Despite sustained growth, PHL still lacks basics to hit upper middle-income status

from October 12, 2017 01:00 am to October 12, 2017 01:00 am
Image from NCSB

Despite the country’s sustained growth of over 6 percent that made it a regional outlier for several years now, reaching upper middle-income status still requires the basics, such as efficient public transportation and better quality of education, according to an economist from the Asian Development Bank (ADB).

In an e-mail to the BusinessMirror on Wednesday, Donghyun Park, ADB Economic Research and Regional Cooperation Department principal economist, said this highlights the fact the Philippines is “still a long way” from achieving high-income status.

“The Philippines is still a long way from high-income status, so the more immediate and relevant challenge for the Philippines is to make it to upper middle-income status,” Park told the BusinessMirror.

“The recent burst of sustained rapid growth certainly increases the likelihood of the Philippines catching up with Asean tigers, such as Malaysia and Thailand,” he added.

Park said improving the quality of education in the country will result in a more skilled work force, while improving transportation infrastructure will cut logistics costs and raise worker productivity.

If the country will have a more skilled work force, Park added, the Philippines will have a better chance of capitalizing on the manufacturing opportunities left in the wake of China’s deindustrialization.  In 2014 the Japan International Cooperation Agency (Jica) said if the country does not improve transport infrastructure or take measures to ease congestion, Metro Manila’s traffic costs could balloon to P6 billion a day by 2030.

Jica added this is almost three times the current estimate of P2.4 billion a day. The study also stated that sans intervention, traffic demand could increase by 13 percent in less than two decades. This means that households need to spend no less than 20 percent of their monthly income for transport.

“There is no timetable, but the Philippines wants to be more like South Korea than Brazil, that is, make the jump relatively quickly rather than be middle income forever,” Park said.

“Good public transport will truly be a transformational change, which will vastly speed up the Philippines’s move to upper middle-income, and on to high-income status,” he added.

In an Asian Development Blog, Park said the recent slowing down of economic growth in emerging markets have given rise to the “middle-income trap” debate.

The middle-income trap is the term used to describe the slow transition of middle-income countries to high-income status. The World Bank said a middle-
income country’s per-capita income ranges from a low of $1,006 and a high of $12,235.

The wide range is reflected in the World Bank’s separation of middle-income countries as lower middle income or upper-middle income. A low middle-income country’s per-capita income is between $1,006 and $3,955, while upper-middle income is between $3,956 and $12,235.

In August the National Economic and Development Authority said the Philippines could hit its target of becoming an upper middle-income country as early as next year.  In a presentation before the Philippines-Singapore Business Council Conference, Socioeconomic Planning Secretary Ernesto M. Pernia said the country is on track to meet its economic targets.

This can pave the way for increasing the country’s per-capita income to around $5,000 a year, from $3,580 annually as of 2016 by end of 2018, four years ahead of 2022, the original target.

Increasing per-capita income will require the Philippine economy to grow by 50 percent during the plan period.