"A HUGE WINDOW of opportunity" needs to be seized by the government if
it is to implement reforms that will accelerate growth and reduce
poverty, the World Bank yesterday said.
An improvement in public finances and overall competitiveness, the
Washington-based institution said in its Philippines Quarterly Update,
will allow the country to achieve "rapid and sustained growth of above
5% for a long period of time."
For the meantime, the Bank said it was keeping its 4.2% gross domestic
product (GDP) growth forecast for this year -- issued last December --
and announced that the expansion would likely pick up to 5% in 2013.
"A huge window of opportunity currently exists for speeding up critical
reforms," World Bank Country Director Motoo Konishi said in a statement.
"Besides having strong macroeconomic fundamentals, the country is
benefitting from political stability and a popular government that is
seen by many as strongly committed to improving governance and reducing
poverty," he added.
The focus, the report suggested, should be on three areas: strengthening
public financial management, increasing tax revenues and enhancing
competitiveness.
Mr. Konishi claimed the government had already made some inroads but
added that "putting greater urgency... will go a long way in boosting
growth that benefits the poor. It's an opportune time for the country to
move up to the next level."
The report noted that the 4.2% and 5% growth outlooks, should a global
slowdown persist, would be supported by investment and government spending.
"However, such a stimulus can only be sustained if matched by higher tax
revenues. The Executive's effort to strengthen tax administration and
push for the immediate passage of the tobacco and alcohol excise and
fiscal incentives bill are steps in the right direction."
It noted that the window was "narrowing," especially since mid-term
elections will be held next year and followed by another in 2016,
occasions that will revive the "historical difficulty of moving forward
with reforms when the campaign period kicks in."
"Enactment of the two crucial tax reforms, together with further
improvements in tax administration, is projected to add 0.5 and 0.6 ppt
of additional tax revenues in 2012 and 2013, respectively, resulting in
a tax effort of 12.8% and 13.4% of GDP (compared to 12.4% to 12.5% of
GDP if no policy reforms are enacted," the report states.
"Taking past experience into account, the coming 2013 general elections
makes tax legislation much more difficult, hence the urgency of getting
this key tax reform measures passed by mid-year," it adds.
World Bank country economist Karl Kendrick T. Chua, the main author of
the report, said the institution supported House Bill 5727, which
proposes that tax rates on tobacco and alcohol be based on current
prices and be regularly updated.
The Bank is also pushing for the rationalization of fiscal incentives
granted to corporations doing business in the country, Mr. Chua said, as
"some of them have been shown to be redundant."
Both measures are now pending in Congress and Cabinet officials have
highlighted the need to have these passed before legislators end their
current session.
Asked to comment on the World Bank's growth outlook, National Economic
and Development Authority Deputy Director-General Ruperto P. Majuca said
the forecasts were "very low."
"We anticipate that, sooner or later, they may have to increase their
GDP growth forecast," Mr. Majuca said in an e-mail.
He said the government was maintaining its 5-6% GDP growth forecast for
this year, with recent data indicating that full-year growth would be at
the higher end of the range.
"The acceleration of government expenditure will be a major factor,
including substantial increases in infrastructure and capital outlay.
Both budget allocation and execution will show significant increases."
World Bank lead economist Rogier J. E. van den Brink said employment
prospects were expected to improve given increased public spending and
continued industry growth.
"Higher infrastructure spending is expected to create tens of thousands
of new jobs in the construction and trade sub-sectors while continuous
growth of the BPO (business process outsourcing) industry is expected to
generate 100,000 new jobs this year," he said.
"However, structural reforms are needed to create more and better jobs
in the year ahead."
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