Will the Philippines become a middle income class country?

By Fernando Fajardo |February 03,2019 - 07:39 AM

FERNANDO FAJARDO

 

To guide its work, the WB classifies countries into low income, lower middle income, upper middle income, and higher income. This started in 1962. In that year, it placed the Philippines at the lower middle-income class with an estimated $220 in per capita Gross National Income computed using the Atlas method.

We have not moved up since then. In 2000 or before Arroyo took power, our per capita GNI went up to $1,220. This was still within the lower middle-income level, which was set by the WB at $746 to $2,975 in per capita GNI in that year.

Ten years later in 2010 with Arroyo at the helm, our per capita GNI more than doubled to 2,480 but this was still within the lower income range of $1,006 to P3,975 in per capita GNI in that year. At that time, Arroyo thought of making the country part of the developed world.

Last September, Socioeconomic Planning Secretary Ernesto Pernia asserted that the Philippines was poised to climb to upper middle income. Is this doable?

The latest available data from the WB placed the per capita GNI of the lower middle-income class in 2017 at $996 – P3,895, down from $1,006 – $3,995 in 2016 and $1026 -$4.035 in 2015. There are no figures yet for 2018 as the WB is still getting the complete GNI data from all the countries covered in the ranking. None also for 2019 but for the moment, we can use the 2017 figures for our present purpose of analyzing whether moving up to upper middle income is possible for the Philippines this year.

Sufficed it to say that the income range within each of the four income classes may move up or down in any year depending on the changes in the exchange rates and inflation rates of the different countries in the world used in the Atlas method.

The WB uses the Atlas method to compute the per capita GDI at current US dollar value for income class classification purposes. The Atlas method reduces the impact of exchange rate fluctuations in the cross-country comparison of national incomes. It uses a conversion factor, which is the average of a country’s exchange rate for that year and its exchange rates for the two preceding years, adjusted for the differences between the rate of inflation in the country and that in China, Japan, the United Kingdom, the United States, and the Euro area. A country’s inflation rate is measured by the change in its GDP deflator.

Last year the Philippine per capita GNI increased by 8.2 percent at current price. Our 2018 per capita GNI was valued at P195,198 at current price. Assuming the same growth rate as last year, our per capita GNI will amount to P211,204 this year.

The actual 2018 and projected 2019 Philippine per capita GNI at current price, assuming the latter is realized, are what the WB will used to convert into the Philippine per capita GNI at current US dollars using the Atlas method.

In 2017, our per capita GNI at current price amounted to $3,660 when converted using the Atlas method. To graduate to upper middle-income class, we have to push our per capita GNI beyond $3,896, which is upper limit of the lower middle-income class. With price level more elevated last year and the peso also very much depreciated, we may end up still short of the required mark. Nevertheless, if the inflation rate is lower this year and the peso gets stronger, we may still end up actually joining the upper middle-class.

Thanks, of course, to the previous administration, which move faster the economy annually in six years than the one before it in ten years. In 2000, our per capita GNI in current US dollars was estimated at $1,220 using the Atlas method This went up to $2,470 in 2010 under Arroyo or by 7.3 percent annually in ten years. By 2016 under Aquino, this went up to $3,580 or by 7.7 percent annually in six years.

The question remains, however. Will this year’s Philippine GNI be higher or lower than last year? Will inflation be benign and the peso strong? If not, then we may still have to wait another year or two to become middle-income class.

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