An upper middle-income nation by 2025? What PH is bound to lose

MANILA, Philippines — To be finally called an “upper middle-income country (MIC)” sounds good to the ears. And this year, we have repeatedly heard the economic team of President Marcos tout how close the Philippines is to reaching the next higher-income group.

Secretary Arsenio Balisacan of the National Economic and Development Authority (Neda) even went as far as saying that there’s a good chance for the country to hit that goal in 2025.

To be an upper MIC means to have a per capita gross national income (GNI)—or the total amount of money earned by a country’s people and businesses at home and abroad—of between $4,516 and $14,005. In Southeast Asia, Indonesia, Thailand, and Malaysia belong to this group, while Singapore and Brunei are in the high-income bracket.

But reaching that status is not easy. Despite posting a new record-high GNI per capita of $4,230 in 2023, the Philippines has been classified as a lower MIC since 1987, reflecting the slow progress the country is making to expand its economy in step with population growth.

That said, climbing to the next higher bracket would be a milestone for the country. But such a feat means the Philippines is also bound to lose some economic perks that only lower income nations can enjoy.

So it begs the question: can the Philippines finally wean off these perks?

No more cheap loans

Perhaps the biggest benefit that the Philippines will lose once it becomes an upper MIC is the access to concessional interest rates being charged on official development assistance (ODA) loans from multilateral banks and donor nations.

Government data showed ODA loans accounted for 14.5 percent of the state’s debt portfolio in 2023, giving the government a flexible financing option that carries cheaper rates and longer payment terms—including a grace period—compared to commercial borrowings.

READ: Neda seeks P13.21-billion budget for 2025

That said, ODAs have been in the Philippines’ financing menu for years, helping the country plug both its budget deficits and infrastructure gaps. But ascending to the upper MIC status next year means the Philippines would lose access to ODAs at a time the government is trying to bridge a budget gap that will unlikely go down to prepandemic level within the term of Mr. Marcos.

At this point, Finance Secretary Ralph Recto acknowledges the financing hole that will be left once the Philippines no longer qualifies for ODAs, as this would mean more commercial borrowings that can make interest payments costlier for the government.

“Rates will probably go up a bit,” Recto tells the Inquirer. “I don’t expect that to be a dramatic increase just because we become an upper middle income country. Not necessarily.”

The good news is Neda had been assured by development partners that the government will still have access to ODAs until 2027 if the Philippines manages to become an upper MIC in 2025.

Leonardo Lanzona, economist at Ateneo de Manila University, believes that becoming an upper MIC is still “worth achieving” and can help the Philippines attract more investments.

“If we are securely situated in this status, investments are going to increase, more than enough to offset any decreases in international development assistance,” Lanzona says.

Losing trade perks

Attaining the upper MIC status will likewise exclude Philippine exporters from certain preferential tariff treatments.

For instance, the country will no longer qualify for key trade perks like the United Kingdom’s Developing Countries Trading Scheme (DCTS). The DCTS with the UK—which was launched in 2023—removes import tariffs for over 80 percent of Philippine goods that enter the European country, covering about 150 products and saving local exporters an estimated 21 million pounds annually.

That is in addition to more than 6,000 tariff lines covered by the Generalized Scheme of Preferences Plus (GSP Plus) being offered by the European Union—another trade perk that the Philippines is bound to lose once it hits upper MIC status. Government data show the Philippines has 2.03 billion euros worth of exports under the EU’s GSP+ scheme as of 2021.

Ma. Flordeliza Cusi Leong, vice president for advocacy, communications and special concerns at Philippine Exporters Confederation Inc. (Philexport), tells the Inquirer that the situation increases the urgency for the Philippines to secure more free trade deals.

“All the capacity building, advocacies, programs, services and projects of PHILEXPORT are geared towards making them competitive in any situation,” Leong says.

-Fewer opportunities to study abroad

Becoming an upper MIC might also result in fewer opportunities for Filipinos who want to study or pursue training abroad for free.

This is because many international scholarship programs only accept applicants who come from low to lower MICs to give deserving students in developing nations a chance to get the best education abroad. Latest available data from the United Nations Educational, Scientific and Cultural Organization or UNESCO showed there are over 30,351 Filipino students outside the country in 2022.

John Paolo Rivera, senior research fellow at state-run think tank Philippine Institute of Development Studies, says that losing access to international scholarship and training opportunities could hinder efforts to develop the human capital of Filipinos, particularly in critical sectors.

”This would need to be addressed through increased investment in domestic education and training programs, as well as negotiations for bilateral scholarships or partnerships with other nations,” Rivera says.

—IAN NICOLAS P. CIGARAL

 

(2024/12/31-02:08)