The World Bank on Monday kept its 2016 growth forecast for the Philippines at 6.4 percent but warned that a delay in the implementation of tax reforms will affect the positive outlook for the economy.
The Washington-based multilateral lender, in its Philippine Economic Update October 2016 edition, maintained the growth outlook for the country at 6.4 percent this year and 6.2 percent for 2017 and 2018.
Newly-appointed World Bank lead economist for the Philippines Birgit Hansl told reporters in a news briefing the possible delay in the implementation of the “ambitious” tax reform of the Duterte administration could drag the positive outlook for the country.
Hansl expressed the bank’s support for the tax reform proposal submitted by the Finance Department to the House of Representatives.
She said the House of Representatives’ objection to the proposal could delay the implementation of the tax reforms, putting at risk the revenue increases envisioned by the Duterte administration.
“It may lead to the budget in the next few years to not increase as fast. The priorities in expenditure side would be revisited or you would need to finance large deficit,” Hansl said.
House Speaker Pantaleon Alvarez earlier expressed opposition to some revenue-gaining measures under the proposed tax reform program.
“Maintaining consistent political support for comprehensive tax reform will hinge on the public’s perception that the quality of the tax administration is improving and that tax revenues are being well spent,” the World Bank said in the report.
The World Bank said in the report titled “Outperforming the Region and Managing the Transition” the Philippines remained one of the fastest growing economies in the East Asia and Pacific region despite the weak global economy.
The report said 40 percent of the planned government spending in 2017 would be for infrastructure including roads, railways, seaports and airports. It said this could boost a large segment of the economy including industrial activities, real estate, construction and tourism.
Hansl said domestic consumption would also continue to prop up the economy, driven by three factors: rising purchases from an expanding middle-class, remittances from overseas Filipino workers and the expansion of jobs as a result of the growing economy.
Hansl said while many reforms were being unveiled, some businesses were cautious.
“But as policy details are still being discussed, some businesses might remain cautious. The completion of the new Philippine Development Plan this year will provide more clarity on the government’s development priorities and further improve the country’s growth prospects,” she said.
World Bank country director Mara Warwick said macroeconomic stability put the Philippines in a good position to accelerate inclusive growth benefiting all Filipinos.
“Poverty will decline faster if the returns from economic expansion are invested in building human capital by strengthening health, education and social protection,” said Warwick.
“Currently, the poor are concentrated in the agriculture sector, where increases in productivity would generate higher incomes for rural dwellers. Achieving this will require a comprehensive rural development strategy, which is among the priorities of the current administration,” Warwick said.
The report said that as economic growth was sustained, and as spending on health, education and social protection expanded, extreme poverty was projected to decline from 10.6 percent in 2012 to 7.8 percent in 2016, 7.2 percent in 2017 and 6.7 percent in 2018.