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Philippines slips in Doing Business rank

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By Elijah Joseph C. Tubayan
Reporter

THE PHILIPPINES managed to improve its score in the World Bank’s annual report that tracks economies’ competitiveness in ease of doing business, but its rank slipped as reforms to streamline transactions and strengthen stakeholder rights were offset by a drop in “getting credit” metrics, increased layers for import inspection and higher tax registration costs.

The World Bank’s Doing Business 2019 report, themed: “Training for Reform” and released on Wednesday evening, placed the Philippines at 124th out of the 190 economies tracked, down 11 places from 113th last year.

The Finance and Trade departments promptly challenged the results, expressing “strong objections” as they argued that the report’s findings on the Philippines in the “getting credit” indicator that weighed heavily on the country’s overall ease of doing business performance ignored data from its largest credit bureau “as its (World Bank’s) methodology prescribed”.

It is not the first time the Philippines has questioned the report. In November 2015, the Finance department wrote the World Bank to express “grave concerns” on the 2016 report’s “glaring flaws and inconsistencies” as the country’s rank fell to 103rd spot from an adjusted 97th place. This, the department had argued, did not reflect improvements in terms of business facilitation.

In this latest report, the Philippines’ ease of doing business overall score actually improved to 57.68 this year from 56.32 last year, as there were three reforms introduced, from two reforms the previous year. The score reflects an economy’s position vis-a-vis the best regulatory practice. A score closer to 100 indicates a more efficient business environment and stronger legal institutions.

The economies’ competitiveness was measured across several indicators, namely: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labor market regulation. Labor market regulation data were not included in this year’s report, the World Bank clarified.

Quezon City was the report’s benchmark for the Philippines.

“In the Philippines, minority investor protections were strengthened by increasing shareholders’ rights and role in major corporate decisions and clarifying ownership and control structures,” the World Bank said in a statement.

“The Philippines issued new rules for companies listed on its stock exchange. Shareholders can now approve the appointment and dismissal of the auditor and companies must establish an audit committee composed exclusively of board members,” the report added.

“In the area of Starting a Business, the Philippines simplified tax registration and business licensing processes, but increased tax registration costs.”

The World Bank also took note of improvements in the Philippines’ risk management practices in the construction sector.

However, it noted that the Philippines made trading more difficult this year.

“Trading across borders was made more difficult by increasing the number of inspections for importing, thereby increasing the average time for border compliance,” the report said.

The top 10 economies in the Doing Business 2019 are New Zealand, Singapore, Denmark, which retained their first, second and third spots, respectively, for the second consecutive year, followed by Hong Kong, South Korea, Georgia, Norway, United States, United Kingdom and Macedonia.

“East Asia and Pacific region has made significant progress in enabling entrepreneurship and private enterprise. As the reform momentum continues building up in the region, those economies which lag behind have the opportunity to learn from the good practices adopted by their neighbors,” Rita Ramalho, senior manager of the World Bank’s Global Indicators Group, said in a statement.

‘GROSSLY INACCURATE’

The Department of Finance (DoF) and the Department of Trade and Industry (DTI) issued a statement late Wednesday saying that the report was inaccurate as it did not take into account a larger dataset in gauging individuals and firms’ access to credit.

“We demand that the World Bank review the Philippines’ rating, and make a correction immediately given our country’s increases in the Ease of Doing Business (EODB) scores, which was, unfortunately, offset by the grossly inaccurate and understated findings in the Getting Credit indicator of the Report,” the statement read.

The DoF also wrote to World Bank country director for Brunei, Malaysia, Thailand, and the Philippines to challenge the report’s methodology.

The DoF said that the World Bank only used data from BAP Credit Bureau Inc., which has the smallest database of 1.7 million borrower-entrepreneurs. It said that the report should have also covered other credit bureaus such as the TransUnion Information Solutions, Inc., and Microfinance Information Data Sharing Inc., which holds the information of 13.7 million debtors.

The Getting Credit score slid to 5 from 30 last year, even as it said that credit for micro, small and medium enterprises grew 19% — which is the fastest in the region, according to the Finance department.

“While the World Bank has taken governments to task by fostering an enabling environment characterized by efficient business regulations, so must the World Bank exercise responsibility and greater transparency in its methodology.”

“This correction should be done soon as the Report could unduly compromise the Philippines’ standing among the investment community and negatively impact the country’s development, considering that this document is widely used as a reference by investors and survey organizations. As a highly respected institution, the World Bank has a responsibility to ensure that an economy is not unduly disadvantaged and that its report reflect the realities on the ground,” the statement added.

Nevertheless, the government acknowledged the need to further enhance access to credit, noting the right of borrowers to access their data, online access to credit information by banks and financial institutions, and credit scores.

Moreover, the DoF and DTI said that they will lead a communication campaign to promote recent reforms to streamline business transactions to boost the competitiveness ranking, such as the Bureau of Internal Revenue’s Revenue Memorandum Order setting a 30-day timeframe for the registration of the books of accounts, and the removal of some unnecessary requirements to secure a certification of registration; Quezon City’s One-Stop Shop; the Land Titling Computerization Project; the recently enacted Ease of Doing Business act that shortens the mandated processing time of transactions with the government; and the Personal Property Security Act which are expected to directly impact the competitiveness ranking.

“Since the start of the Duterte administration, government agencies have been hard at work in implementing initiatives to increase the country’s competitiveness.  We believe we are on the right track, and expect upward trajectory in our competitiveness ranking,” the statement read.