Philippines Set to Attain Upper-Middle Income Status Next Year

Philippines Set to Attain Upper-Middle Income Status Next Year

The Philippines is still striving to achieve upper-middle income status by 2025, despite the government's trimming of economic growth targets this year, according to the National Economic and Development Authority (NEDA). Last year, the World Bank projected that the Philippines is likely to attain upper-middle income status in 2025 or 2026.

The Philippine government has revised its GDP growth target to six to seven percent from the previous 6.5 to 7.5 percent, and maintains consistency with a growth target between 6.5 to eight percent from 2026 to 2028.

During a press conference at Malacañang, NEDA Secretary Arsenio Balisacan stated that the country is still on track to achieve upper-middle income status next year. He emphasized that the Gross National Income (GNI) per capita threshold of nearly $4,500 must be met.

Previously, in a study presented by ANZ economists Sanjay Mathur, Krystal Tan, and Debalika Sarkar, the Philippines was projected to reach upper-middle income status by 2031. This surpasses the government's original target for 2025, especially amidst a broader slowdown in growth across the Association of Southeast Asian Nations (ASEAN) economies.

An upper-middle income country falls within the range of $4,466 to $13,845 in GNI per capita. Currently, the Philippines is classified as a lower-middle-income country with a GNI per capita of around $3,950, according to the World Bank, a classification that has been in place since 1987.

Balisacan also mentioned that the government is working towards reducing the poverty rate to single digits by 2028 from 18.1 percent in 2021. The World Bank, in its recently released Macro Poverty Outlook for the Philippines, forecasts a decline in poverty rates to single digits by 2026. This projection includes a decrease in poverty rates measured using the lower-middle income country poverty line of $3.65 per day to 12.2 percent this year and 9.3 percent by 2026.

Meanwhile, ANZ's report indicates that the region will experience slower growth in its working-age population and potential declines in capital accumulation, despite the Philippines being in a favorable demographic phase with a majority of its population in the working-age bracket. The study underscores the importance of increasing labor force participation rates (LFPR) in the Philippines, especially since the country, along with Indonesia and Malaysia, has lower LFPR compared to high-income countries.

However, ANZ emphasizes that increasing LFPR is not a natural process, but requires significant policy interventions to facilitate the absorption of labor into productive activities. In this context, governments need to enhance digital skills, improve digital infrastructure, and create an enabling environment that supports digitization in sectors such as public services, education, and business. Successful interventions could yield significant benefits, with the potential for an overall GDP increase of 0.5 to 0.7 percent over baseline projections.

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