WORLD BANK CONCERNED OVER RP'S FISCAL PERFORMANCE
MANILA, November 8, 2004 (STAR) By Ted P. Torres - The World Bank (WB) has expressed concern the Philippine government would not be able to meet its fiscal targets this year as the domestic economy remains highly vulnerable to external changes in the regional and world economies.
A recent WB report noted that weaknesses in public finances remain a serious area of concern for the Philippines, as the consolidated public sector deficit (CPSD) and National Government (NG) deficit are forecast at 6.7 percent and 4.2 percent of GDP (gross domestic product), respectively.
The WB said it could be likely that the NG deficit of P198 billion for the whole of 2004 would not be met, citing the dire need for new tax measures which have yet to take effect, despite the implementation of a wide range of cost-cutting and other austerity measures.
With President Arroyo’s admission that the country is in a fiscal crisis, eight proposed tax measures were introduced in Congress to increase government revenues. "However, the passage of the eight legislative measures and their timing remains uncertain," the WB report said.
It stated that legislative and administrative measures to improve tax and revenue efforts, which have lagged in the region, are crucially needed. Attention likewise should also be given to the quality of fiscal adjustment to put in place a sustainable, buoyant, and efficient tax system, the WB added.
Local business now expects that earnings growth in the second half may be lower because of high oil prices and the temporary dampening effects of fiscal restructuring measures. Also, no key financial ratios had shown marked improvement for listed companies at the Philippine Stock Exchange (PSE).
In addition, growth in bank lending to the corporate sector remains weak with only about a one- percent growth during the first six months of the year.
Meanwhile, pension reforms remain another area of concern, the WB said.
The Social Security System (SSS), the state pension fund for the private sector, has a surplus in the first semester of the year but the depletion of the fund is expected sometime around 2015 in the absence of remedial measures. That could result in the NG’s assumption of shouldering all costs as mandated by the pension fund’s charter.
Likewise, the Government Service Insurance System (GSIS), the public sector pension fund counterpart, has also been warned of serious pressures on its financial position unless the social insurance premiums owed to it by the various government agencies are not remitted soon.
The GSIS portfolio, being increasingly concentrated in lending to its members, also makes it susceptible to adverse development that could affect its returns and long-term sustainability.
On the export front, the two biggest markets for Philippine exports showed mixed performance, with exports to Japan growing 34 percent, contributing 19 percent to total first half exports, while exports to the United States contracting by 13.4 percent.
Prospects for a significant pickup in fixed investments also remain poor, as studies show that nearly two-thirds of firms in the industrial sector have no expansion plans.
However, recent increases in overseas workers’ dollar remittances suggest continued support for remittance-financed consumption for the remainder of the year. After a record $7 billion last year, state officials anticipate another banner year in 2004.
But polls suggest a lackluster consumer confidence level in the fourth quarter of 2004 due to perceived worsening economic conditions and family financial conditions, with nearly 73 percent of respondents of a survey conducted by the Bangko Sentral ng Pilipinas (BSP) stating that it is currently "a bad time" to buy consumer durables.
Unemployment remains high with the jobless rate at 11.7 percent. While new jobs were created in the farm and services sectors, manufacturing jobs barely grew. The jobless rate remains highest in Metro Manila at 18.4 percent.
Household surveys indicate a large decline in real family incomes between 2000 and 2003, indicating that poverty performance has actually deteriorated, further highlighting the need to ensure that the benefits of growth are more widely shared.
A survey conducted by the National Statistics Office (NSO) in August showed that average family expenditures and incomes have both decreased in real terms, with total family expenditures declining by seven percent.
Reported by: Sol Jose Vanzi
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