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Higher WB classification versus loss of ODA

Higher WB classification versus loss of ODA"Why we can’t have the best of both worlds."

 

 

The managers of this country’s economy doubtless are aware of the disconnect between the government’s quest to have the World Bank classify the Philippines as an upper middle-income country and President Duterte’s 2018 directive prohibiting Philippine government acceptance of official development assistance from the world’s donor countries, which are members of the OECD (Organisation for Economic Cooperation and Development).

The World Bank maintains, for both operational and operational reasons, a classification system that ranks the world’s 192 countries and territories according to their per-capita GNI (gross national income).

The middle-tier, middle-income countries group consists of two sub-tiers, namely high middle-income and low middle-income. With the higher GDP numbers steadily posted by it in recent years, the Philippine economy appeared to be on the way to be reclassified from low middle-income economy, which had been its classification for several decades, to an upper middle income economy.

Under the recent revision of its classification system, the World Bank now classifies as being high middle income economies falling within the $4,046-$12,535 per capita GNI range. The latest WB website data show the Philippines as having a per-capita GNI of $3,850 in 2019 (from $3,830 in 2018).

Then came the coronavirus pandemic. The sharp loss of national income resulting from the world’s longest lockdown – the Philippine economy is now, by definition, in a recession – has rendered unlikely this country’s achieving in 2020 the per-capita GNI required for WB classification as a high middle-income country.

Being classified as a high middle-income country is a great source of pride and prestige. But it has a negative consequence, too. By moving up into the ranks of the high middle-income countries, the Philippines will become ineligible for ODA and other preferences – financial as well as trade – that the developed countries maintain for the middle-income and low-income countries. Some ODA loans can have terms of as long as 40 years and annual interest rates as low as 0.4 percent, with 10 years of grace on interest payments. The ideal situation would be to have both improved credit terms resulting from a high middle-income classification and the preferential treatment that middle-income countries receive at the hands of rich countries.

The Philippine economy will be able to resume the higher GDP performance after the pandemic; this country should continue to enjoy all the benefits due a low middle-income country. Unfortunately, that has not been the case. Angry over the European Union’s sustained criticism of the conduct of his administration’s anti-illegal drugs campaign, President Duterte, issued, as stated above, a directive prohibiting the acceptance by the Philippine government of all ODA and preferences from the EU.

This is the disconnect that I mentioned at the outset of this column. A country like the Philippines should be able to have the best of both worlds, but those are not the rules of the international economics game. What it gains with one hand, it loses with the other.

Topics: economy , Rodrigo Duterte , Organisation for Economic Cooperation and Development , World Bank
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