In any discussion of this country’s UMIC aspiration, population clearly cannot be left out of the picture.
In its desire to be accepted by the international community as an economically stable country with steady finances, the Philippines has for a long time sought to attain two international financial categorizations. Both categorizations will enable this country to access international financial resources on comparatively more favorable terms.
The categorization that is of near-term significance is an upgrade in the foreign credit rating of the Philippines. Moody’s Rating Services, one of the three leading foreign credit rating institutions – the others being Standard & Poor’s and Fitch Rating – gave this country a credit rating of Baa2 (with stable outlook), which is an investment-grade rating in 2014. It has not changed that rating since then. A Baa2 rating means that the Philippines poses a moderate credit risk for investors. An A rating signifies a low credit risk – more specifically, the risk of default – for investors.
Obviously, because of the higher risk involved, a Baa2-rated country will have to pay investors more interest than an A-rated issuer of bonds and other securities. And the greater the borrowing that a moderate-risk, high-risk country does from the world financial market, the greater the debt-service burden on the national budget.
Successive administrations have strived to obtain a credit rating upgrade for the Philippines from Moody’s and the other Big 3 rating agencies. So far, they have been unsuccessful. The secretary of Budget and Management, a member of the current administration’s economic management team, expressed confidence that the Philippines could obtain on upgrade to an A rating within the term of President Ferdinand Marcos Jr. Secretary Amenah Pangandaman said that the upgrade would happen “as long as we stay on track with our agenda for prosperity and with our whole-of-government approach.”
And what does Moody’s think? “The passage of reforms over the past several years to liberalize the Philippine economy will support medium-term growth potential by supporting a business-friendly environment and by attracting foreign investments,” Moody said in an Aug. 23, 2024 report.
The second categorization that this country has long sought to achieve is that of becoming an upper-middle-income country (UMIC). The World Bank categorizes its member countries as high-income, upper-middle-income, lower-middle-income and low-income, according to their gross national income (GNI) per capita. To be considered a UMIC country by World bank standards, a country must have a per capita GNI of $4,500.
The Philippines continues to be ranked as a lower-middle-income country because its per capita GNI is still below $4,500. In 2023 it was close to $4,200. When is the $4,500 threshold likely to be reached? “With current data, estimates suggest that the Philippines is poised to achieve UMIC status by 2025,” the director-general of the National Economic and Development Authority (NEDA) said recently. But he added a condition: “provided the economy sustains a robust growth rate in 2024 and 2025.” To push the attainment growth rate in 2025 the Marcos administration has sent to Congress a national budget of P6.352 trillion, a figure that represents approximately 22 percent of the gross domestic product (GDP).
The problem with trying to move upward in the World Bank country-category ladder is that $4,500 and companion numbers are per capita figures and to arrive at them, GNI has to be divided by the number of capita.
National income may be growing rapidly, but if it is divided by a population figure that is growing equally or more rapidly, a number like $4,500 is going to remain difficult to reach. China and India would have been categorized as high-income countries long ago if their huge populations did not exert downward pressure on their World Bank categorizations. In any discussion of this country’s UMIC aspiration, population clearly cannot be left out of the picture.
Will the Philippines achieve UMIC status, finally next year? The secretary of Finance thinks that it can. “We will soon witness and experience the results of every effort, every policy decision and every investment commitment,” Secretary Ralph Recto said recently.
