Meaningless upgrade

It is essentially meaningless to the great mass of Filipinos. After being “upgraded” to upper-middle income country (UMIC) status, nothing has really changed in the Philippine economic landscape.

The World Bank gave the administration something to claim as “significant accomplishments under BBM’s watch.” But we all know better.

A paper from the UP School of Economics points out that this WB reclassification, “while reflecting genuine macroeconomic progress, conceals a structural paradox: the Philippines has crossed the income threshold without completing the productive transformation that earlier countries at the same level achieved.”

In street lingo, “ampaw” that’s pretty to look at but all air.

The UMIC reclassification means the Philippines has reached a gross national income per capita of $4,850, minimally exceeding the World Bank threshold of $4,636. GNI is the total value of money earned by a nation’s people and businesses including income earned within and outside the country divided by its population. It is an average subject to serious skewing.

The World Bank created this classification system primarily as a tool to determine how much a country must pay to borrow money and what types of financial aid it qualifies to receive. Government technocrats are misusing it and claiming it as “a concrete mark of economic stewardship” for BBM.

In any case, these numbers are irrelevant for most Filipinos. The late PNoy consistently delivered good economic growth numbers and even earned our first investment grade credit rating. But Duterte, a confessed economic illiterate, still overwhelmingly won the following election because people were angry about the pain of economic inequality.

What matters to Juan and Juana is the continuing failure to deal with inflation, especially food inflation. The purchasing power of the average Filipino has deteriorated and that is more meaningful than being seen by the World Bank as a UMIC.

Our current economic managers are saying this new status will boost investor confidence. That’s wishful dreaming.

Foreign investors evaluate a country on productivity, corporate tax regimes, ease of doing business, a judiciary that’s not for sale and infrastructure reliability — not nominal World Bank tiers. We have so much to fix first.

Besides, macro statistics on which the “upgrade” was based cannot mask micro vulnerabilities.

The BPO and remittance sectors are under threat. If they deflate simultaneously, the underlying structural issues — high electricity costs, logistical bottlenecks and poor manufacturing productivity — will be starkly exposed to potential investors.

Being UMIC also means the loss of low-interest Official Development Assistance and concessional loans. No more JICA loans with interest rates as low as 0.1 percent to 1.0 percent with repayment terms spanning up to 40 years.

We get a two-year grace period before we lose ODA concessions. The upgrade will make us face a staggered, multi-billion dollar increase in long-term borrowing costs.

Post-upgrade, the government must rely heavily on commercial credit facilities or non-concessional multilateral financing.

As someone puts it, this upper-middle income designation is forcing a premature transition.

“The Philippines is losing its structural training wheels (cheap ODA loans) before its domestic financial engines — sovereign wealth, bureaucratic efficiency and institutional credit ratings — are powerful enough to take the weight.”

Our economic managers plan to counter the loss of ODA supposedly by securing an “A” credit rating. A higher rating lowers the interest premiums demanded by international commercial lenders, softening the loss of cheap ODA.

But they are dreaming. Fitch Ratings has revised our outlook to negative, explicitly citing our country’s high vulnerability to global inflation, a narrowing fiscal space and rising geopolitical uncertainties.

A country does not secure an “A” rating while its outlook is trending negative.

Besides, the economy isn’t doing that well. DEPDev revised our 2026 growth target down to 3.5 to 4.5 percent from the six to seven percent they earlier set. Inflation also remains steady at 6.8 percent. That’s in contrast to Vietnam, our stiffest regional competitor for investments, with 8.9 percent growth in 2Q2026, up from 7.83 percent in Q1.

We are at the tail end of the WB metric, exceeding the UMIC threshold by just $214. At the rate we are going, slipping back to where we were for 39 years is highly possible. Puff goes the “A” rating dream!

Their second strategy is to use the Maharlika Fund to attract equity investments. They are thinking that by using co-equity rather than foreign debt, they bypass commercial loan markets entirely for big-ticket public works.

But the Maharlika Fund is puny. It lacks the scale required to substitute for lost multi-billion-dollar bilateral loans. It holds assets of approximately P129.5 billion (roughly $2.1 billion).

While Maharlika is recording modest net incomes (P629 million in Q1 2026), its scale is minuscule compared to the country’s infrastructure needs. For context, the active ODA portfolio it is supposed to help buffer stands at roughly $39.6 billion.

Maharlika has also been tapped for early dividend remittances to the National Treasury to cover government energy subsidies stemming from global market volatility. Maharlika has become a short-term fiscal piggy bank rather than a massive, compounding engine for long-term capital wealth.

As for an aggressive implementation of public-private partnerships (PPPs), the operational execution of such projects remains bogged down by red tape. On paper, the project pipeline has expanded to a massive P3 trillion. But the actual transition from “pipeline” to “awarded contract” is incredibly slow.

Private conglomerates investing in PPPs must still navigate overlapping local government regulations, slow right-of-way acquisitions and lengthy evaluation timelines at the DEPDev.

This “upgrade” is something nice to boast about in the next SONA but that’s all. We are still where we are, still struggling to feed our people and provide them good jobs, and still praying for a national leader and an enlightened economic elite that will work together to fix 80 years’ worth of economic mess.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco