DOF: Drop in competitiveness ranking both wake-up call and false alarm

MANILA, Philippines — While the sharp drop in the Philippine economy’s global competitiveness was a “wake-up call” for policymakers, the country assessment was not backed by actual data, the Department of Finance claimed Tuesday.

The Philippines fell nine notches to 50th spot out of 63 economies tracked in this year’s World Competitiveness Ranking published by Switzerland-based business school International Institute for Management Development.

The IMD said the Philippines experienced the most significant decline in Asia, dragged down by “worsening” tourism, employment and public finances, as well as concerns about the country’s education system.

Commenting on the latest competitiveness ranking, Finance Undersecretary Gil Beltran said the ratings methodology employed by IMD “mechanically ranks cold numbers without understanding the dynamics of the economy.”

Beltran, who is also the DOF’s chief economist, said the dip was still a wake-up call, “notwithstanding its being a false alarm in some respects.”

Citing government data, the Finance official said the unemployment rate dropped to 5.3 percent last January while international tourist arrivals to the Philippines rose by 16.1 percent to 1.4 million visitors during the first two months of the year.

He said IMD’s findings about the Philippines’ supposed worsening public finance were “simply laughable” and “reflect[ed] gross research incompetence.”

“If the state of our public finance was really deteriorating, credit rating agencies would have taken notice and have downgraded us accordingly,” Beltran remarked. “But no, we're still investment grade!”

Across sub-factors, the country’s ranking crashed in terms of economic performance, government efficiency, business efficiency and infrastructure.

Arturo Bris, director of the IMD World Competitiveness Center, had reportedly said that compared to other Asian countries, the Philippines lacks appeal for foreign investors despite the nation’s booming economy.

Bris also said that tourism may have suffered from “exchange rate instability and… the political environment.”

“The Philippines’ investments seem to be driven by the public sector. The public sector is not very efficient,” the IMD executive was quoted as saying in a report by BusinessWorld. “So when we rely on public financing, the government becomes a weak spot, because corruption has an overall effect."

'Textbook economics'

But according to Beltran, the IMD, which has published the rankings every year since 1989, failed to distinguish between short-term adjustments and long-term prospects and has mistaken the former for “loss in competitiveness.”

Saying the Philippines’ 2017 current account surplus lifted the country to the 31st spot, Beltran stressed that the IMD’s “use” of the current account as a measure of competitiveness was like “the misguided mercantilist thinking that the greater the surplus, the better it is for the economy.”

“In the first place, it really makes no sense to rank economies based on the size of their current account balances relative to GDP (gross domestic product) if the objective is to assess competitiveness,” Beltran said.

“The depreciation in the currency was also noted and was associated with more instability. But textbook economics teaches that a country's competitiveness improves as its currency depreciates!” he added.

A widening trade gap has brought the nation’s current account position from a surplus to a deficit, which is expected to further swell and weaken the peso.

For this year, the central bank expects a current account deficit of $700 million, accounting for 0.2 percent of GDP. 

Trade Secretary Ramon Lopez earlier expressed disbelief over IMD’s latest competitiveness rankings, explaining that the Philippines’ growth rates and reforms “have been faster.”

“Lower on economic growth? Infrastructure growth? Business efficiencies? But we have one of the fastest growth in the world.  Faster than most peers.  And infrastructure improvements done on some and continuing,” Lopez said in reaction to the report.