Philippines urged to recalibrate borrowing program after UMIC upgrade

MANILA, Philippines — The Philippines may need to rethink its borrowing strategy after clinching upper-middle income country (UMIC) status, as this could gradually close the door on cheap loans and aid from development partners, analysts said.

On July 1, the World Bank announced the upgrade after the country’s gross national income (GNI) per capita hit $4,850 in 2023, breaching the UMIC threshold of $4,636 to $14,375.

“The Philippines’ transition to an upper-middle income country is an affirmation of the reforms and policies the government has consistently pursued to strengthen our economic fundamentals and create more opportunities for our people,” Finance Secretary Frederick Go said in a statement.

“Now, we must continue to build on these gains so that the benefits of economic development reach more Filipinos,” he added.

However, economists warned that the shiny new status comes with trade offs.

Ser Percival Peña-Reyes, director of the Ateneo Center for Economic Research and Development, said the country could face higher borrowing costs as it may lose over time access to concessional loans and official development assistance (ODA), typically reserved for poorer nations.

“The government and private sector will probably rely increasingly on commercial loans, private capital and international bond markets, which generally carry higher interest rates and stricter repayment terms,” he said.

The Marcos administration is set to borrow P2.68 trillion this year, P3.043 trillion for 2027 and P3.04 trillion for 2028, according to the latest Budget of Expenditures and Sources of Financing (BESF) document.

Peña-Reyes added that aid and grants may also shrink, alongside tariff perks for some exports that currently enjoy preferential and duty-free treatment under global trade schemes.

“Opportunities for subsidized training, international scholarships and targeted foreign aid or grants may decrease as the global community shifts resources to poorer nations,” it added.

Despite this, the UMIC upgrade could bolster international creditworthiness, potentially attracting more foreign direct investments from multinational companies looking for stable, growing consumer markets.

GlobalSource Partners country analyst and former Bangko Sentral ng Pilipinas deputy governor Diwa Guinigundo said the new income status does not necessarily produce more growth, lower inflation or stronger fiscal sustainability.

“Public finance as it stands today will remain the same unless key budget reforms are undertaken like enhancing revenue measures and improving the quality of public expenditure,” he said, noting that borrowings will remain a critical source of funding the budget deficit.

Guinigundo also agreed that the government “would have to review its borrowing program” to factor in the upgrade and its implications.

Foundation for Economic Freedom president Calixto Chikiamco likewise said the country should rethink its borrowing strategy and that it needs to maintain its investment grade rating as it turns to global markets to finance deficits.

However, IBON Foundation executive director Sonny Africa said the UMIC upgrade is a “credit rating most of all and not development,” noting persistent poverty, joblessness and weak public services.

“The Philippines is actually in the worst possible place right now of just barely squeezing into upper-middle income status at the low end but about to be shut out from concessional loans, with debt servicing about to increase more rapidly,” Africa said.

The government has allotted P2.01 trillion for debt service in 2026, with P1.06 trillion for principal amortization and P950 billion for interest payments, according to the BESF.

He said losing concessional finance before overcoming these structural constraints creates a financing gap precisely when long-term development investment remains essential.

Africa urged the Marcos administration to maximize the remaining concessional financing window for investments with high social and economic returns, such as health, education, renewable energy and agriculture.