WB urges Phl to implement tax, other reforms

MANILA, Philippines - The Philippines should implement structural reforms, including raising the so-called sin taxes, to enable it to achieve a sustained annual growth at rates above five percent, the World Bank said.

According to the World Bank’s Philippines Quarterly Update released yesterday, the country’s economic growth is forecast at a moderate 3.7 percent in 2011, weighed down by weak global demand as well as low public spending in the first three quarters of the year.

However, the financial institution said the Philippine economy is expected to expand by 4.2 percent in 2012.

“Higher 2012 growth hinges on improvement in exports, acceleration of Public-Private Partnership (PPP) projects, private sector investment, and a full recovery of public spending,” it added.

World Bank country economist Karl Kendrick Chua said that a stronger structural underpinning would allow the country to deal with shocks more effectively, achieve more inclusive growth, and reduce poverty at a faster rate.

“Our projection hinges on the successful implementation of the government’s disbursement acceleration program and an acceleration in private consumption and investment, which have begun to grow faster in the last quarter,” Chua added.

The report noted that the Philippine government initiated several reform measures for 2012, including raising excise taxes on alcohol and tobacco, pushing for the enactment of the fiscal responsibility and fiscal incentives rationalization bills to plug future leakages in tax revenues, and improving equity and efficiency of the tax system.

It stressed that ensuring the enactment of these measures would be critical to raise spending in infrastructure and human capital to support medium-term growth prospects.

World Bank acting country director Chiyo Kanda said these reform measures are steps in the right direction.

“An acceleration of these reforms, in particular raising excise taxes of alcohol and tobacco as proposed by the administration, would help secure the much needed revenues to increase public spending especially for infrastructure development, health and education that should benefit the poor,” Kanda added.

The World Bank warned of the continuing risks posed by the global economy to the Philippines’ growth prospects.

“Japan fell into recession in 2011 due to the effects of the earthquake and tsunami. Growth in the United States was sluggish in the first half. Output in the eurozone has weakened sharply in the second half and there are fears that the region may go into recession in early 2012,” the report outlined.

Growth in East Asia is projected to slow down from 8.1 percent in 2011 to 7.7 percent next year. While a number of countries are expected to enact fiscal stimuli to buoy growth, these are likely to be limited given narrower fiscal space.

Nevertheless, the report noted that the Philippines is relatively well-positioned to weather shocks emanating from the current global turmoil because of its strong macroeconomic fundamentals, regulatory reforms and prudential measures instituted following past crises and slowdowns.

“The (Philippine) government is instituting important measures to improve transparency and accountability in public spending. Once these institutional reforms are in place, spending is expected to fully recover at cost-effective levels with more resolute impact on the country’s growth and development,” the World Bank report added.