Fiscal reforms to unlock GDP gains for Philippines – World Bank

MANILA, Philippines — The Philippines could generate fiscal gains equivalent to as much as 7.1 percent of gross domestic product (GDP) by improving tax collection and making public spending more efficient, according to the World Bank.

In its report titled Building on Reform: Public Finance for a Rising Philippines launched yesterday, the multilateral lender identified three reform packages to advance fiscal sustainability and inclusive growth, as well as deliver between 3.6 and 7.1 percent of GDP in fiscal savings and revenues.

World Bank senior economist Jaffar Al-Rikabi said that the first package of reforms cover fiscal space at hand or those aimed at creating fiscal space without sacrificing growth.

Reforms under Package 1 cover procurement consolidation, tax simplification and corporate income tax rationalization, as well as imposing budget discipline by capping unprogrammed appropriations at five percent.

The World Bank estimates that procurement reform alone could allow the country to save up to P435 billion annually.

Al-Rikabi said that setting up an independent fiscal council, where different experts can deliberate around revenue forecasts and impact to promote transparency also forms part of the World Bank’s recommended reforms under Package 1.

“The fiscal space at hand gives you around 2.2 to 4.4 percentage points of GDP, in additional tax and spending,” he said.

Meanwhile, Package 2 covers closing fiscal gaps.

Recommended reforms under this package include accelerated deployment of integrated financial management information system, public investment management and human resource and management information system, as well as modernizing revenue administration to track expenditure and improve public investment.

“Once you have these systems in place and only once you do that do we recommend thinking about VAT (value added tax) exemption combined with expanding the 4Ps (Pantawid Pamilyang Pilipino Program) protection,” he said.

He said closing these fiscal gaps would yield an additional 1.4 to 3.1 percent of GDP in fiscal savings.

The third and last reform package target human capital and cover pro-poor health assistance, registry-based targeting across social assistance programs and allocating education resources for foundational learning.

Al-Rikabi said that implementing the third package is cost neutral.

Zafer Mustafao?lu, division director for the Philippines, Malaysia and Brunei at the World Bank said that the recommendations are timely as the country’s recent ascent to upper-middle income status raises expectations on how to sustain growth and make it inclusive.