On April 4, Socioeconomic Planning Secretary Arsenio M. Balisacan pronounced proudly that the Philippines is on track to become an “upper-middle income country” by 2025.

He said, “Because with the 6 to 7% is quite a high growth [sic] and still falls within the realm of possibility for our entry to the upper-middle income class.”

Let’s break this down.

The first thing to say is that Secretary Balisacan’s statement is merely the latest in a long string of promises made by the country’s economic managers.

In August 2017, former socioeconomic planning secretary Ernesto Pernia said that we could be an upper-middle income country by 2018. According to him, “The Philippine Development Plan [PDP] 2017-2022 aims for the Philippines to be an upper middle-income country by 2022. In fact, as I’ve said, we could achieve that by the end of next year.” That did not happen.

In 2018, Pernia said again we could be upper-middle income by 2019. That did not happen.

In 2019, Pernia said he was “surer” we would become upper-middle income by 2020. That did not happen (of course, we were held back by the pandemic).

In 2020, in the throes of the pandemic, there was no upper-middle income promise. Maybe it didn’t seem prudent.

But in 2021, the series restarted. The new socioeconomic planning secretary, Karl Kendrick Chua, said that we could be upper-middle income by 2022. He elaborated that “it is really slated at the end of 2022 or early 2023, but I think given the strong progress, the likelihood to achieving that even within 2022 is now higher.” Again, it did not happen.

In 2022, Chua said it’s “likely” that we would be upper-middle income by 2023. It did not happen.

Also in 2022, just before the new Marcos administration came in, Balisacan (who was returning for a second stint as socioeconomic planning secretary) said we might be upper-middle income by 2024 (at least not 2023). He said, “It might take a while for us to reach that point. So, if we grow at 7% next year, maybe by 2024 we would probably be there.” Actual growth in 2023 turned out to be just 5.6%, not 7%. And again, we did not become upper-middle income.

In 2023, Balisacan said we’re “on track” to be upper-middle income by 2025. Then he made the same promise a few days ago.

In sum, government officials have been dangling the coveted upper-middle income country status in the past seven years, to no avail.

Why do they keep promising it?

A game of thresholds

As I explained in a 2019 piece, countries of the world are classified by the World Bank into four income groups: low-income, lower-middle income, upper-middle income, and high-income.

In ASEAN in 2023, there are two high-income countries: Singapore and Brunei. There are three upper-middle income countries: Malaysia, Thailand, and Indonesia. The rest, including the Philippines, are lower-middle income countries. Figure 1 below shows the evolution of incomes in all 10 ASEAN countries.

Figure 1.

From 1987, when the World Bank started this classification, up until 2023, the Philippines has been assigned just one classification: lower-middle income. This is what we desperately want to change.

But to be considered an upper-middle income country, we need to exceed a certain income threshold.

In 2023, to be considered upper-middle income, average incomes in the Philippines (measured by gross national income per capita) in 2022 needed to be between $4,466 and $13,845. (Country classifications for a given year are based on the previous year’s income levels.)

So, we need at least $4,466. But in 2022, our income was just $3,950. Our average income was short of $516, and that’s quite a lot (about 13% of our actual income level). No wonder we didn’t make it, yet again.

If the minimum income is $4,466 – Secretary Balisacan is right in saying that, with modest growth, we will be able to cross the threshold.

But the problem is that the threshold itself is increasing because of the need to account for rising prices all over the world. If that happens, we will require more than modest growth to finally become an upper-middle income country.

This is not to say that becoming an upper-middle income country is virtually impossible. In fact, in 2023, Indonesia successfully made the crossing (Figure 2). Their average income was $4,580, or $114 more than the threshold.

Vietnam, too, is making fast progress. Note that it was classified as a low-income country as recently as 2008. But it became lower-middle income in 2009. What’s more, in 2020, Vietnam’s average income already exceeded ours.

In short, Vietnam is much closer to becoming an upper-middle income country than us. And compared to the Philippines, it will take Vietnam less than half the time to achieve the same status change.

Figure 2.

The next questions are: What is Vietnam doing right? What is the Philippines doing wrong? What can we learn and adopt from Vietnam’s economic miracle? Let’s leave that to another column.

More realistic growth target

The renewed upper-middle income promise comes on the heels of a meeting of the Development Budget Coordination Committee (DBCC), comprising the economic managers. There they lowered the growth target for 2024 from 6.5-7.5% to 6-7%. For 2025, they also reduced their target range for growth: from 6.5-8% to 6.5%-7.5%.

Meanwhile, they still expect growth to be 6.5-8% yearly from 2026 to 2028, the end of Marcos’ term.

On the one hand, the revised growth targets are reflections of more realistic assessments of the economy’s prospects, as well as international events (including “global trade disruptions and geopolitical tensions”). Previously, the new finance chief, Ralph Recto, recommended “more realistic” growth targets.

Secretary Balisacan gave assurances that the 6-7% target for 2024 is “quite a high growth.” But as I argued before, that just won’t cut it.

In fact, we will need more than 10% growth per year if we are to go back to the pre-pandemic growth trajectory by 2028.

So while I appreciate the more realistic economic targets, we should be pushing for policies and programs that will boost growth as much as possible. In this post-pandemic era, settling for 6-7% growth spells stagnation. – Rappler.com

JC Punongbayan, PhD is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. He was recently named one of The Outstanding Young Men (TOYM) for 2023. JC’s views are independent of his affiliations. Follow him on Twitter/X (@jcpunongbayan) and Usapang Econ Podcast.