MANILA, Philippines - The World Bank (WB) expects a 4.2-percent growth in the Philippine economy this year if key measures like the tobacco and alcohol excise bill and the fiscal incentives rationalization bill are enacted into law and public spending improves.
In its Philippine Quarterly Update report, the World Bank also projects a five-percent growth in gross domestic product (GDP) in 2013.
“Growth above five percent can be sustained by addressing structural bottlenecks to raise overall competitiveness,” the World Bank said in its report presented to the media yesterday.
Last year, the World Bank projected a 3.7-percent economic growth for the Philippines.
World Bank country economist Karl Kendrick Chua explained that external economic conditions are generally in a depressed state, and that the Philippines must strengthen further its economic fundamentals “to lower downside risks to the economy from external shocks.”
“Otherwise, the country’s prospects are not too bright,” Chua said.
The economist said the probability of an investment upgrade by international credit rating agencies is likely in the near term.
“But improved tax revenue collection, and improved quantity and quality of spending, is necessary to plug leaks and increase the probability of a credit upgrade. Real revenues will fail without these reforms, especially the laws enforcing the sin taxes and fiscal incentives,” the World Bank country economist said.
House Bill 5727, authored by Rep. Joseph Emilio Abaya, not only seeks to generate substantial revenues for the government but also hopes to encourage tobacco farmers to shift to other crops, to ultimately compel the public to minimize or even quit smoking.
The World Bank favors the Abaya version of the various proposed bills on sin taxes because “it addresses health concerns,” Chua said.
Aside from pushing for a unitary tax system for both tobacco and liquor and for the indexation of taxes to inflation, the Abaya version also seeks to generate an additional P19.3 billion from fermented liquor and P11.19 billion from distilled spirits.
The present system and some of the proposed measures on sin tax only reduce the prices of cigarettes in the long term since they are not indexed to inflation.
“It only encourages more smoking and other health hazards,” Chua explained.
The World Bank also said the robust capital market growth does not actually reflect the real condition of the economy.
The Philippine Stock Exchange Index posted phenomenal growth on Friday, reflecting higher returns in corporate earnings.
“The labor market is a better indicator for real growth, not the financial sector alone,” Chua said.
A majority of those employed have ended up in micro and small business, and have little or no social insurance. Thirty-eight percent of those employed had social insurance while 62 had none.