Donors to RP: Speed up fiscal reforms, we’ll increase aid

Multilateral donors led by the World Bank said yesterday they will raise development assistance to the Philippines if the government speeds up its fiscal reform program.

The donors met with President Arroyo and her key economic managers in a consultative meeting in Davao City during which they aired their concern.

"Several of the larger official development assistance (ODA) partners indicated their willingness to go beyond current programs and consider substantially increased financial commitments if and when the country established a track record of significant and sustained fiscal actions," World Bank country director for the Philippines Joachim Von Amsberg said.

He did not cite actual figures.

Donor agencies have welcomed the passage of two key tax measures backed by Mrs. Arroyo and threw their support behind what they said was a "high-quality" bill raising the value-added tax (VAT) rate to 12 percent from 10 percent, Von Amsberg said.

He said a new VAT system would raise the tax rate and widen the tax base, while keeping its administration simple.

However, there was a strong view that additional tax revenues would be needed in an effort to reduce the deficit, Von Amsberg said.

For her part, the President said during her keynote speech that her government is working hard to meet the challenges addressed at the donor meeting.

"We are working with Congress to overcome what you have identified, and what we have also recognized, as the most important structural issues and enact the laws that will enable us to resolve our fiscal problem within this year," Mrs. Arroyo said.

"I cannot offer to fix every problem of every citizen or family, but with your support, I can fight to bring this nation to the edge of shared prosperity across all regions, cultures and creeds," she added.

The VAT bill is among several measures the President is pushing for passage in Congress in a bid to generate additional revenues to help pay off huge debts and keep the budget deficit at manageable levels.

The budget deficit hit P16.5 billion ($301 million) in January and is on track to be within the target ceiling for the first three months of the year, the finance department said earlier.

The figure was about 21 percent of the P77.8 billion ($1.41 billion) ceiling for the first quarter.

Last year, the government posted a budget deficit of P186.1 billion, or 3.9 percent of gross domestic product.

The government has cut this year’s budget deficit target to 180 billion pesos from an initial P184.5 billion on expectations of higher revenues from recently approved tax measures. This level is equivalent to 3.4 percent of GDP, compared to the original target of 3.6 percent.

Also at the Davao meeting, the President pushed for more grants and less loans for the Philippines.

After the government and World Bank-led international donors agreed to dispense with pledging sessions for overseas development assistance in favor of more interactive discussions, Mrs. Arroyo welcomed the new format, saying it would lead to a more consolidated effort in getting grants rather than loans.

"We cannot borrow more as it would mean an increase in our budget deficit. We would love to have more grants than loans," she said.

Besides, former finance secretary Juanita Amatong added, the government no longer asks for pledges in concrete amounts as before.

"This time, the government is not asking for pledges. Pledges are just pledges, but actual disbursement is different. A pledge is a pledge, there is nothing final," she said.

She noted several projects in the past had been canceled because the government was unable to raise counterpart funds to match the pledges that were discussed during the project outlining. — AFP, Edith Regalado, Paolo Romero