Economists warn slower growth could threaten Philippines’ UMIC status

By Justine Irish D. Tabile, Senior Reporter

PRESIDENT Ferdinand R. Marcos, Jr. on Thursday welcomed the Philippines’ reclassification as an upper-middle income country (UMIC) by the World Bank, but economists cautioned that slowing growth could threaten the country’s ability to retain the status.

“After nearly four decades as a lower-middle income country since 1987, this milestone affirms that the economic policies we have pursued over the past four years have been effective,” Mr. Marcos said in a video message.

“Our steady economic growth, broadly stable currency and long-term reforms have strengthened our economy even amid global uncertainties. It validates the progress we have made and the resilience of the Filipino people,” he added.

The World Bank’s latest country income classification showed the Philippines posted a record gross national income (GNI) per capita of $4,850. This lifted the country into the upper-middle income category — one with GNI per capita ranging from $4,636 to $14,375.

The World Bank computes a country’s GNI through the Atlas method, which serves as the basis of its income classifications — low, lower-middle, upper-middle and high. GNI refers to the total amount of money earned by its residents both inside and outside its borders.

“The Philippines achieved its reclassification through broad-based expansion. GDP grew at an average of 5.8% per year over five years, reflecting gains across all major industries, not a single sector boom, but an economy-wide shift,” the World Bank said in a blog post late on Wednesday.

The Department of Economy, Planning, and Development (DEPDev) said strong performance across all industries helped raise the country’s GNI per capita by 8.5% from $4,470 last year.

“This confirms the resilience of the Philippine economy,” DEPDev Secretary Arsenio M. Balisacan said, adding that the government has pursued inclusive growth despite global and domestic shocks.

Finance Secretary Frederick D. Go said the country should “continue to build on these gains so that the benefits of economic development reach more Filipinos.”

CHALLENGES
Francisco Cid L. Terosa, an associate professor and former dean of the School of Economics of the University of Asia and the Pacific, said the reclassification of the Philippines as a UMIC was largely driven by sustained moderate economic growth and slower rate of population growth.

However, he noted that the Philippines remains close to the lower end of the World Bank’s GNI per capita range for upper-middle income economies, exceeding the UMIC threshold by just $214.

“This means that it can be more easily reclassified than those close to the upper limit of the classification. Geopolitical events and related consequences from the second and remaining quarters of the year will definitely bear down on the classification of the Philippines,” Mr. Terosa told BusinessWorld.

“Although reclassification is not easily done, current rates of economic growth can jeopardize  our much-anticipated UMIC classification,” he added.

GlobalSource Partners Philippine Analyst and Principal Advisor Diwa C. Guinigundo said that the challenge now for the Philippines is to sustain its upper-middle income classification in the years ahead.

“The challenge for us, after having been reclassified, is to continue growing 5%, 6% or 7% for us to remain within that reclassification,” he said in an interview on Money Talks with Cathy Yang on One News on Thursday.

In 2025, Philippine GDP expanded by 4.4%, the weakest post-pandemic growth. Economic managers expect GDP to grow by 3.5-4.5% this year, and by 5-6% from 2027 to 2030.

“Possible negative repercussions of weather-related disturbances can also decelerate economic growth and consequently both productivity and employment. Political tensions can constrain business and investment expansion plans, derailing economic growth,” said Mr. Terosa.

Other risks to the country’s UMIC status include weaker productivity and employment, both of which affect per capita income.

Recent economic data suggest these risks are beginning to materialize. Data from the Philippine Statistics Authority showed the jobless rate rose to 4.7% in April from 4.1% in the same month last year. Labor productivity rose by 2.2% in the first quarter, easing from 4.2% in the same quarter a year ago.

Mr. Balisacan said the Philippines’ new classification does not diminish ongoing challenges.

“We acknowledge that income disparities persist, and many continue to face economic difficulties. Our priority is to ensure that growth becomes more inclusive, and that its benefits reach all Filipinos,” he said.

CONCESSIONAL FINANCING
Meanwhile, Mr. Balisacan said that while some concessional official development assistance (ODA) may decline over time, “the gains from stronger fundamentals and improved market access are expected to outweigh these adjustments.”

“Some concessional financing and grants from international development institutions like the Asian Development Bank and World Bank itself, may gradually become less available because of our reclassification to an UMIC,” said Mr. Guinigundo.

Maybank Investment Bank Economist Azril Rosli said the reclassification is likely to reduce the Philippines’ access to concessional financing over time, as eligibility for some World Bank and multilateral lending facilities is linked to income classification.

“This may gradually increase the government’s reliance on market-based financing and private capital to fund infrastructure and development projects,” he told BusinessWorld.

However, Mr. Rosli said that he does not expect the transition to materially constrain public investment in the near term.

“The Philippines has strengthened its fiscal position over recent years and continues to benefit from relatively favorable access to domestic and international capital markets,” he said.

“Moreover, stronger investor confidence associated with upper-middle income status could help offset the gradual decline in concessional financing by attracting greater private sector participation, particularly through public-private partnerships and foreign direct investment,” he added.

In the medium term, Mr. Rosli said the net impact should be positive if fiscal discipline and structural reforms will continue to be implemented consistently.

Chinabank Research said any reduction in access to concessional financing is unlikely to happen immediately.

“The eligibility for these facilities is generally phased out only when the GNI per capita exceeds $7,000,” it said in a note on Thursday.

“Lower market rates could help offset the loss of some concessional financing, helping keep the funding of the key government programs and infrastructure projects manageable,” it added. — with Erika Mae P. Sinaking