The Marcos Jr administration apparently expects the Philippines to reach upper middle-income country (UMIC) status this year or next year because of its “strong economic performance and sound fiscal policies,” according to the recently released Philippine Development Report 2024.

The World Bank’s country lending groups are a convenient way to categorize and compare countries. Still, we should be careful not to overstate movements here as indicating economic progress especially given the Philippine context of such great and persistent inequities in growth and in the distribution of income and wealth.

Understanding what UMIC really means easily clarifies that it is in many respects just a fantasy. It is literally just the country’s gross national income (GNI) divided by the population, and then seeing where this places the country on a scale drawn up by the World Bank.

With that serious limitation of the metric in mind, achieving UMIC status faster is really only a question of expanding GNI faster – ruling out, of course, the more macabre approach of drastically reducing the country’s population. It’s difficult to control the portion of GNI earned abroad because the earnings of Filipinos overseas and of investments abroad are subject to external economic conditions.

This leaves, as the only other option, quickly boosting gross domestic product (GDP) by boosting domestic aggregate demand through more government spending on high-multiplier items and by increasing the purchasing power of households such as through meaningful wage hikes. The government providing more universal and quality education, health and housing on a free or subsidized basis both directly stimulates economic output as well as frees up household purchasing power.

Government spending with the highest multiplier effects – or the most economic activity per unit of expenditure – are those with immediate and cascading impact on employment, incomes and demand. This can include more extensive labor-intensive infrastructure projects (like rural roads, irrigation, electrification, and housing), more agricultural support programs, and even direct transfers to low-income groups with high marginal propensities to consume.

This kind of spending will not just spur growth but actually increase the social benefits and economic activity of more poor and low-income Filipinos. This is in contrast to current public spending which includes, for instance, capital-intensive infrastructure projects overly concentrated in the National Capital Region (NCR) and its surrounding regions.

UMIC will most likely happen this year or next but the government should do significantly more for the benefits from that growth to be more equitably shared. The biggest barrier to this kind of more inclusive growth boost is the bias of current economic policy for supporting the profits of large foreign and domestic corporations in a few regions like the NCR, Central Luzon and Southern Tagalog, rather than supporting the economic activity of rural producers, small enterprises and low-income households nationwide.

UMIC status is most of all just a World Bank lending category, so the Philippines will likely lose access to at least some concessional loans. There will likely be a transitional period after which the loans available to it, especially from the World Bank, will be less concessional and closer to market rates. It will be up to bilateral donors and other development banks to decide what types of overseas development aid (ODA) it will still give and on what terms of financing.

This will have an impact on the country’s foreign exchange reserves. For now, at least, growth in overseas remittances is slowing but these remain substantial and still give the country a significant foreign exchange buffer. Nonetheless, the government should already prepare for new sources of foreign exchange like exports of domestic agriculture and Filipino industry. It should start being conscious that so much of foreign investment today is forex-draining because their operations are so import-intensive, particularly the country’s hyped electronics exports which really are not made by Filipinos.

To the extent that ODA is used to support domestic spending and not just to generate foreign exchange, the government should also already consider revenue generation with a more progressive tax system. This means more direct taxes on the income of rich families and large corporations, and on billionaire wealth.

Ascending to UMIC status implies that those benefitting the most from economic growth also have greater capacity to contribute more for the government to use towards more inclusive social and economic services. So, if anything, it should really be considered a trigger for long overdue reforms to make the tax system more progressive. Raising revenues from billionaires and large corporations and then using these to provide vastly scaled up social and economic services to the poor and low-income majority will be a great leap forward in making UMIC status a little less of a fantasy and more of a reality.