[In This Economy] Did PH miss being an upper middle-income country by just $26?

The World Bank just came out with its latest classification of countries based on income. Several news sites are reporting a rather mundane fact: that the Philippines remains a “lower middle-income country.” We’ve been put in that category since 1987, the first time the World Bank categorized countries based on income.

But some news sites go on to say that this year we missed graduating into a higher income category (called “upper middle-income country” or UMIC) by just $26. Is that right? Well, not literally.

You see, countries are categorized based on per-capita income, or national income divided by the population. The Philippines’ per-capita income in 2024 was $4,470, which is indeed just $26 short of the $4,496 needed to be called upper-middle income. The graph below shows just how close we came to the threshold. So near, yet so far!

But since the Philippine population stood at about 115.8 million, then we were roughly short by $3 trillion in total national income (using the World Bank’s definition). That’s still quite a lot of money.

Over the years we’ve inched closer and closer to UMIC status. In 2023, we missed it by $456 in per-capita income; last year, we missed it by $196.

Although we’re as close as ever to UMIC status, the World Bank itself projected that we might not attain that status until 2027, on account of slowing growth. A World Bank economist said, “Getting there [UMIC] with an economy that’s growing a little bit slower than we thought about six months ago will take a little bit longer.”

In my column last week, I discussed the global and local headwinds that are pulling back the Philippine economy’s growth. Many of our problems would be erased if only growth were consistently 6 percent or better. But it’s gotten a lot harder to attain that, especially after the pandemic.

Vietnam is about to achieve in half the time what the Philippines has been aspiring for nearly 40 years.”

Going back to the latest income classification, I commiserate with the Vietnamese who have more reason to be tantalized: with a per-capita income of $4,490 (higher than ours), they missed the UMIC status by a mere $6!

The graph below shows how rapid Vietnam’s development has been. For much of history, the Philippines was much richer than Vietnam. But the purple line below shows how fast Vietnam’s progress has been. They became a lower middle-income country only in 2008, but now, less than two decades later, they’re on the brink of becoming a UMIC.

In short, Vietnam is about to achieve in half the time what the Philippines has been aspiring for nearly 40 years.

I keep hearing that there are so many new things in Vietnam now compared to 2017, when I last got to visit. But just looking at their economy, there’s indeed a lot to be amazed at, notwithstanding the fact that they’re now a target of US President Donald Trump because they export so many things to the US.

Just a few hours ago, Trump announced that he intends to impose a steep 20% tariff on things that Vietnam sells to the US. That’s lower than the 46% he indicated in April. But Trump claims he made a “deal” with Vietnam: “It is my Great Honor to announce that I have just made a Trade Deal with the Socialist Republic of Vietnam.”

But it’s less of a deal than US bullying major exporters like Vietnam: while Vietnamese exports to the US will meet at 20% tariff, US exports to Vietnam will meet zero tariffs. It’s highly imbalanced, but that’s that highly transactional nature of Trump for you.

Anyway, Vietnam’s status as a target of Trump can in fact be thought of as a reflection of their prosperity. Owing to reforms that made it more open to foreign trade, Vietnam is now an export powerhouse, supplying the US and many rich countries with electronics, gadgets, electric vehicles, clothes, to name a few key products. They’re also a favored destination of investments in Asia-Pacific, attracting big companies like Samsung and Apple. The resulting inflow of investments has led not just to a diversified export manufacturing sector but also to more and better jobs for Vietnamese citizens, and rising incomes all around.

So, here’s a tip for the Marcos government: rather than obsess over UMIC status, I’d rather that the government and economic managers find ways of accelerating and jumpstarting our economy, and try to emulate what Vietnam is doing. There are lessons to be learned from them.

As I wrote before, the government has been promising UMIC status since at least 2017. And I have no doubt we’ll become an upper-middle income country soon enough. But while transitioning into a UMIC will make for a great headline and press releases for the government, it won’t magically solve our economy’s problems, nor will it be automatically felt by ordinary Filipinos.

UMIC can’t paper over the current malaise of the Philippine economy, and it’s much better to earn that coveted status with unambiguously robust growth, rather than be content with crossing over the threshold almost by chance. – 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. In 2024, he received The Outstanding Young Men (TOYM) Award for economics. Follow him on Instagram (@jcpunongbayan).