WB to lend $250M to RP

The World Bank (WB) has committed to an annual budget support of at least $250 million for the Philippines provided the government could sustain its macroeconomic policy and reforms.

The initial commitment, however, came with a warning that while revenues from privatization have strengthened the government’s fiscal position, these non-recurring gains should not substitute for a steady and sustained tax collection.

The WB said over the weekend that it is ready to extend a $250-million development policy loan (DPL), a fast-disbursing facility that the government could use in full to finance regular expenditures.

WB country manager Joachim Von Amsberg said the program loan is, in effect, a seal of good housekeeping that the WB extends to developing economies.

"This DPL is a first of an annual series of DPL," Von Amsberg said. "So as long as the macroeconomic policy and reforms that government has laid out in its plans are continued, we could make an annual DPL."

However, the WB said the government needs to focus on tax collections especially since it is talking about balancing the budget while increasing expenditures.

Von Amsberg said the only way the Arroyo administration could accomplish these two objectives is by increasing taxes to ensure a sustainable source of revenues.

"Privatization revenues are one-time revenues, they are not sustainable," said Von Amsberg.

"These revenues are positive reflection of a privatization program that is ongoing but they are not substitute for the tax effort because they are just one-time sale of government assets," Von Amsberg continued.

According to Von Amsberg, the WB’s assistance would focus on helping the government build up the machinery to enable institutions to collect taxes effectively.

"If you want to help the government, they need a machinery that is able to collect taxes at a more sustainable level, in a transparent and equitable way," he said.

Von Amsberg said the WB assistance would complement the existing effort for institutional reform, adding that there is a substantial need for it at the Bureau of Internal Revenue for better audit, tax filing system and better enforcement.

Nevertheless, he said the WB is largely satisfied with the government’s commitment to a balanced budget by 2008 and to sustain this balance despite its plan to increase spending.

"One of the reasons that the Philippines has better reputation and credibility is because of its consistent plans of balancing the budget rather than changing plans along the way and falling short of those plans," Von Amsberg said.

"It is very reasonable to try to increase tax collections to the extent that public expenditures can be increased," Von Amsberg added. "I will be quite comfortable if the government pursues the policy of a balanced budget from 2008 onwards and uses additional tax revenues for increased investments."

Von Amsberg pointed out, however that additional investments are necessary. "Increased tax collections would provide the opportunity to raise investments in the context of a balanced budget," he said.

According to him, the first order of business is to work on tax administration to maximize tax measures already in place and raise more revenues.

"If this is sustainable it will not threaten the credibility that the Philippines is earning with a lot of hard work," he said. "Credibility takes years to build and very little time to erode and that is the lesson that the government has understood."