Philippines Will Need A Decade To Become An Upper Middle Income Country (UMIC)
According to a former Socioeconomic Planning Secretary, the Philippines will take more than a decade to reach upper-middle-income status based on present performance.
Former National Economic and Development Authority (Neda) Chief Dante B. Canlas told BusinessMirror in an email that the country’s per capita GDP in current US dollars must double in order for it to become an Upper Middle Income Country (UMIC).
After accounting for population growth, inflation, and foreign exchange rates, the country’s per capita GDP has grown at a rate of 5.13 percent in current US dollars.
In the email, he said that with the current growth rate which is less than 7 percent, the per capita GDP in current US dollars doubles in 13.45 years. Hence, using World Bank’s income classification, it is impossible for the Philippines to become an upper-middle-income country in 2022.
He further added that according to World Bank’s data from 2020, the country’s per capita GDP is barely $3,298.83. Countries having a per capita GDP of $1,046 to $4,095 per year are classified by the World Bank.
An Upper Middle Income Country according to the World Bank’s updated definition, is one with a per capita GDP of $4,096 to $12,695. Malaysia, Thailand, and China are currently members of this group.
Canlas calculates that if the Philippine nominal per capita GDP in current US dollars grows at an average of 7 percent each year, this per capita GDP doubles in 10 years. The per capita GDP will be $6,597.66 in 2030.
Apart from sluggish growth, Canlas mentioned a slew of additional issues, including those brought on by the pandemic, which is now in its third year.
Among these issues is the country’s massive public debt, which was incurred as a result of significant borrowing for the Covid-19 response. The national government’s outstanding debt was estimated to reach ₱11.93 trillion as of the end of November 2021, according to the Bureau of the Treasury (BTr).
While this was less than the government’s forecast of ₱11.73 trillion for the year, it was nevertheless higher than the previous year’s total. Because of the net redemption of domestic securities and favorable foreign exchange rates, the debt stock fell by 0.3 percent from ₱11.97 trillion at the end of October.
The country’s debt-to-GDP ratio is expected to rise to 59.1 percent in 2021 and peak this year at 60.8 percent—slightly above the internationally accepted threshold—before gradually tapering off to 60.7 percent and 59.7 percent in 2023 and 2024, respectively, according to Finance Secretary Carlos G. Dominguez III.
Canlas also touched on how debt servicing is automatically appropriated. He mentioned that the bigger debt service will crowd out economic and investment expenditures in the General Appropriations Act [GAA], which is growth-enhancing, such as those for health, education, and infrastructure.
He also cited the advent of new Covid-19 variants, which would put a strain on healthcare resources and halt labor productivity growth. Aside from that, global uncertainty created by inflation stemming from the rise in crude oil, gas, and energy prices as well as the risk of war over Ukraine.
Canlas, on the other hand, called election spending’s impact on GDP growth “overrated.”
Based on aggregate production, election spending had no multiplier effect greater than one. Because of the increase in manufacturing of election campaign materials, the multiplier effect is only between zero and one. He explained that there is a crowding out from election spending. As cash is transferred from politicians to voters, the latter’s consumption increases but the former’s declines.
“There exists government regulation that hinders the stimulus from election spending, such as the ban on some public works,” he added.
However, according to Neda OIC Undersecretary for Investment Programming Roderick M. Planta, over half a trillion pesos in proposed or ongoing infrastructure projects could be exempted from the election ban that will take effect in March this year in preparation for the May 2022 national and local elections. 18 projects have been exempted by the Department of Public Works and Highways (DPWH).