The country’s prospect of achieving upper middle-income status was brought to the fore again with Pres. Marcos Jr’s recent trip to the United States.
Marcos Jr claimed during his speeches before the United Nations General Assembly (UNGA) and other side activities like the meeting with Asia Society members in New York that the Philippines is on track to “graduate to upper middle-income country status” by 2023 and become a “high-income country” by 2040.
But does getting an upper middle-income designation really mean the Philippines and its people are achieving genuine development? Or is it just another label being hyped by the new administration to project economic success while hiding a troubled economy and the millions of Filipinos still struggling and being left behind?
Just a number
The World Bank has been classifying countries according to per capita gross national income (GNI) levels since 1989. Its main motivation was to have an indicator for designating whether a member country is or is not eligible to borrow and, if so, whether this would be on commercial or concessional terms. The World Bank settled on using GNI per capita as a proxy indicator for a country’s level of development or underdevelopment and, correspondingly, its need for support from the institution.
GNI per capita is computed simply as a country’s reported GNI divided by the population. GNI (formerly called gross national product or GNP) is the total value of goods and services produced by a country’s residents whether domestically or abroad.
Dividing GNI by the population supposedly gives a better measure of the country’s level of development than just looking at GNI. For instance, the Philippines’ GNI is 60 times larger than that of Liechtenstein (where so much of the Marcos’ ill-gotten wealth is stashed). The Philippines’ GNI is however only much larger because our 111 million population is much bigger than Liechtenstein whose population is less than 40,000. Adjusting for the difference in population, Liechtenstein’s GNI per capita is over 30 times that of the Philippines which is a more pertinent comparison.
The World Bank classifies a country as an “upper middle-income economy” when its GNI per capita reaches US$4,256. When it reaches US$13,205 it becomes a “high-income economy”.
The Philippines has been classified as a lower middle-income country ever since the World Bank came up with its classification scheme – whether internally in the early 1980s or as officially published since 1989.
While the Philippines has remained lower middle-income over this time, around 42 countries have actually already been reclassified as upper middle-income or even higher income economies since the late 1990s. In Southeast Asia, this includes Malaysia and Thailand which were reclassified as upper middle-income in 1992 and 2010, respectively.
Left out
The World Bank, however, does not consider anything else outside of a country’s reported GNI and its population. The World Bank justifies this with the argument that various measures of socioeconomic well-being are anyway correlated with GNI per capita – saying that poverty incidence, mortality rates, educational levels and other measures of well-being generally improve as GNI per capita increases. This is true but only up to a point.
Unfortunately, the World Bank’s classification scheme can obscure more than it describes, and the Philippines is a case in point. It will be grossly insensitive to hype an “upper middle-income” classification according to the World Bank’s narrow scheme if the well-being of most Filipinos is very far from the “upper middle-income” status that the term seems to imply.
The most obvious problem is that the average income per person which GNI per capita basically measures is so far removed from the lived experience of tens of millions of Filipinos. The country’s political and economic structures are so unequal that the benefits from economic activity, which boosts GNI, are concentrated in an elite few and not distributed equally among 111 million Filipinos. Most Filipinos struggle with low and insufficient incomes.
For instance, the Bangko Sentral ng Pilipinas (BSP) reports that over seven out of 10 families (72.5%) did not have any savings as of the third quarter of 2022. A Social Weather Stations (SWS) survey during the second quarter meanwhile found eight out of ten families (79%) reporting themselves as poor (48%) or borderline poor (31%). These are magnitudes of 19-20 million families out of the country’s some 25 million families.
In 2021, some 70% of families had meager incomes averaging just Php9,668 to Php25,245 monthly (first to seventh deciles), according to the Philippine Statistic Authority (PSA) 2021 Family Income and Expenditure Survey (FIES).
Moreover, GNI per capita completely fails to reflect the reality of: persistently low family incomes and earnings; lack of secure and decent work; inadequate education, nutrition and health; poor housing; lack of clean water, sanitation and electricity; lack of assets; and pervasive vulnerability, exploitation and violence. GNI does not even measure the loss or degradation of natural resources and, if anything, economic activity that destroys the environment even boosts GNI.
The distribution of income and all these other dimensions of poverty need to be considered in any classification of the country’s level of development. GNI fails to do this. If anything, becoming classified as “upper middle-income” may even just be disguising how increasingly unequal the country is becoming and how many more are becoming left behind.
Smokescreen
Being reclassified “upper middle-income” is then not really something to aspire to in itself. The danger here is that the Marcos Jr administration will even use any reclassification as a smokescreen for what is really continued underdevelopment for the majority who are being left behind.
Yet instead of hyping that hollow classification, the country is better off revisiting the economic policies of these past decades which have kept the economy underdeveloped and most people poor or vulnerable.
There are good reasons to believe that the government’s growth targets will not be achieved. The economic managers have consistently failed to meet their over-optimistic propaganda-motivated annual growth targets since 2018. As it is, in the second quarter of 2022, year-on-year gross domestic product (GDP) growth has already been slowing and quarter-to-quarter growth even contracted.
Domestic headwinds also just keep piling up. Household consumption is depressed by worsening joblessness, informality and family incomes. Inflation will keep being stoked by the peso at record lows. Rising interest rates will choke economic activity. All these factors dampening demand are unmitigated by the proposed 2023 budget which is an austerity budget.
There are also mounting global crises with high food and fuel prices, rising interest rates, and another looming global recession.
If the Marcos Jr administration is serious about achieving real development, it should stop its obsession with GNI per capita as an indicator of development and acknowledge, not ignore, that the country is neck-deep in a socioeconomic crisis. From there, it can move away from failed neoliberalism and instead push policies that will genuinely improve people’s lives. The shift is critical for families to have decent livelihoods and incomes, and to benefit from free or affordable social and public services.
