MANILA— The World Bank said the Philippines can unlock up to 7.1 percent of gross domestic product (GDP) in combined savings and revenues if it implements reforms in tax collection and public spending.
During the launch of the World Bank's new edition of the Public Finance Review for the Philippines, Zafer Mustafaoglu, World Bank Division Director, said fiscal sustainability and inclusive growth are mutually reinforcing.
“The 3.6 percent to 7.1 percent of GDP in potential fiscal gains — hundreds of billions of pesos already within the system’s reach—can fuel the next chapter of that journey: more children learning to read, more families shielded from the financial devastation of illness, and millions of Filipinos lifted from poverty,” Mustafaoglu said.
Last year, the Philippines had a GDP of $487.09 billion, according to World Bank data. At the high end, Mustafaoglu’s estimated fiscal gains would amount to around $34.6 billion or around P2.16 trillion at a peso-dollar exchange rate ot P62.44.
The World Bank report identified several comprehensive reforms the Philippines can implement together to deliver substantial fiscal gains. These include easier tax payments, corporate income tax rationalization, tighter limits on unprogrammed appropriations, modernizing fiscal management systems without raising statutory tax rates, better-targeted health, education, and social protection spending, among many others.
World Bank Senior Economist Jaffar Al Rikabi added that reforms in procurement alone could save up to P435 billion annually. He said there must be a better procurement system, because the existing system shows that different government agencies purchase the same items at different prices due to many factors.
“Procurement counts for around 6.7 percentage points of GDP," Al Rikabi said.
"And the result is higher costs for the government from higher prices. Prices of comparable goods: desktop computers, SUV vehicles that are purchased by the same agency or different agencies at different times of the year [shows] variation in price, showing the same agency buying this good faces very different prices,” Al Rikabi added.
He said procurement consolidation, tax simplification, and budget discipline can add 2.2 percent to 4.4 percent of GDP in fiscal savings. While improving revenue administration, VAT reform and 4PS protection can add 1.4 percent to 3.1 percent GDP in fiscal savings.
Budget Secretary Kim De Leon and Finance Secretary Frederick Go welcomed the report of the World Bank.
“Fiscal discipline is extremely vital, but fiscal discipline should never really mean simply spending less. For us at the DBM, it means spending deliberately, prioritizing carefully, and demanding more from every peso,” De Leon said.
Go added, “The goal is for consolidation and investment to move forward together. Achieving this balance requires us to confront a longstanding challenge on the revenue side.”
The Public Finance Review is a core diagnostic instrument of the World Bank designed to assess the efficiency and effectiveness of a country’s fiscal policies, and it identifies reforms that can increase revenue, spend more effectively, and help the people.