According to the World Bank, more jobs can be created through structural reform which will provide the needed economic growth and reduce poverty.
From BusinessWorld Philippines
March 19, 2012
Reforms urgently needed
“A HUGE WINDOW of opportunity” needs to be seized by the government if it is to implement reforms that will accelerate growth and reduce poverty, the World Bank yesterday said.
An improvement in public finances and overall competitiveness, the Washington-based institution said in its Philippines Quarterly Update, will allow the country to achieve “rapid and sustained growth of above 5% for a long period of time.”
For the meantime, the Bank said it was keeping its 4.2% gross domestic product (GDP) growth forecast for this year — issued last December — and announced that the expansion would likely pick up to 5% in 2013.
“Besides having strong macroeconomic fundamentals, the country is benefitting from political stability and a popular government that is seen by many as strongly committed to improving governance and reducing poverty,” he added.
The focus, the report suggested, should be on three areas: strengthening public financial management, increasing tax revenues and enhancing competitiveness.
Mr. Konishi claimed the government had already made some inroads but added that “putting greater urgency… will go a long way in boosting growth that benefits the poor. It’s an opportune time for the country to move up to the next level.”
The report noted that the 4.2% and 5% growth outlooks, should a global slowdown persist, would be supported by investment and government spending.
“However, such a stimulus can only be sustained if matched by higher tax revenues. The Executive’s effort to strengthen tax administration and push for the immediate passage of the tobacco and alcohol excise and fiscal incentives bill are steps in the right direction.”
It noted that the window was “narrowing,” especially since mid-term elections will be held next year and followed by another in 2016, occasions that will revive the “historical difficulty of moving forward with reforms when the campaign period kicks in.”
“Enactment of the two crucial tax reforms, together with further improvements in tax administration, is projected to add 0.5 and 0.6 ppt of additional tax revenues in 2012 and 2013, respectively, resulting in a tax effort of 12.8% and 13.4% of GDP (compared to 12.4% to 12.5% of GDP if no policy reforms are enacted,” the report states.
“Taking past experience into account, the coming 2013 general elections makes tax legislation much more difficult, hence the urgency of getting this key tax reform measures passed by mid-year,” it adds.
World Bank country economist Karl Kendrick T. Chua, the main author of the report, said the institution supported House Bill 5727, which proposes that tax rates on tobacco and alcohol be based on current prices and be regularly updated.
The Bank is also pushing for the rationalization of fiscal incentives granted to corporations doing business in the country, Mr. Chua said, as “some of them have been shown to be redundant.”
Both measures are now pending in Congress and Cabinet officials have highlighted the need to have these passed before legislators end their current session.
“We anticipate that, sooner or later, they may have to increase their GDP growth forecast,” Mr. Majuca said in an e-mail.
He said the government was maintaining its 5-6% GDP growth forecast for this year, with recent data indicating that full-year growth would be at the higher end of the range.
“The acceleration of government expenditure will be a major factor, including substantial increases in infrastructure and capital outlay. Both budget allocation and execution will show significant increases.”
World Bank lead economist Rogier J. E. van den Brink said employment prospects were expected to improve given increased public spending and continued industry growth.
“Higher infrastructure spending is expected to create tens of thousands of new jobs in the construction and trade sub-sectors while continuous growth of the BPO (business process outsourcing) industry is expected to generate 100,000 new jobs this year,” he said.
“However, structural reforms are needed to create more and better jobs in the year ahead.”