Iloilo City’s cyclical and policy-induced slowdown

By Antonio Calleja

Iloilo City’s growth slowdown is now measurable, explainable, and increasingly difficult to dismiss as a normal post-pandemic normalization.

Here are the numbers: Growth decelerated from 10.4 percent in 2022–2023 to 7.1 percent in 2023–2024. That alone would have suggested a transition to a more sustainable expansion phase. But what has followed is not behaving like a typical normalization.

Recent administrative data show a widening divergence inside the local economy. The city continues to generate new business registrations and reported capital investments. At the same time, the Local Economic Development and Investment Promotion (LEDIP) Office is preparing for only 75 to 80 percent renewal among nearly 20,000 establishments. This implies a potential non-renewal band that is economically significant — not as a literal collapse of firms, but as a clear signal of tightening business viability.

The city’s own fiscal data reinforce this. Statement of Receipts and Expenditures (SRE) indicators show that while revenues remain positive, they are not exhibiting the kind of post-adjustment acceleration expected after a major tax base correction. Business taxes are holding, but not surging. Real property tax collections have stepped up in level, but do not show strong follow-through growth. This is the anomaly.

After an 18-year valuation freeze, a correction of this magnitude should have produced strong revenue buoyancy. Instead, what we observe is consistent with a system absorbing a shock — where the increase in tax burden is being offset by behavioral and economic responses that dampen expansion. The mechanism is not speculative. It is now supported by formal analysis.

A recent econometric study (Pajo, 2025) on large-scale property tax adjustments finds that abrupt increases of this magnitude can raise SME operating costs by 18 to 22 percent, primarily through rent pass-through and cost reallocation. Under these conditions, between 7 to 9 percent of firms enter a high-risk zone for closure or contraction, with broader second-round effects on employment and investment. This aligns closely with what Iloilo City is now signaling administratively.

Higher RPT feeds directly into commercial rents. Higher rents compress margins. Firms respond by slowing hiring, deferring expansion, or in some cases exiting. The effect is not an immediate collapse, but a gradual tightening — first visible in renewal behavior, then in investment decisions, and eventually in growth outcomes.

The comparative evidence is decisive. Other highly urbanized cities are maintaining stable or improving growth trajectories. Iloilo City is not. The distinguishing factor is not structural capacity or demand conditions — it is the presence of a large, abrupt local tax adjustment that has no parallel in peer cities.

Even fiscal behavior is beginning to reflect this shift. The city’s decision to secure an additional ₱300 million loan for education infrastructure shortly after passing its annual budget is not, in itself, a concern. But when incremental borrowing begins to coincide with moderating own-source revenue momentum, it suggests that internal fiscal expansion is no longer as robust as before.

Layered on top of this is a growing political disconnect between the city’s executive leadership and its congressional representation. At a time when policy coordination is critical, this introduces an additional source of friction — slowing alignment on infrastructure, investment promotion, and institutional execution.

Taken together, the evidence points to a clear conclusion. Iloilo City is still growing. But it is no longer growing freely.

A defensible estimate places 2025 growth at around 4.5 to 5.0 percent — below both its recent trajectory and what would have been expected absent the tax shock. This is not a collapse. But it is a material deviation, and one that is now grounded in both data and mechanism.

What Iloilo City is facing is not a single pressure point but a convergence of cost shocks from two distinct sources. Wage adjustments have already compressed margins across sectors, with firms responding through slower hiring, reduced work hours, and price pass-through rather than immediate closures. The real property tax increase now adds a second, fixed-cost shock that directly raises the baseline cost of operating in the city. These pressures do not operate independently—they compound. The result is a quieter but more consequential adjustment: deferred expansion, tighter reinvestment, and a steady drag on output growth, even as headline indicators avoid outright contraction.

The Real Property Tax correction was necessary. The way it was implemented was not costless. And the cost is now showing up exactly where economic theory predicts it would — in margins, in behavior, and ultimately, in growth.

The task ahead is not to reverse the reform, but to recognize its effects and manage them deliberately. Because from this point forward, Iloilo City’s growth will be less automatic — and far more dependent on policy precision.

Comparative Perspective: Iloilo City as an Emerging Outlier

A clearer understanding of Iloilo City’s current economic trajectory emerges when it is placed alongside other highly urbanized cities (HUCs) in the Philippines. The comparison is instructive not because these cities are identical, but because they share broadly similar structural characteristics: service-oriented economies, urban density, and post-pandemic recovery dynamics. Within this comparable group, Iloilo City stands out—not for collapse, but for divergence.

Table: HUC Growth Trajectories, Tax Conditions, and Fiscal Signals (PSA + SRE Integrated)

City	2022–2023 Growth (%)	2023–2024 Growth (%)	Direction	Local Tax Shock (2024)	Revenue Pattern (SRE Signals)	Observed Economic Behavior
Iloilo City	10.4	7.1	▼ Sharp deceleration	Yes — RPT revaluation (large step change)	RPT ↑ (level), weak follow-through; business tax stable	Renewal pressure; margin compression; rent pass-through
Cebu City	8.3	7.0	▼ Mild deceleration	No	Broad-based revenue growth	Continued expansion
Davao City	7.5	7.9	▲ Acceleration	No	Stable and improving LSR	Strong firm stability
Cagayan de Oro	5.7	6.8	▲ Acceleration	No	Strong business tax growth	Investment-led expansion
Bacolod City	10.0	7.7	▼ Normalization	No	Improving revenue base	Expanding SME activity
Baguio City	9.0	5.8	▼ Sector-driven slowdown	No	Tourism-sensitive recovery	Sector-specific volatility

The city’s growth path shows a distinct break. From a high of 10.4 percent in 2022–2023, growth decelerated to 7.1 percent in 2023–2024. While some degree of slowdown is expected as economies normalize after a rebound period, the pattern observed in other HUCs suggests a different trajectory. Cities such as Cebu, Davao, Bacolod, and Baguio have largely maintained stable growth rates in the mid- to high-single digits, while Cagayan de Oro has even shown signs of acceleration driven by investment activity. In these cases, normalization has taken the form of stabilization—not a step-down that signals emerging friction.

This places Iloilo City in a distinct position. It is not simply slowing; it is diverging from the prevailing pattern among its peers.

The most salient differentiating factor is policy. Unlike other HUCs, Iloilo City implemented a large-scale and abrupt real property tax (RPT) adjustment following an 18-year freeze in property valuations. The correction itself was fiscally necessary. However, its timing and magnitude introduce a variable that is absent in comparator cities.

The effects of this policy intervention are visible not only in output data, but also in fiscal and behavioral indicators. Statement of Receipts and Expenditures (SRE) data show that while revenues have increased in level—particularly for RPT—they have not exhibited the strong post-adjustment momentum that would typically follow a major tax base correction. Business tax collections remain stable but do not display the acceleration expected in a still-expanding urban economy.

In contrast, peer cities without comparable tax shocks show revenue patterns that align more closely with ongoing expansion. Business taxes track economic activity, and there is no indication of dampened momentum following fiscal adjustments.

More importantly, the divergence extends beyond revenue data into firm-level behavior. Iloilo City’s own administrative signals—particularly expectations of weaker business renewal rates—suggest that the cost environment has tightened. This is consistent with the known transmission mechanism of property tax increases. Higher real property taxes are passed through into rents, which in turn raise operating costs for firms, particularly small and medium enterprises. The adjustment manifests not as an immediate contraction, but as a gradual shift in business decisions: delayed expansion, cautious hiring, and, at the margin, exit or non-renewal.

Such signals are notably absent in comparator cities.

Taken together, the comparative evidence supports a clear inference. Iloilo City’s growth deceleration cannot be fully explained by national or structural factors affecting all urban centers. Instead, it reflects a localized divergence associated with a discrete policy event—the abrupt correction in real property taxation.

This distinction matters for forward-looking assessment. If Iloilo City were tracking the same trajectory as its peers, one would expect growth to stabilize within the mid-single-digit range. However, the presence of an identifiable cost shock implies a lower equilibrium growth path in the near term. A reasonable estimate places 2025 growth at around 4.5 to 5.0 percent—below the peer band, and consistent with both the observed deceleration and the transmission effects now evident in fiscal and business indicators.

In this sense, Iloilo City is not underperforming in an absolute sense. It remains a growing urban economy. But relative to comparable cities, it is now operating under a different set of conditions—where growth is increasingly shaped not just by underlying economic fundamentals, but by the consequences of recent policy choices.

The Policy Question

The implication is not that the fiscal correction should be reversed. But the question is whether the current policy stance—defined by maintaining the RPT adjustment as implemented, with limited mitigating or countervailing measures—is proportionate to the speed and direction of the slowdown. Momentum is already turning decisively downward, and this is now being reinforced by an external shock in the form of higher fuel and transport costs linked to the Middle East conflict. In that context, a purely incremental or cautious policy stance risks being overtaken by events.

When cost pressures are compounding and growth is already decelerating, the adjustment does not unfold linearly—it accelerates. The risk is not merely a period of low growth, but a sharper loss of economic momentum marked by stalled expansion, rising business stress, and increasing vulnerability to contraction. The policy question is no longer whether to act, but whether the scale and timing of intervention are sufficient to stabilize expectations and arrest the slide before it becomes materially harder to reverse.