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THE
International Monetary Fund (IMF) has turned bullish on
the Philippines and revised its forecast growth for both
this year and next to a higher plane, notwithstanding
the anticipated slower growth in the US, the country’s
largest trading partner.
On a negative note, however, the fund
warned that much had to be desired in improving the
country’s ability to generate revenues, mainly by
increasing the tax-effort ratio.
From original forecast growth of 6.3
percent in terms of the gross domestic product (GDP)
this year, the IMF recast it to 6.7 percent instead, to
reflect the added impact of government’s higher
infrastructure spending.
Also from 5.8 percent originally, next
year’s forecast GDP was raised to 6 percent as well.
“Raising the investment rate is a key
challenge to sustaining a high medium-term growth rate,”
the visiting IMF team said in a prepared statement.
Mission leader Il Houng Lee led the
visit conducted under the terms of the covenant
prescribed under Article Four honored by all member
countries.
Article Four consultations are
essentially health-check visits to ensure that
member-countries continue to observe internationally
accepted fiscal and monetary programs.
The IMF team said growth had been robust
the past few years and inflation was contained.
“Going forward, the key challenge is to
achieve a virtuous and sustainable cycle of investment
and overall growth in a stable macroeconomic
environment.
“This would help reduce poverty and
strengthen the economy against possible future
turbulence in the global economy,” they said.
In calling attention to Manila’s need to
improve revenue generation in order to sustain growth,
IMF mission leader Lee urged the government to increase
its tax-effort ratio by another 1.5 percentage points to
17.5 percent of GDP over the next five years.
The country’s tax-effort ratio, or the
efficiency with which it collects taxes as the economy
continues to expand, currently stands at about 16
percent and one of the lowest in the region.
Reza Baqir, IMF resident representative
in
Manila,
noted the 7.1-percent growth posted in the first three
quarters was achieved without investments and mainly via
consumption.
Imagine what the growth rate would be if
Manila
was able to tap the full investment potential, Baqir
said.
“To provide a sustainable basis for
reducing the deficit while providing resources for
needed priority spending, it is important to reverse the
weaknesses experienced in tax collection this year,” the
IMF team, led by Lee, said in a statement.
Lee said the tax effort has to rise
because there is a “need for the government to spend
more for social services and infrastructure.”
Both were needed to sustain the growth
momentum for the long haul, Lee added.
In line with this, he urged the
government to achieve decisive progress on the ongoing
tax-reform program to help boost the revenue flows.
“Two important areas of reform would be
to rationalize fiscal incentives—and, in particular,
phase out income-tax holidays while ensuring effective
tax rates remain unchanged or are reduced—and adjust the
excise rate on tobacco and alcohol products and index
them to inflation,” the IMF as a team said.
Former IMF mission leader Masahiko
Takeda, who first led such missions to Manila four years
earlier, stressed income-tax holidays can be overhauled
while keeping the country’s competitive edge as
investment destination.
“It is important for the Philippines to
remain competitive but with the redundancies
eliminated,” Takeda said.
Takeda recalled that in 2003 Manila’s
fiscal sector was “in a precarious position” but that it
has come “truly a long way since then.”
“We were worried then over all sorts of
risks as the Philippines was in a great deal of
difficulties in introducing strong [reform] measures. I
can leave the Philippines in a whole lot better shape
now,” the Washington-bound former mission head told
reporters. |
