Philippines: 47 years in lower middle-income country limbo

Since 1976, or for 47 years, the Philippines has languished in the category of a lower middle-income country.  But a breakthrough is possible next year.

The country has never been closer to attaining upper middle-income country status. Its income growth, fertility decline and lower population growth in the last half-decade can bring about the status as early as 2024.

Every July 1, the World Bank (WB) announces the classification of countries by income based on gross national income (GNI) divided by the population based on the latest census or civil registration systems. It is a classification that has been in place since 1987 and is meant to be a tool for the country’s public policymaking and private sector assessments. The Philippines has been classified a lower middle-income country since 1987, according to World Bank data.

But the Asian Development Bank (ADB) in an economic paper in 2012 retrospectively established that the Philippines had been a lower middle-income country since 1976. The ADB study proposed that countries with a lower middle-income status beyond 28 years could be considered in a “middle income trap.”

UNREACHABLE GOAL?Since 2018, the Philippines has been aspiring to attain upper middle-income status as the country’s GNI per capita approached the World Bank threshold for the category. The Philippines even started recruiting countries into an upper middle-income bloc in the United Nations.

Over a year ago, former National Economic and Development Authority (NEDA) Director-General Dante Canlas said it would take the country at least a decade to reach upper middle-income status. Specifically, it would require 7% growth sustained for a decade to double gross domestic product (GDP) per capita and attain upper middle-income status.

The latest Philippine GNI per capita announced by the World Bank was $3,950 for 2022. Next year, the threshold for upper middle-income status will go up by $515 to $4,465. The highest increase this century in GNI per capita has not gone higher than $400.

Economic managers singularly focus on GNI annual growth and take the population denominator for granted since demographic changes take time. Economic interventions are regularly budgeted in annual and multi-year economic planning in pursuit of higher GNI or GDP, while social programs that affect population growth and development must live with budget “leftovers,” from “limited fiscal space,” that education, health, population, and social services have to divide. Existing social programs usually get budget increases that just cover inflation year on year.

DEMOGRAPHIC TRANSITIONThe 2012 Reproductive Health (RH) law presaged a fertility decline in the country (see my June 5 column “Population Policy at a Crossroads” in BusinessWorld).  The decline in fertility accelerated further in 2016 when the law’s full implementation was made part of the Philippine Development Plan and an executive order in early 2017 called for zero unmet need for family planning.

The country’s fertility shift was confirmed in the 2020 census of population and housing, which showed a low population growth pattern compared with the 2015 census. The following year (February 2021), the Civil Registration System showed that the total fertility rate dropped to 1.8 in 2020. Similarly, the 2022 national demographic health survey put the rate at 1.9 children per woman.

The above should have been factored in the economic indicators, which are all pegged to population numbers. Simply put, a lower population growth rate leads to a lower population number than previously projected, which is used in per capita calculations. By using updated and this time lower population data, economic indicators improve year on year, such as the GNI per capita.

By using the 2020 population census (109.035 million) and adding crude natural increase in population for 2021 and 2022, the Philippine population would have been estimated at 110 million in 2022.

The country’s GNI in dollars was $457.02 billion in 2022 and if this is divided by 110 million Filipinos, the result is $4,154 per capita, just $101 short of the World Bank threshold of $4,255 for upper middle-income status. The gap from this status for the country even with a higher threshold of $4,465 would be $311, which the country could easily achieve in 2023.

Why WB came up with $3,950 GNI per capitaBecause the government failed to inform the World Bank of the changing demographics and rapid fertility decline in the country in the past six years, the multilateral lender used outdated and inflated population projections from the 2010 census, which still showed high fertility.

Thus, the World Bank used a population count of 115.559 million. This was 6% higher than the census of 2020 and less than 5% higher than the actual population in 2022.

The World Bank uses population data derived from the World Population Prospects 2022, published by the United Nations, and supposedly updated by country censuses or civil registration systems. This publication predicted that the Philippines would be one of eight countries that would contribute to 50% of the world population growth by 2050, again based on projections from 2010.

Apparently, the UN had not been informed of the recent census and civil registration, in time for the publication. It is still possible for the country to update the population data, as Moldova did in 2021 when it completed its census.

Once the country reaches upper middle-income status, probably in 2024, one might ask how many more years to get to the next, high-income stage? ADB has estimated it takes an average of 14 years to move out of upper middle-income status, which would take us to the end of the next decade and to Ambisyon 2040 territory.

ECONOMIC PERFORMANCEEconomic growth alone and population dynamics may get us to a higher classification and a better credit standing in the world of nations, but certain indicators in human development in the country would not be consistent with an improved economic classification:

• Stunting prevalence among children under five years is almost 29%

• Maternal mortality ratio was 189 per 100,000 births in 2021 (more than double the Sustainable Development Goal target of 90)

• Out-of-pocket share of households in current health expenditure is increasing.  In 2021, the out-of-pocket share of households was 44%

• Tuberculosis (TB) incidence is increasing. It was 650 per 100,000 in 2021

• Regional mandated minimum wage nationwide falls below the poverty threshold of P20,000 in the National Capital Region (March 2023) and P15,000 outside NCR

• The Human Development Index rank of the Philippines in 2022 slipped to 116 from 113

• The Philippines ranked 73rd among the poorest countries of the world based on GDP-PPP (purchasing power parity) this year

• The Philippines is the only one left in the lower middle-income classification among the original ASEAN member states

Even if the country attains upper middle-income status next year, there is still a long march ahead to the next economic level.

Juan “Jeepy Perez” A. Perez III, a doctor, specializes in public health administration, primary healthcare and demographic and population development policy. He has worked with nine Health secretaries and three NEDA secretaries since 1992. He was undersecretary for population and development and executive director of the Commission on Population and Development, until he retired in September 2022.