Reclassified

First things first.

What happened was not an upgrade by any measure. The World Bank (WB) has merely reclassified us into an “upper-middle income” economy based on the basic arithmetic of dividing out the size of our economy by the size of our population.

We cannot blame our government for trying to spin this into something more than it is. For months, we have had nothing but bad news – excepting Alex Eala’s brilliance.

Credit rating agencies have downgraded our prospects. The peso’s exchange value has been eroded. Our outstanding national debt climbed up to P18.55 trillion. Inflation is pushing basic needs beyond our reach.

Our President celebrates the event as some sort of “vote of confidence” in our economy’s future. It is not. It is an accounting procedure.

For years, the country stood on the cusp of reclassification from a “middle income” to an “upper-middle income” economy. Then the pandemic happened, shrinking our economy. In the years following, we did badly at recovery. Our share of investment inflows to the region worsened. Our tourism industry remained stunted. Our poverty rate remained largely constant.

Rapid population growth promised a “demographic sweet spot” for our economy: a condition where a large army of young and skilled workers could power expansion. Rapid economic growth kept us from increasing our per capita share of domestic output.

Since last year, our population growth dropped markedly to below replacement rate. The “demographic sweet spot” continues to be mired in high unemployment. Foreign direct investments remain at a trickle.

That shining “demographic sweet spot” was undermined by the deterioration of our education system. Study after study reveal the true measure of our educational system’s deterioration: an astonishingly high percentage of our high school graduates have low reading comprehension skills.

We do have a large number of hopeful young workers. But they are not equipped with the skills the new global economy needs. See the distressing reports put our by the Education Commission.

A large number of our college graduates trained for roles in the services sector – particularly the hospitality industry. But our tourism is stunted. What awaits the graduates is underemployment.

Our agriculture continues to fail us. The depreciation of our currency will magnify food inflation. The stage is set for high rates of malnutrition – if not, heaven forbid, famine in some areas. Government agricultural policy seems to have been fashioned to await a miracle. We expect rice to be cheap but at the same time hope to conserve farmer incomes to keep them planting. Our rice industry is now a poverty trap.

BBM makes a great show of doling out bags of sometimes rotting rice. The real message there is desperation: the staple economy is being priced beyond the people’s reach. The medium is the message. His campaign message of bringing the price of rice to just P20 per kilo has become a cruel joke.

Government propagandists are trying hard to convince the people that the WB reclassification is a vote of confidence in the “reforms” done. What might these “reforms” be?

The reclassification happened because of the relatively high economic growth rate the country achieved from 2012 to 2022. During this decade of rapid growth, the Philippines paced global economic expansion. We led regional growth. Now we are eating our neighbors’ dust.

Over the past three years, our economic performance turned anemic. Last year, we could only manage 4.4 percent GDP growth. This year, we struggle to make three percent. In the first quarter, we posted a miserable 2.8 percent growth rate. Private think tanks are now estimating this will be the measure of the year’s growth. Some are predicting even worse.

2026 will be a lost year. Our economy is barely keeping ahead of our population growth rate.

We now rarely hear our economic managers boasting about our economy’s “strong fundamentals” – whatever those are. Today we have among the worst performing currencies. Our balance of payments deficit is rising. Our agri policies are not creating food security. Our power situation remains tenuous – certainly not abundant enough to support a surge in manufacturing.

Instead of speaking about “strong fundamentals,” our political leaders ought to address the precipitous drop in investor confidence. The infra scandal is more than just a matter for the lawyers to fuss about. It is a major wound on our future growth prospects.

All the frantic efforts to cover up the dimensions of this scandal will not address the long-term economic issues. Who will want to invest in a country where the governing elite cannot be trusted with the nation’s funds?

The public opinion surveys say it all. The number of Filipinos dissatisfied with the way the country is being run far outpaces those satisfied. The conditions for political turbulence are frightfully present.

The WB reclassification is mainly for its own guidance. The Philippines, along with Micronesia, Sri Lanka and a few other countries, have been reclassified to “upper-middle” status. All that means is that these fortunate countries will no longer qualify for soft loans.

Unfortunately, soft loans are exactly what we need at this time. Our debt service has moved beyond the prudential threshold of 60 percent of the budget. What that means is anyone who lends us money do so at their own peril.

Our cost of borrowing hereon will be higher. Reclassification will not help.