A report by the Manila-based bank said the country’s pace of poverty reduction has been slow and its income inequality remains the highest in Southeast Asia. Government data, released Wednesday, showed that 26.9 percent of Filipino families were below the official poverty threshold in 2006, up from 24.4 percent in 2003.

Ifzal Ali, ADB’s chief economist, said removing the most critical constraints will spur investment and spark sustained and high growth.

"This would ensure that the fruits of development are shared by all," he said.

The economy has expanded in recent years, posting 7.3 percent growth in 2007, the highest in three decades. But the bank warned that public and private investment remain sluggish and their share in gross domestic product has continued to decline, raising questions on whether the economic momentum can be sustained.

During 2002-2006, foreign direct investment amounted to about US$ 1.1 billion, compared with US$ 6.1 billion for Thailand and US$ 3.9 billion for Malaysia.

The lower FDI partly explains a smaller and narrower industrial base compared to its neighbors. In 2005, the share of manufacturing in gross domestic product was about 23.5 percent, compared with 34.8 percent in Thailand and 30.6 percent in Malaysia.

The report said the country’s fiscal situation remains tight, poor infrastructure has raised the cost of doing business, and worsening corruption and political instability have eroded investor confidence.

In the longer term, the report said, some constraints which are less critical today could worsen, including the need for higher domestic savings and improved skills to support development of emerging industries.

A corruption scandal has been battering President Arroyo’s administration, triggering street protests and mounting calls for her resignation. (AP)