The Market Monitor Minding the Nation's Business
By Rose de la Cruz
A study of the Asian Development Bank said middle income countries MICs), both lower middle and upper middle, stay in their classification for 14 years and 28 years on average, respectively.
But the Philippines has stayed as a lower middle income country category since 1987, or 37 years, which means it overstayed in the LMIC category for 11 years.
“By focusing on the time element, (the ADB study) contends that middle-income countries (LMICs and UMICs) are trapped if they have remained in this bracket longer than historical experience, that is, 14 years in the lower middle-band, and 28 years in the upper middle-income range,” a brief published by Business Mirror last August 6 said.
The brief, done by the Congressional Policy and Budget Research Development (CPBRD), said one reason is the persisting low income of workers.
“Higher incomes and not just an increase in job creation in sectors like agriculture will allow the country to stop ‘overstaying’ in LMIC, “ the brief said.
Global Source analyst Diwa Guinigundo, former deputy governor of Bangko Sentral ng Pilipinas for the Monetary Stability Sector said in 2023, the country had a seeming “perpetual engagement in LMIC,” the newspaper said.
The Congressional brief said if the country sees an increase in Services Value-Added per Worker (SVAPW), the probability of the country becoming an Upper Middle Income Country (Umic) increases by 174.7 percentage points.
The value-added per worker is being monitored by the PDP in the agriculture, fisheries, and forestry [AFF], industry, and services sectors as a measure of productivity,” the CPBRD brief stated.
“Ensuring that the per-worker value-added expands entails that the growth of economic contributions outpaces increases in the labor force,” it added.
The latest estimates of the World Bank showed the country has been an LMIC for 37 years. This means, the country has been overstaying in the income category for 11 years or more than a decade.
Another reason why the country overstayed in the LMIC category is the high cost of business in the country. The CPBRD noted that, specifically, the “marginal increase” in the cost of business start-up procedures decreases the probability of attaining UMIC status by as much as 34.6 percentage points.
While some progress has been made by the Philippines to bring down this cost to 23.3 percent of Gross National Income (GNI) in 2019 from 29.7 percent of Gross National Income (GNI) in 2010, the country consistently imposes the highest cost, according to the brief.
The CPBRD said Malaysia is a far second at 11.1 percent, while the median for UMICs was only at 9.4 percent for the same period.
Meanwhile, high inflation is also a major factor. The CPBRD said marginal increases in the Consumer Price Index (CPI) or inflation decreases the probability of attaining UMIC status by 8.8 percentage points.
The CPBRD said this is aligned with other studies that cited inflation as detriment to a country’s economic growth and development, particularly its impact on purchasing power.
The CPI reached 125.6 in June 2024, leading to a purchasing power estimate of 0.7962 centavos for every peso. This means Filipinos need to spend P120.38 today for P100 worth of items in 2018.
The price to be paid by the poorest Filipinos is also steeper since the CPI for the Bottom 30 percent of the population reached 129.1 in June 2024. This means the purchasing power of the poorest Filipinos is only 0.7746 for every peso and that low income Filipinos must spend P122.54 today for P100 worth of items in 2018.
“It also has negative implications on the purchasing power of households, especially those belonging to lower-income groups, who have a lesser capacity to weather high prices,” the brief stated.
Previously, data from the Philippine Statistics Authority (PSA) showed the country’s Gross National Income (GNI) levels in 2023 was at P26.99 trillion.
With a population estimate based on the 2020 Census of Population and Housing (CPH), the country’s per capita GNI at current local prices is at $4,335.60.
PSA Macroeconomic Accounts also said using the new population projections, the 6 percent GDP in 2024 will result in a per capita GNI at current local prices of $4,530.63.
Socioeconomic Planning Secretary Arsenio M. Balisacan estimated that the country needs to post a GNI growth of 6.7 percent to attain its UMIC goals.
Balisacan estimated that the country’s current GNI per capita at $4,230. This is still short of $286 from the low end of the new World Bank threshold of $4,516 to be classified as a UMIC.