four income categories: low income, lower-middle income, upper-middle income, and high income. For the current fiscal year, upper-middle-income economies are those with GNI per capita of $4,636 to $14,375, while high-income economies are those above $14,375.

GNI per capita is an average. It takes the income earned by Filipinos and Philippine entities, including income from abroad, then divides this by the population. This is why overseas Filipino workers are also part of the story.

Now, upper-middle-income status means the country’s average income per person has now reached that threshold set by the WB. This is helpful for us to understand how the Philippine economy is growing compared to its neighbors.

But crucially, it’s not a one-metric indicator of economic health and equality. It doesn’t mean that most Filipinos are now upper-middle class. It doesn’t mean that wages have caught up with prices. And it doesn’t mean that families have enough savings, insurance, or access to quality public services.

“Development, as we teach our economic development students, is multi-dimensional. The average, or growth of level of income, is one [dimension], but the distribution of income is also another,” Balisacan said. “The average does not represent the overall state of welfare in a society.”

Balisacan also pointed to the “wide distribution around the mean,” meaning the national average can be pulled up by those earning far more than most Filipinos, while many households remain well below that level.

But this problem isn’t unique to the Philippines. Every country has some degree of income inequality, and that shouldn’t erase the real growth the economy has achieved over the years. The more important question is whether the Philippines can sustain that growth while making its gains more widely felt.

Poverty and inequality have eased, but insecurity remains

The upgrade did not come from nowhere. The Philippines has made measurable progress in reducing poverty and raising average income.

A WB report released in June said the country’s poverty rate fell to 15.5% in 2023 from 23.5% in 2015. Income inequality also declined to its lowest level in four decades, with the Gini coefficient falling below 40 for the first time. The Gini coefficient is a measure of inequality, with zero representing perfect equality and one representing perfect inequality.

Balisacan pointed to the same trend, saying the Philippines had long been classified as a high-inequality country, but recent data showed some improvement.

“We have come down from above 40 to less than 40, 39,” he said. “So there are positive developments happening. And so what we are saying is that we need to sustain these positive developments so that we can continue to progress.”

But lower poverty and lower inequality don’t automatically mean economic security.

The same report said nearly 28% of Filipinos remain vulnerable or at risk of falling back into poverty. The secure middle class, at about a quarter of the population, has barely grown since 2018.

It also warned that the typical Filipino family earns enough to stay above the poverty line, but not enough to feel secure. A single typhoon, hospital bill, or lost job can still push many families back into poverty.

So while the country has become richer on average, many households still experience the economy as precarious. That reality isn’t captured by the country’s new income classification.

Why growth still has to catch up

Balisacan said the deeper reason many Filipinos still feel poor is that the Philippines has historically grown more slowly than several of its neighbors.

“If you’re asking why we are poor, the big part of the story is that the country has not grown as fast as our neighbors,” he said. “In terms of the size of the economic pie, our growth rate is just so slow.”

For context, Malaysia reached upper-middle-income status around 1989, while Thailand did so around 2011, meaning we’ve only caught up to their status after about 37 years and 15 years, respectively. The hard part now is avoiding the middle-income trap and growing into an advanced economy – a feat that only Singapore and Brunei have been able to achieve in ASEAN.

The government also has to face the two-fold challenge of not only growing the economic pie at a faster rate, but also making that growth inclusive and equitable.

“Our challenge is both,” Balisacan said. “It’s not just improving the growth, making the growth faster, but also to make that growth more inclusive so that poverty reduction can be faster.”

The timing of the country’s upgrade also complicates the celebration. The World Bank classification reflects the economy’s performance through 2025. But the Philippines entered the middle of 2026 facing weaker growth, higher inflation, subdued confidence, and delays in public spending.

The economy grew by only 2.8% in the first quarter of 2026, according to the Philippine Statistics Authority. That’s far below the government’s initial 2026 growth target of 5% to 6%.

The government has since cut that target down to 3.5% to 4.5%. Balisacan previously attributed the downgrade to the energy crisis, higher oil prices, and the lingering effects of corruption allegations tied to flood control projects, which slowed government spending.

That means the country is now in catch-up mode. Balisacan said that after the 2.8% first-quarter expansion, the economy must grow by an average of 3.7% over the last three quarters to hit the low end of the 2026 target, and by 5.07% to reach the high end.

Balisacan himself said the Philippines should not be content with 5% to 6% growth.

“We should aim higher, just like what our neighbors are doing,” he said, citing Vietnam’s ambition to grow by 10% yearly and Indonesia’s goal of at least 7%. “There’s a lot of catching up to do with our neighbors.” – Rappler.com