MANILA, MARCH 19, 2008
(STAR) By Des Ferriols - The International Monetary Fund (IMF) has retained its six percent economic growth projection for the country this year, but advised the Arroyo administration to restore its tax base and keep a close eye on guarantees granted by government to private investors.

The IMF concluded its 2007 annual Article IV review of the Philippines and in the report officially released yesterday, the fund’s executive directors said the country’s economic performance was “generally impressive.”

“Executive directors commended the authorities for the economy’s impressive performance – strong growth, low inflation, sustained fiscal consolidation, and improved investor confidence,” the IMF said in its report.

The IMF said the government should address challenges and vulnerabilities, including infrastructure bottlenecks, to “help the Philippines weather the ongoing global financial turmoil.”

IMF said balancing the budget by 2008 is a demonstration of fiscal prudence but the government still has to strengthen its tax effort as well as spend funds wisely.

It added that the increase in the value added tax rate did not result in bigger collection and that government deficit – excluding privatization receipts – actually widened to about one percent of the gross domestic product.

“The expected improvements in tax administration did not materialize,” the IMF said. “While the deficit is likely to be mitigated by privatization receipts, the debt-to-revenue ratio remained high relative to other countries.”

Aside from administrative reforms, the IMF report said legislation is needed to restore the tax base, chiefly by rationalizing fiscal incentives and adjusting excise taxes.

In the report, there is only a passing reference to the ongoing controversies over various government contracts with private investors, especially those currently under investigation by the Senate.

“Public-Private Partnerships can be useful but require close monitoring, particularly of projects that extend guarantees to private investors,” the IMF said.

The IMF said it was good for the government to sustain efforts to privatize power sector assets. “This has generated more income than expected and helped to support the government’s plan to ensure that growth is not impeded by power shortages,” the fund said.

The IMF said that on the whole, economic performance has improved markedly over the past years. Founded on what it called “impressive fiscal consolidation,” the fund said investor confidence has improved and sovereign spreads have tightened.

“Private investment remained low by regional standards, but there are tentative signs of a revival,” IMF reported.

Tariff cut on imported oil products takes effect April 1 By Donnabelle Gatdula Tuesday, March 18, 2008

 The Department of Energy (DOE) approved yesterday a tariff cut of 50 centavos per liter on imported petroleum products effective April 1.

Energy Secretary Angelo Reyes signed the certification of a one-percent reduction in the tariff of imported petroleum products.

The tariff cut, however, will not prevent oil companies from increasing pump prices at least for the next two weeks.

Oil industry sources said they will need to recover P1 to P1.50 per liter due to the continuing increase in global crude prices.

“If the tariff reduction will be carried out in April, the oil firms will still have two more weeks to raise their prices to recoup losses,” a source said.

The cut on duties of imported fuels, which is envisioned to absorb a portion of the impact of the oil price hikes in the global market, is being reviewed by the DOE every month.

DOE set the trigger point for the three- to two-percent tariff reduction at $83 per barrel for Dubai and $105 for MOPS-diesel. The figures include freight and insurance costs.

The trigger for two-percent to one-percent reduction is at $92 per barrel for Dubai and $110 for MOPS-diesel.

For zero tariff, the trigger mechanism was set at $103 per barrel for Dubai and $115 per barrel for MOPS-diesel.

Data from the DOE showed that gasoline and diesel were higher by about $4 per barrel and $10 per barrel, respectively, over the previous month’s levels.

The DOE noted that world oil prices continued to hit record highs for four consecutive weeks amid lingering supply concerns and as the US dollar plumbed fresh lows against the euro.

Last week, Dubai crude and diesel once again posted higher by about $2 per barrel and $4 per barrel, respectively, over the previous week’s average.

Compared with the same period last month, Dubai crude and gasoline are higher by about $10 per barrel, while diesel increased by almost $17 per barrel.

Oil market analysts believed that speculative investment attracted by the weak US dollar is the primary reason why oil prices have risen so fast in recent months.

Traders quoted that since oil is pegged in dollars while buyers and speculators are armed with stronger currencies, crude oil futures offer a hedge against the falling dollar.

Thus, oil futures bought and sold in dollars are more attractive to foreign investors.

Analysts are projecting that oil prices could ease in the coming months amid concerns about slowing US economic growth.

Other analysts believe that if US demand declines, the surging energy demands from China and India will absorb the same. As such, oil prices will show little signs of abating.

Based on the estimates of the International Energy Agency (IEA), it trimmed world oil demand this year to 87.5 million barrels per day, with downward pressures from weaker economic growth in the Organization for Economic Cooperation and Development (OECD) mostly offset by stronger former Soviet Union (FSU) projections. Oil demand is expected to increase by 1.7 million barrels per day in 2008 or two percent compared with 2007, when it grew by 1.1 percent.

Early this month, the Organization of Petroleum Exporting Countries (OPEC) decided to keep its daily output target of 29.67 million barrels despite calls by the US President for OPEC to review boosting output.

OPEC, which produces 40 percent of the world’s oil supply, blamed the high cost of crude on speculative buying as investors seek hedges against a weakening dollar and rising inflationary pressures.

Chief News Editor: Sol Jose Vanzi

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