PH seen stuck in middle income trap until 2050

MANILA, Philippines — The Philippines might only be able to break free from the “middle-income trap” in 2050 as it struggles to corner more job-generating foreign investments, Nomura said in a report that stressed how business-as-usual growth would not be enough to make a grand escape.

In a report, the Japanese investment bank gave the Philippines a Middle-Income Trap Escape Index (MITEI) score of 85, putting the country in a “tight spot” together with nations like Vietnam, Indonesia and India.

Nomura created MITEI to assess the abilities of 34 emerging market economies to escape the trap based on nine indicators. A score of above 108 indicates a greater likelihood of reaching the high-income category.

READ: An upper middle-income nation by 2025? What PH is bound to lose

Nomura explained that countries in the tight spot were those historically poorer in the 1990’s and continued to trail their peers. For these economies, breaking free of the trap will be “a long and challenging process” unless they implement structural reforms that can translate strong investment growth into higher productivity and innovation.

“Embracing recent technological innovations, such as generative AI, will be critical,” Nomura said.

In the case of the Philippines, Nomura said the country would still struggle to break free even if it manages to sustain a growth of 6 percent. This is because of an “obstacle” to inflows of foreign direct investments (FDIs), especially FDIs leaving China amid growing trade friction between Washington and Beijing.

And that obstacle, Nomura said, is the increased geopolitical tensions between China and the Philippines.

“The underperformance during the latest supply-chain reconfiguration could therefore limit the boost to investment relative to peers,” Nomura said.

Stuck

The World Bank measures a nation’s income status using the gross national income (GNI) per capita, or the total amount of money earned by a country’s people and businesses at home and abroad.

Despite posting a new record-high GNI per capita of $4,230 in 2023, the Philippines has been classified as a lower middle-income country since 1987, reflecting the slow progress the country is making to expand its economy in step with population growth.

But economic officials of the Marcos administration were optimistic that the Philippines can finally become an upper middle-income nation this year.

Overall, Nomura said its analysis showed that only China and Malaysia may escape the trap in the next decade while the rest will remain stuck.

“To escape the middle-income trap, a country cannot continue to rely on cheap labor and rapid urbanization. The move from investment-led growth to innovation-led growth, however, is complicated,” it said.

“It needs the combination of policies to attract and adopt foreign technologies, an adequately skilled workforce, increases in human capital, and more deep-rooted reforms of the economic and business climate,” it added.

 

(2025/01/28-13:15)