Benel Lagua l August 4, 2023 l The Manila Times
ON a short vacation with my family, I just experienced the most expensive city in the world, Singapore. For eight out of 10 years, Singapore was named the world’s most expensive city, according to the Economist Intelligence Unit’s (EIU) Worldwide Cost of Living. As a tourist destination, Singapore is visited not just for the sights, mostly man-made, but for the food. More than 90 percent of all food in Singapore is imported since land is so precious to be used for agriculture. In general, dining out tends to cost a little more (because of rental and labor cost in producing food). So, for the budget conscious, hawker centers and food courts are the preferred locations.
Meanwhile, Manila ranked 124th out of the 172 major cities covered, even lower than its 112th ranking the previous year. Worldwide, the cost of living in the biggest cities has soared as the war in Ukraine and the effects of the pandemic disrupted supply chains, particularly for energy and food. The EIU, however, predicted softening of prices as supply bottlenecks ease and slowing economies weigh on consumer demand.
As another Southeast Asian economy, can we consider ourselves lucky being ranked 124 compared to our neighbor who has been on the top expensive list for about a decade? Would you rather we rank low in this cost-of-living review of nations? As they say, the devil is in the details. Context matters.
I ask this question to my Finance students. Would you want to earn $50,000 a year when everybody else earns $25,000 a year, or would you rather earn $100,000 when everybody else earns $250,000? Assume that prices of goods and services are the same in both situations. Obviously, the second option gives the rational choice because of what money can buy, but many will still choose the first alternative for something more important than consumption. Often, the social status angle matters more. And when you change the assumption about purchasing power, the right answer becomes more complicated.
Inflation rates
Headline inflation in Singapore over a 20-year period (2002-2022) was low at 1.86 percent. What impresses the outsider is the growth of the median gross monthly income from work, which was S$5,070 in 2022 compared to S$3,000 in 2010, at a rate faster than inflation. And when you factor in various government subsidies and the living expenses of a native Singaporean, it does not really look as bad as it seems. Rental and property prices are on an upward trend, but the government subsidizes flats and offers grants to allow properties to be affordable, based on the income group. Education quality is high, and Singaporeans enjoy subsidies from pre-school to tertiary level. The cost of owning a car is the highest in the world, but the public transport system of buses and trains is one of the most efficient. And the government spends billions a year on health care, with heavy subsidies for public hospitals plus optional insurance coverage plans. In short, most Singaporeans meet their necessities, and many can further improve the quality of their lives.
In the Philippines, the average inflation rate from 1960 to 2022 was 8.5 percent per year. For the 20-year period (2002-2022), it registered at 5.7 percent. According to the Philippine Statistics Authority, mathematicians, actuaries and statisticians are the best paid occupation category with an average monthly rate of P63,368 in 2020. This number, already the highest, is only a third of the median income in Singapore. Based on salaryexplorer.com, the 2023 median monthly salary in the Philippines is P41,300. This writer was once president of a small government finance corporation. In an international finance conference, a junior officer in Taiwan once talked about the salary scales for their pay grades in their firm (sometime in the early 2000s), and it was way above my income as a top officer of my corporation.
A corollary issue is the equitable distribution of wealth. According to the World Bank, poverty in the Philippines was 18.1 percent in 2021. Income inequality is still high with the top 1 percent of earners together capturing 17 percent of national income, with only 14 percent being shared by the bottom 50 percent. So, even if the country’s cost of living is way down, more Filipinos are deprived and lacking at that lower threshold.
What matters most is which economy provides a fair deal for its citizens. For our country’s people’s sake, isn’t it better for our cost-of-living index to move up, provided our people will be afforded better opportunities, higher salaries and more government support to handle the necessities of life? Cost of living, after all, is an important indicator of development and prosperity. Improving the quality of life of Filipinos must be the ultimate policy goal of governance.
*** Benel de la Paz Lagua was previously executive vice president and chief development officer at the Development Bank of the Philippines. He is an active Finex member and an advocate of risk-based lending for SMEs. Today, he is an independent director in progressive banks and in some NGOs. The views expressed herein are his own and do not necessarily reflect the opinion of his office as well as Finex.