Good news and bad news

In a simple one paragraph response, the Department of Finance responded yesterday to the World Bank’s announcement that the Philippines has now reached the threshold of an upper-middle income country (UMIC).

Simply explained, being classified as a UMIC means the Philippines falls within a specific threshold set by the World Bank: gross national income (GNI) per capita ranging from $4,636 to $14,375. The classification reflects the average national wealth per person. It is not a direct measurement of economic equality, poverty levels or overall quality of life.

According to the official statement from Finance Secretary Frederick Go, the country’s “transition to an upper-middle income country is an affirmation of the reforms and policies that the government has consistently pursued to strengthen our economic fundamentals and create more opportunities for our people. Now, we must continue to build on these gains so that the benefits of economic development reach more Filipinos.”

It was prudent of the DOF to issue that simple reaction and not make it appear like a monumental achievement, painting an unrealistic picture that suggests Filipinos are living much better lives.

While the rich and upper-middle, and perhaps middle-class Filipinos, may enjoy enjoy a better life – the average Filipino continues to struggle – with most opting to seek better employment opportunities abroad to support their extended families back here.

The poor, in various parts of the urban centers, are still clearly living in shanties, struggling in the numerous depressed areas adjacent to the more developed and polished areas of Makati, BGC and Greenhills. It is always visible – that juxtaposition of the rich and the poor – not hidden away so that it can be denied.

The Philippines was among six countries announced to have reached a higher income category in the latest update. The other countries were Jordan, Micronesia, Sri Lanka and Vietnam. Vietnam’s GNI is at $4,970 compared to the Philippines’ $4,850, with Vietnam’s manufacturing sector more robust than ours. Togo moved from low-income to lower middle-income status.

The World Bank, however, said that our country “achieved its reclassification through broad-based expansion,” with gross domestic product growing at an average of 5.8 percent per year over five years, “reflecting gains across all major industries, not a single sector boom, but an economy-wide shift.”

Thus, while our country may now be classified as UMIC, the Philippines could easily fall out of that category especially with how geopolitical events continue to remain fluid and uncertain as the Middle East war remains trapped between President Trumps ever-changing position to attack or not to attack Iran, Israel’s continued attempt to gain more land in Lebanon and Iran and Oman’s new policy to impose a passage facilitation fee in the Strait of Hormuz that will have far reverberating consequences on the existing global agreement under the UN Convention on the Law of the Sea (UNCLOS).

Under UNCLOS, freedom of navigation guarantees the right of ships and aircraft to travel freely across the world’s oceans. The extent of this right depends on the maritime zone. Freedom of navigation is absolute on the high seas, but restricted by coastal state sovereignty in narrower waters.

Singapore, early on, warned about any attempt by individual countries to impose any restrictions, particularly on narrow straits between countries. In particular, Singapore cited the Strait of Malacca, which is a vital 900-kilometer (560-mile) maritime waterway between the Malay Peninsula and the Indonesian island of Sumatra.

It is the primary shipping channel connecting the Indian Ocean (Andaman Sea) and the Pacific Ocean (South China Sea). It is one of the world’s most critical and heavily traveled global trade choke points.

If Iran and Oman are able to impose a passage fee of any kind on the Strait of Hormuz, it could embolden countries bordering similar narrow sea lanes to impose their own “fees.” Such a scenario could also ignite a similar dispute in Asia, and our part of the world – particularly Southeast Asia.

Our economic position is also highly dependent on boosting our flagging export sector, which over the past couple of years has been posting a declining trend for exports as Vietnam and even Cambodia have become cheaper alternative manufacturing sites for foreign investors.

Our own volatile political situation for the remaining two years of the current Marcos administration is already a cause for concern even as the current government tries its best to tap into the high-tech manufacturing sector of semiconductors and mega data-centers for the growing artificial intelligence or AI sector.

Brain drain continues in our country as our educated workforce opt to move to our neighbors who are able to attract the foreign investors who are backing away from us, uncertain over the possible change in policies and allegiance of global powerhouses.

It is a fact that the current administration is pro-US, while the leading contender for next year is keen on aligning itself with China – with which we are at odds over sovereignty of key waterways in the region and where our national security officials believe certain marine and mineral resources can be tapped and are much needed in the tech and AI generation.

The loss or even declining contribution of remittances could immediately affect our overall economic position.

While the economy remains vibrant at this point, some stress points are still emerging including being flagged by international credit ratings agencies, which could again pull down our global income.

It could thus easily deteriorate in just one or two years and we could embarrassingly fall back in our goal rating.