Read this in The Manila Times digital edition.
THE Philippines this week achieved a long-sought economic milestone, being reclassified by the World Bank as an upper-middle-income country (UMIC). The government was quick to hail the new designation as the dawn of a new era for the Philippines, assuring the country that the UMIC classification will lead to greater economic expansion, increased foreign investment and more job creation.
This is all true, and while earning UMIC status may be more a “respectable indicator of steady progress” than it is an “achievement,” it is nevertheless something that the entire country can feel good about. However, the new designation is also a signal that the Philippines has, at least for the next several years, entered a delicate economic state in which falling behind is as much a possibility as accelerating economic growth.
The World Bank classifies countries based on their gross national income (GNI) per capita into four categories: low income, lower-middle income, upper-middle income and high income. Low and lower-middle-income countries are considered “developing” economies, high-income countries are considered “developed,” and upper-middle-income countries are transitioning between “developing” and “developed.” The exact threshold for GNI per capita changes from year to year, but in general, the upper-middle-income level is between approximately $4,600 and $14,000 annually. For 2025, the threshold was $4,636; the Philippines had a GNI per capita of $4,850. Other countries that moved up to UMIC status included Jordan, Micronesia, Sri Lanka and Vietnam.
Apart from being a general indicator of a “healthy” and “growing” economy, the UMIC designation has a number of specific consequences for the country. First, the good news. UMIC status is a positive indicator for the country’s sovereign credit rating, and while it does not guarantee a ratings upgrade, it helps to make upgrades more likely. Higher sovereign credit ratings are important because they reduce the cost of the country’s debt; its risk profile is reduced, and interest rates on bonds are lower.
The UMIC designation, especially if higher credit ratings follow, also opens up the Philippines to more sovereign debt investors, as well as business and development investors. Many institutional investors, such as pension funds or other governments’ investment funds, follow rules requiring their investments to be in UMICs (or higher), or in countries at or above a certain credit rating level. Most business investors, those who are considering establishing or expanding enterprises, investing in infrastructure and other development projects, or in the local stock market follow similar guidelines as well.
When government leaders crow about the bright future of economic expansion, more investments and more jobs, the above consequences of the Philippines’ being declared a UMIC are what they are talking about. This is not necessarily wrong or exaggerated, but there is another side to the coin that officials are less eager to talk about, although Department of Economy, Planning and Development Secretary Arsenio Balisacan did acknowledge it.
The main reason the World Bank compiles the country status list annually is to determine each country’s eligibility for different levels of development assistance. Other multilateral development banks, development finance institutions, and even government official development assistance (ODA) funds generally follow the World Bank’s lead; after all, if they all did the same work themselves, they would arrive at nearly the same results.
As a UMIC, the Philippines has graduated from the developing level where it is eligible for concessional loans, i.e., loans with below-market rates, and extended grace and repayment periods, and outright grants. Now, it will have to shift to more market-based sources offering commercial terms for development financing. ODA from other countries will likewise be reduced. On the positive side, this “aid graduation” opens up a variety of new options for financing; on the downside, almost every one of them will be more expensive.
Another aspect of UMIC status that has not yet been acknowledged is that it will eliminate many trade and tariff preferences the Philippines could take advantage of while it was still a “developing” country. Existing trade agreements will not be affected, since they have the same effect as treaties until they expire, but what impact the UMIC status will have on ongoing trade negotiations is yet to be seen.
It should also be remembered that the Philippines has only just risen above the UMIC threshold, and it took nearly 40 years to do it. Keeping this status and rising above it will require careful, forward-looking policy and smart management by the government, and it will have to do that without many of the preferential advantages that helped the country get this far.