DOF disputes IMD report on drop in competitiveness

The International Institute for Management Development’s (IMD) assessment of the Philippine economy, which resulted in the lowering of the country’s ranking in the 2018 World Competitiveness report, was not backed up by actual data, the Department of Finance (DOF) said yesterday.

In a statement, Finance Undersecretary and chief economist Gil Beltran said while the dip in the ranking was a “wakeup call” for the government, many of the IMD’s claims were “false alarms.”

The Philippines nosedived nine notches to 50th spot out of the 63 economies in this year’s World Competitiveness Yearbook ranking of the IMO.

Among the factors cited by the IMD are the decline in tourism and employment, worsening public finances, and a surge in concerns about the education system.

“All these allegations are not backed up by actual data,” Beltran said.

“First, while IMD says tourism and employment have declined, the country’s employment rate rose to 6.1 percent in January and unemployment dropped to 5.3 percent, the lowest since the country started compiling unemployment statistics,” he said.

According to Beltran, international tourism arrivals to the Philippines in the first two months also increased 16.1 percent to 1.4 million visitors as compared to last year. In 2017, international arrivals hit an all-time high of 6.6 million.

“Second, the claim that the state of public finance is worsening is simply laughable. The statement by the IMD reflects gross research incompetence,” the DOF chief economist said.

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

“Furthermore, the IMF (International Monetary Fund) has even supported our decision to raise the fiscal deficit headroom from two percent to three percent to accommodate our ambitious infrastructure program,” he said.

Beltran said the country’s current account balance cannot be used to measure competitiveness. “Using the current account as a measure of competitiveness is like the misguided mercantilist thinking that the greater the surplus, the better it is for the economy,” the official 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 said.

“In short, the ratings methodology employed by IMD mechanically ranks cold numbers without understanding the dynamics of the economy. The result is that rankings tend to be volatile. Neither does it use benchmarks with which to gauge relative performance,” Beltran said.

Nevertheless, Beltran said the drop in the country’s ranking is still a “wakeup call.”

“We do recognize the real issues, such as red tape and insufficiency in infrastructure and we are working hard to address those. We are encouraged by the progress we have made even if these have not been captured by the ratings yet,” Beltran said.