DESPITE the current political noise and the lingering effects of the pandemic on the economy, the Philippines' exit from the "middle-income trap" is on track, as the policies of the Marcos Jr. administration are in place to attain sustained economic growth, the economic managers of President Ferdinand Marcos Jr. told The Manila Times.
The Marcos administration aims to achieve upper-middle income status for the country by 2025, an ambitious goal requiring a high growth rate and economic diversification.
Budget Secretary Amenah Pangandaman said the goal remains in sight despite the World Bank continuing to classify the country as lower-middle income and raising the thresholds to qualify for the next level.
"Both the Medium-Term Philippine Development Plan and the Medium-Term Fiscal Program address development objectives and fiscal consolidation. Both ensure that the medium-term objectives are not only attained but are sustained over a more permanent or long-term basis, thereby helping the country avoid the middle-income trap," Pangandaman told The Times.
"Through a whole-of-government approach, we will implement growth-enhancing strategies that address inflation, promote digitalization, accelerate infrastructure development, expand skills development and strengthen inter-industry supply chain linkages, among other government interventions," she added.
Pangandaman said these interventions would be supported by the proposed P6.352 trillion national budget next year, equivalent to 22 percent of the country's gross domestic product (GDP).
For 2025, she said the Marcos government will focus on protecting the gains from the strong recovery of the sectors significantly affected by the pandemic: health, education, and employment or labor.
"These will be supported by government programs that efficiently target the beneficiaries of social services, such as the Pantawid Pamilyang Pilipino Program (4Ps); various livelihood programs with dedicated focus areas such as students, SMEs, agrarian reform beneficiaries and graduating 4Ps, among others; inflation-related subsidies to the transport sector, farmers and fisherfolk; and support to children and mothers that require anti-malnutrition interventions," Pangadaman said.
"Along with the task of generating quality jobs and expanded employment opportunities for Filipinos, government programs are geared toward ensuring that incomes will grow and benefits from these are evenly spread throughout the countryside," she added.
At the macroeconomic level, the budget chief said policies would continue to promote improvements in the investment and business environment following the relative decline of inflation and interest rates in the country.
The year-to-date inflation as of August this year is 3.6 percent, according to the Philippine Statistics Authority, which is lower than last year's 6.6 percent.
The lower inflation rates for this year prompted the Bangko Sentral ng Pilipinas (BSP) to reduce policy rates by 25 basis points last August 15, resulting in a policy rate of 6.25 percent. The BSP recently said another policy rate cut can be made within the year.
Pangandaman said fiscal policy would continue performing its balancing act of ensuring that the government provides economic stimulus while implementing fiscal discipline.
"Public infrastructure spending will continue to be a source of future growth in the various regions of the country; these are expected to be complemented by private sector investment in infrastructure," she said.
"We will also further invest in education, innovation, and research and development, which are factors that help avoid the middle-income trap," she added.
On the part of the Department of Budget and Management (DBM), Pangandaman said they are committed to making government spending a significant contributor to economic growth, just like in the second quarter of this year.
"Specifically, we will ensure the proper and timely utilization of agencies' budgets by requiring them to submit quarterly budget utilization reports and catch-up plans for physical and financial accomplishments that are 50 percent below target," she said.
"With these strategies in place, we are optimistic that we can become an upper-middle-income economy in less than two years," Pangandaman added.
'Within reach'
To enter upper middle-income status by late next year, National Economic and Development Authority (NEDA) Secretary-General Arsenio Balisacan said the country's gross national income (GNI) per capita would need to grow by 6.7 percent from last year's.
"The threshold is $4,500 (GNI per capita). You need to have that as the minimum to get into the club of upper-middle-income countries. We are now [at] $4,230. So you only need 6.7 percent growth," Balisacan said.
Data released by the World Bank in July showed the Philippines remained a lower middle-income country with a GNI per capita of $4,230 in 2023, up from $3,950 the previous year.
The NEDA said this surpasses the 2023 target range of $4,130 to $4,203 GNI per capita set by the Philippine Development Plan (PDP) from 2023 to 2028.
Similarly, data from the PSA showed the country's GNI per capita (at current prices) stood at P241,165 in 2023, reflecting a 14.7-percent increase from P210,228 in 2022.
For the current fiscal year 2024, the World Bank classifies low-income economies as those with a GNI per capita of $1,135 or less in 2022; lower-middle-income economies are those with a GNI per capita between $1,136 and $4,465; upper-middle-income economies are those with a GNI per capita between $4,466 and $13,845; high-income economies are those with a GNI per capita of $13,845 or more.
GNI per capita measures the economic output per citizen, encompassing domestic and international earnings. A higher GNI per capita reflects better economic prosperity and a higher standard of living.
Currently, the Philippines is joined in the lower-middle income bracket by Vietnam ($4,010 GNI per capita), Laos ($2,360), Cambodia ($1,700) and Myanmar ($1,210).
It trailed behind its neighbors, which are in the upper-middle income, namely Malaysia ($11,780), Thailand ($7,230) and Indonesia ($4,580), which moved up this year from a lower middle-income status.
Singapore ($67,200) and Brunei ($31,410) are in the high-income bracket.
Balisacan said the latest World Bank data is in line with the government's expectation of the country reaching upper middle-income status by late next year.
He also said the growth rate for the Philippines to attain the GNI per capita needed to move to upper middle-income economy status is within reach.
Given the latest estimates, the NEDA chief said the Philippines is poised to achieve upper-middle-income status by 2025, provided the economy sustains a robust growth rate in 2024 and 2025.
The Philippine economy posted 6.3 percent growth in the second quarter of this year. This brings the country's real GDP growth to 6.0 percent for the year's first half, keeping its position as one of Asia's best-performing major emerging economies, Balisacan said.
To achieve the government's 6- to 7-percent growth target for this year, Balisacan said earlier that the economy has to expand by 6.1 percent in the remaining quarters of the year.
"Amid the evolving risks and challenges, the Philippines' economic outlook remains promising in the near and medium term," the NEDA chief said.
In particular, Balisacan said the government expects growth in domestic demand to remain firm and further improve as it continuously implements measures to address elevated prices of food and improve the spending efficiency of government agencies to implement strategic priority programs and projects such as the Build Better More infrastructure flagship projects and the Pambansang Pabahay Para sa Pilipino housing program; leverage agreements and initiatives such as the Regional Comprehensive Economic Partnership (RCEP) and the Luzon Economic Corridor while improving the ease of doing business to boost trade and investments; and explore and forge agreements with other economies to expand the country's merchandise and services export market, including partnerships to boost tourism.
To boost economic growth next year, the NEDA chief said the Marcos administration would continue to implement the strategies it has set in the PDP, guided by the lessons we have identified in the Philippine Development Report 2023.
He said the Philippine Development Plan "remains our development blueprint as we sustain the push to achieve our socioeconomic targets even as we recalibrate some of our strategies to respond to emerging economic circumstances."
"By saying that, we are making steady and solid progress. We remain broadly on track to meet our targets across various socioeconomic indices. We intend to sustain the growth momentum as we implement strategies to create higher-quality employment and protect our countrymen's purchasing power," Balisacan said.
"Learning from the lessons these past two years, our proposed spending program for 2025 aims to propel us in the right direction and bring us ever closer to our aspiration for a Bagong Pilipinas and vision of a matatag, maginhawa at panatag na buhay for every Filipino," he added.
'Strong'
Pangandaman also expressed optimism that the Philippine economy would remain strong in 2025 despite the growing noise in the political arena as the 2025 May election nears.
"Political noise has historically not compromised the performance of the economy in recent years. The Philippine economy has demonstrated its resilience over the years, following the strength of the country's macroeconomic fundamentals (as indicated by the resilience of the fiscal, financial and banking sectors)," she said.
The DBM chief said robust private consumption, supported by steady flows from overseas Filipino remittances and business process outsourcing (BPO) revenues, "have also become reliable sources of strength of the economy despite geopolitical noise or external headwinds."
"I am optimistic that the Philippine economy will remain strong despite domestic and external challenges, primarily since the country has successfully maintained its high-investment grade status across all major international debt rating agencies, such as Moody's Baa2 rating and even two A- ratings from Japan's Rating and Investment Information Inc. (R&I) and Japan Credit Rating Agency Ltd.," she said.
Pangandaman added that in its recent report, Moody's expects the Philippines' economic growth to remain high due to our resilient household consumption, private investments, and increased exports.
She said R&I also projects the Philippine economy to remain strong and stable over the medium and long term, given robust public and private sector investments, development of domestic business sectors such as BPOs, and favorable demographics, among other factors.
"This only shows that our near-term prospects remain upbeat as credit rating agencies share our optimism. This high credit rating also allows us to borrow externally at a lower cost that, ultimately, helps steer economic growth," the Budget chief added.
'Doable'
For his part, Security Bank Corp. chief economist Robert Dan Roces said the Philippine government's goals of achieving upper middle-income status by 2025 and reducing poverty to single digits "still face significant challenges, but is doable."
"While strategies outlined in the Philippine Development Plan, such as boosting domestic demand and leveraging international agreements like RCEP, are steps in the right direction, it may not be that easy to get out of the middle-income status," Roces told The Times.
However, the analyst said political stability is crucial for achieving these economic goals, and "any significant political unrest could potentially derail progress."
"Ultimately, reaching upper middle-income status and substantially reducing poverty will require a comprehensive, multi-faceted approach that goes beyond current policies — but is doable — especially if both economic and social challenges are addressed while maintaining political stability," he added.
Meanwhile, Union Bank of the Philippines chief economist Ruben Carlo Asuncion said the goal of the Marcos Jr. administration for the country to reach upper middle-income status "is doable if they stay the course."
He cited human capital development like more investments in education and quality job creation through infrastructure development, as among the interventions necessary to achieve sustained and inclusive economic growth.
"Although the approach may be more comprehensive, attending to the economic fundamentals would be key. Such as job creation, investment in human capital development, safety nets, etc," Asuncion told The Times.
"A sustainable and climate-resilient overall plan to improve agriculture output should be put forward. Getting our act together is key. Leadership is important to move this improvement and development forward," he added.