At long last, as of July 2026, the Philippines has attained Upper-Middle-Income status, as announced by the World Bank on July 1, 2026. This reclassification from Lower-Middle-Income to Upper-Middle-Income marks an important milestone in our efforts to eventually be considered a High-Income economy, alongside the likes of South Korea, Taiwan, Singapore, Spain, and Chile.

The reclassification places the Philippines among economies worldwide that have reached a Gross National Income (GNI) per capita of between $4,636 and $14,375 under the World Bank’s Atlas method for fiscal year 2027. It was touch-and-go over the last five years because of the economic slowdown caused by the Covid-19 pandemic. There were even fears that the economic disaster resulting from the criminal actions of thieves in government—and their accomplices in the private sector involved in the flood control corruption scandal—would further postpone our graduation to Upper-Middle-Income status.

President BBM should be grateful especially to our OFWs, whose close to $40 billion in annual remittances have significantly bolstered the GNI, the metric used by the World Bank to determine a country's income status. The GNI of the Philippines has been growing faster than its Gross domestic Product (GDP). President Marcos Jr. will be remembered by posterity as the leader who brought our country to this income level after the nation was stuck as a lower-middle-income economy for ages—since at least the EDSA Revolution in 1986.

Our graduation to Upper-Middle-Income status follows the country attaining a GNI per capita of $4,850 in 2025, up from $4,470 in 2024. GNI per capita measures the income earned by a country’s citizens and businesses whether at home or abroad, while GDP measures only the annual production of individuals and enterprises residing within the geographical boundaries of the Philippines, whether Filipino citizens or not. In any given year, thanks to the OFWs, our GNI is larger and generally grows faster than GDP. In fact, OFW remittances over the last decade or so have been growing at a minimum of two percent to three percent annually, come hell or high water!

According to the World Bank, no economy moved down the income ladder this year. Together with the Philippines, Jordan, Micronesia, Sri Lanka, and Vietnam advanced from lower-middle-income to upper-middle-income status. Togo was the only country to advance from low-income to lower-middle-income. As an Upper-Middle-Income economy, the Philippines is expected to improve its credit profile, bolster all-around investor confidence, and especially attract higher levels of quality Foreign Direct Investment (FDI) that create better-paying jobs. It is providential that the country has attained this more attractive status at a time when there is much talk about massive doses of FDI pouring into the so-called Luzon Economic Corridor. This is associated with the “Pax Silica” plan of Japan and the United States to relocate more of their high-value electronic and semiconductor component factories to the Philippines and away from China.

Before we start celebrating this new status, however, it would be wise to consider that, like a good number of Latin American economies, the Philippines is in great danger of falling into the so-called Middle-Income Trap. This will happen if our political leaders continue to steal from public coffers, sacrifice the common good for their respective selfish interests, and fail to remove the lingering obstacles to an attractive investment climate.

The Middle-Income Trap can prevent us from attaining a desirable GNI per capita of $15,000 to $20,000 twenty years from now and, more tragically, keep our poverty incidence at double-digit levels—as can be observed in many Latin American countries that attained Upper-Middle-Income levels decades ago.

Let us understand this Middle-Income Trap. It is a situation in which a country grows rapidly from low-income to middle-income status but then struggles to become a high-income country with a GNI per capita between $15,000 and $20,000. Wages rise enough (which is a good thing) so that the country is no longer competitive in low-cost manufacturing vis-à-vis countries like Myanmar, Laos, and Cambodia. However, productivity, innovation, entrepreneurship, and human capital fail to advance enough to compete with high-income nations like Japan and the U.S.

It is enlightening to review the three stages of income growth. First, there is the low-income stage where growth comes from inexpensive labor, agriculture, and basic manufacturing like textiles, garments, toys, and furniture. Then follows the middle-income stage, during which wages rise, urbanization increases, and industry expands beyond basic manufacturing to encompass construction, public utilities, and mining.

We actually reached this stage in the 1960s and 1970s. Finally, there is the high-income stage when growth depends entirely on innovation, advanced technology, and high-value services. Countries fall into the Middle-Income Trap when they lose their low-wage advantage but fail to develop the capabilities needed for innovation-led growth.

The common causes of the Middle-Income Trap, which unfortunately characterized almost half a century of Philippine development efforts, are structural and deeply entrenched. They include low investment in quality education and skills development, weak innovation and research capacity, and poor infrastructure. For long periods, we spent three percent or less of GDP on infrastructure while our East Asian neighbors were spending six percent or more. This was compounded by poor governance and rampant corruption, weak institutions, overdependence on a few industries or commodities, and rigid labor and product markets.

Most damaging of all has been the elite capture of markets and economic sectors, resulting in insufficient competition and entrepreneurship. This elite capture was primarily the result of the infamous “Filipino First” policy enshrined in our very Constitution. I have always maintained against the ultra-nationalists that "Filipino First" actually translated into “Rich Filipinos First, and to hell with the poor!”

The most famous cases of economies that successfully escaped the Middle-Income Trap are the much-celebrated “Tiger Economies” of East Asia, such as Singapore, Hong Kong, Taiwan, and South Korea, to which we can add Israel in the Middle East, Ireland and Spain in Europe, and Chile in Latin America.

Those that experienced long periods of stagnation or slow growth after reaching middle-income levels include Brazil, Argentina, Venezuela, South Africa, and Thailand, which is the premier example of a country that has grown old before becoming rich. If China fails to reverse its rapid aging and low fertility rate, it too could easily fall into the Middle-Income Trap.

To avoid falling into this trap and continue progressing toward high-income levels to attain Ambisyon Natin 2040, the administrations coming after President BBM must follow the collective advice of local and foreign economists. First, we must raise productivity in agriculture to attain a growth rate of at least three percent to four percent annually, alongside parallel efforts in manufacturing and services.

Second, we need to increase total investment to around 30 percent of GDP, which can only be achieved by attracting $15 to $20 billion in Foreign Direct Investment annually for the next two decades, given our abysmally low domestic savings. Third, we must improve the quality of education and workforce skills, complemented by the prevention of child stunting through sufficient nutrition during a child's first 1,000 days. Fourth, we must sustain our infrastructure momentum by ensuring at least five percent to six percent of GDP is invested in public works, starting with farm-to-market roads. Finally, we must facilitate innovation and digital transformation—where the implementation of the Pax Silica plan will be crucial—while continuing to strengthen institutions and improve governance.

To make things simpler, I have reduced these comprehensive requirements to three core pillars: attain an annual agricultural growth rate of three percent to four percent; attract $15 to $20 billion in FDI annually; and reduce the amount of public resources lost through corruption to an absolute minimum. We must convince the youth that the Middle-Income Trap is not inevitable. Countries that successfully shift from growth based on cheap labor and commodity exports to growth driven by productivity, innovation, knowledge, and skills are completely capable of escaping it.