MANILA, Philippines - The Asian Development Bank (ADB) has cited the lack of fiscal space, weak revenue generation and constraints in public expenditure as critical development bottlenecks.
In a recent briefing with reporters, Claudia Buentjen, principal country specialist in ADB’s Southeast Asia Department said the lack of fiscal space has often resulted in “persistent fiscal imbalances.”
Furthermore, she also said this lack of fiscal space has resulted in low public infrastructure investment and competitiveness, which in turn, have resulted in low private investments.
Buentjen said that there are generally two ways to improve fiscal space and that is to raise new taxes and improve tax administration.
She said the ADB respects the Aquino administration’s resolve to not raise new taxes and to just stick to plugging the tax leaks.
However, she stressed that the lack of fiscal space has been the major culprit for the government’s “underinvestment in human capital and inequitable access to social services.”
This, she said, has resulted in low public spending for education, health and social protection and has led to unequal access to opportunities and skills deficiencies.
She also said that even though the Philippine economy, as measured by gross domestic product, grew an average of five percent in the past years, poverty in the country has increased significantly to 26.5 percent in 2009 to 24.9 percent in 2003.
Economic growth, she said, has been insufficient to address persistent unemployment, underemployment and poverty.
She said the lack of robust manufacturing sector growth suppressed growth in labor productivity.
The government earlier announced that it cut its growth and trade forecasts for this year and in 2012 and narrowed its deficit ceiling for this year on the back of uncertainties in the global environment.
The government now expects growth this year to be between 4.5 percent and 5.5 percent, lower than the five-percent to six percent growth assumed in the 2011 budget.
It also expects exports and imports to grow by five percent and 13 percent this year, slower than previous estimates of nine to 10 percent and 17 to 18 percent.
For 2012, the government expects the economy to grow by five percent to six percent from the previous assumption of 5.5 percent to 6.5 percent.
With the economy expected to slow down this year, the government also forecasts the 2011 budget deficit to narrow further to P260.6 billion which is 2.6 percent of gross domestic product (GDP) from roughly P300 billion or three percent of GDP.