PHL needs to spend better, collect more taxes — World Bank
By Jenina P. Ibañez, Senior Reporter
THE PHILIPPINE government needs to roll out a fiscal consolidation plan based on the right mix of expanded taxation and productive spending to manage debt racked up during the pandemic, a World Bank economist said.
“To regain policy space, the government will need to start a gradual, fiscal consolidation process,” World Bank Senior Economist Rong Qian said at a Management Association of the Philippines briefing on Thursday.
“We know from past experience of rapid debt accumulation, countries will need to use a combination of revenue and expenditure measures to reduce the debt-to-GDP ratio. Relying on growth alone will not be enough.”
The Philippine government ramped up borrowings to finance its coronavirus pandemic response in the past two years. The government recorded P11.73 trillion in outstanding debt as of end-2021, growing by 19.7% year on year, preliminary data from the Treasury showed.
This meant the debt-to-GDP ratio is now at 60.5%, higher than the 54.6% a year earlier and slightly above the 60% threshold considered as manageable by multilateral lenders for developing economies. It is also the highest debt-to-GDP ratio since the 65.7% seen in 2005.
Ms. Qian said the pace of fiscal consolidation needs to be studied.
“Too fast consolidation might slow down growth, which will be counterproductive to reduce debt-to-GDP ratio,” she said. “Too slow, it will dampen confidence on government’s commitment to consolidate, while the higher interest payment will prevent productive investment.”
On the revenue side, the government can introduce new taxes, increase existing taxes, and expand tax collection.
As for spending, the government could spend less in areas that produce fewer jobs so it could spend more in areas that do, such as education. The government could also spend better by trying to use fewer resources to get the same outcome, Ms. Qian said.
“Finding the right mix to achieve the inclusive growth agenda needs to be a priority for the next government,” she added.
Finance Secretary Carlos G. Dominguez III has said that the Finance department is reviewing a possible fiscal consolidation plan.
Policy priorities for the Philippines offered by the World Bank also include continuing sound monetary policy, Ms. Qian said, adding that the central bank can closely monitor global recovery so it could continue to keep inflation within target while supporting economic growth.
Inflation eased to 3% in January, the fifth straight month of deceleration, as housing and utilities prices eased, preliminary data from the Philippine Statistics Authority showed.
This was slower than both the 3.2% in December and the 3.7% in January last year.
The Philippines should also return to face-to-face schooling, improve the country’s access to finance, reduce the barriers to entry of foreign firms, and expand the use of technology, the multilateral bank said.
“Private sector will play an even more important role to drive growth going forward,” Ms. Qian said. “There’s a need to improve access to finance, especially for SMEs (small and medium enterprises), by improving credit information systems, enabling digitalization.”
The government expects the Philippine economy to grow by 7-9% in 2022, while the World Bank’s projection is at 5.9%.
The Philippines could grow faster than recent years amid the potential of agriculture growth, Brain Trust, Inc. Chair and former Socioeconomic Planning Secretary Cielito F. Habito said at the same event.
“There’s much hope for further growth if only we would have a much more outward-looking orientation in the sector,” he said. “We can grow on the fact that we have a large segment of internal demand driving our economy… but now is the time to tap that potential for growth from the world markets.”