The Philippines’ middle-income milestone: Progress, peril and politics

For the Philippines, entry into the World Bank’s upper-middle-income club is both a vindication and a warning.

The good

After decades in the lower-middle-income category, the country has at last crossed the line. The achievement is real. So is its modesty.

The World Bank’s latest income classification puts the threshold for upper-middle-income status at $4,636 in gross national income per person. The Philippines made it with $4,850—comfortably over the line, but not by much. It remains behind Malaysia, Thailand, Indonesia and Vietnam; Singapore, as ever, belongs to another category altogether.

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The route matters. Vietnam’s ascent has been powered by factories, exports and industrial upgrading. The Philippines has relied more heavily on remittances from workers abroad. That is a strength, but also an indictment: Too many Filipinos still must leave home to raise national income.

A better test of progress is not the label attached to the economy, but the number of Filipinos no longer living in poverty. On that measure, there has been improvement. Poverty incidence fell to 15.5 percent in 2023, or about 17.5 million people, from 18.1 percent in 2021. That means roughly 2.4 million Filipinos escaped poverty in two years.

That is welcome. It is not fast enough. On current trends, and absent a shock or a bold policy shift, eliminating poverty would remain a distant prospect—more likely an achievement for a future administration than for the present one.

Nor does average income say much about distribution. Inequality has eased, with the Gini coefficient falling in the latest official estimates, but the country remains marked by wide gaps in wealth, opportunity and geography. A higher classification does not make congestion cheaper, rice more affordable or good jobs more plentiful.

The bad

The price being promoted to upper-middle-income status is that cheap money becomes scarcer. As an upper-middle-income country, the Philippines will gradually lose some access to concessional official development assistance from multilateral lenders and partner governments. Loans will not disappear. They will simply become less forgiving.

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That matters because the country still has a serious infrastructure gap: roads, railways, ports, power, schools, hospitals and disaster reconstruction. The Philippines is one of the world’s most disaster-prone economies; resilience is not a luxury, but an annual fiscal requirement. More expensive borrowing will make every weak project harder to justify.

Debt is not yet a crisis. The public-debt ratio is just above 60 percent of gross domestic product—high by the standards the Philippines had before the pandemic, but far below the ratios of the entire world, America or Japan. The danger lies less in today’s number than in tomorrow’s arithmetic.

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That arithmetic is becoming less friendly. Growth is slowing. Borrowing costs are rising. The primary balance is narrowing. Each trend is manageable on its own; together they make fiscal consolidation harder.

The rule is simple. Debt becomes easier to manage when the economy grows faster than the interest rate on government borrowing. It becomes harder when interest rates exceed growth and the government must run larger primary surpluses merely to keep the debt ratio stable.

For the Philippines, the implication is clear: The fiscal room created by growth is shrinking just as the cost of financing development is rising. That is not a reason to stop borrowing. It is a reason to borrow better.

The country should still finance projects whose economic and social returns exceed their costs. But the margin for waste is narrowing. In an upper-middle-income economy, fiscal discipline is no longer merely prudent; it is the cost of credibility.

The ugly

The ugliest risk is political. The spending-and-tax mix appears to be worsening: more transfers, less real infrastructure momentum and pressure for tax cuts without credible offsets. Such policies may be popular. They are not costless.

The worry is not simply that concessional finance will fade. It is that foreign-assisted projects will continue to be delayed, politicized or treated as instruments for electoral advantage rather than national development. A country that borrows at higher rates must execute at higher standards.

Upper-middle-income status should therefore be treated not as a trophy but as a test. The Philippines has proved that it can grow. It must now prove that it can convert growth into better jobs, lower poverty, narrower inequality and stronger public institutions. Crossing the line was the easy part. Staying on the right side of development will be harder. —CONTRIBUTED INQ