IT will take over a decade before the Philippines becomes an upper middle-income country given its current performance, according to a former Socioeconomic Planning Secretary.
In an email, former National Economic and Development Authority (Neda) Chief Dante B. Canlas told BusinessMirror that in order for the country to become an upper middle income country, its per capita GDP in current US dollars must double.
Adjusting for population growth rate, inflation rate, and foreign-exchange rate, the growth rate of the country’s per capita GDP in current US dollars is roughly 5.13 percent, he said.
“At this growth rate which is less than 7 percent, the per capita GDP in current US dollars doubles in 13.45 years,” Canlas said. “Hence, using WB [World Bank] income classification, it is impossible for the Philippines to become an upper middle-income country in 2022.”
Based on 2020 data from the World Bank, the country’s per capita GDP is only $3,298.83, he added. The World Bank classifies countries with a per capita GDP of $1,046 to $4,095 per year.
The revised classification of the World Bank for an upper-middle income country is an economy with a per capita GDP of $4,096 to $12,695. This group of countries currently includes Malaysia, Thailand, and China.
“If the Philippine nominal per capita GDP in current US dollars grows at an average of 7 percent each year, this per capita GDP doubles in 10 years. The per capita GDP will be $6,597.66 in 2030,” Canlas said.
Apart from the low growth, Canlas cited other challenges, including those created by the pandemic now approaching its third year.
These problems include the country’s large public debt caused by significant borrowing for Covid-19 response. Latest Bureau of the Treasury (BTr) data put the national government’s outstanding debt at P11.93 trillion as of end-November 2021.
While this was lower, this was still beyond the government’s expected level of P11.73 trillion for the year. The debt stock dipped by 0.3 percent from P11.97 trillion as of end-October on the back of net redemption of domestic securities and favorable foreign exchange rates.
Finance Secretary Carlos G. Dominguez III earlier said the country’s debt-to-GDP ratio is projected to rise to 59.1 percent in 2021 and peak this year at 60.8 percent—slightly above the internationally accepted threshold—before gradually tapering off to 60.7 percent and 59.7 percent in 2023 and 2024.
“Since debt servicing is automatically appropriated, the bigger debt service will crowd out economic and investment expenditures in the General Appropriations Act [GAA], that are growth enhancing, such as those for health, education, and infrastructure,” Canlas said.
Other challenges: the emergence of new Covid-19 variants which would squeeze resources for health spending and derail labor productivity growth.
Canlas also cited global uncertainty created by inflation stemming from the rise in crude oil, gas, and energy prices as well as the risk of war over Ukraine.
Meanwhile, Canlas described as “overrated” the contribution of election spending to boosting GDP growth.
There was no multiplier effect greater than 1 from election spending based on aggregate output. The multiplier effect is only between zero and 1 and only because of the increase in production of manufacturers of election campaign materials.
“There is a crowding out from election spending. As cash is transferred from politicians to voters, the latter’s consumption increases but the former’s declines,” Canlas told this newspaper.
“There exists government regulation that hinders the stimulus from election spending, such as, ban on some public works,” he added.
Earlier, however, over half a trillion pesos worth of proposed or ongoing infrastructure projects could be exempted from the election ban that will take effect in March this year in preparation for the May 2022 national and local elections, said Neda OIC Undersecretary for Investment Programming Roderick M. Planta. The Department of Public Works and Highways (DPWH) has filed for exemption of 18 projects.