IMF: PH fiscal consolidation to continue over medium term

By Anna Leah Gonzales

June 11, 2024, 6:00 pm

MANILA – The Philippines' fiscal consolidation is set to continue over the medium term but at a slower pace than initially anticipated, an official of the International Monetary Fund (IMF) said.

"The latest Medium-Term Fiscal Program presents a more pro-growth fiscal stance anchored around higher capital spending and a more gradual increase in revenues over the medium term," IMF Mission Chief Elif Arbatli Saxegaard said in a briefing at the Bangko Sentral ng Pilipinas office in Manila late Monday.

In April this year, the Development Budget Coordination Committee revised the government's fiscal targets to reflect the current global and domestic environment and ensure that more strategic and growth-enhancing fiscal consolidation is being pursued.

Under the revised medium-term fiscal program, the government aims to bring down the fiscal deficit to 5.6 percent of the gross domestic product (GDP) this year to about 3.7 percent of the GDP in 2028.

Revenues are projected to reach PHP4.2 trillion in 2024 and PHP6 trillion in 2028.

Disbursements, on the other hand, will likely be at PHP5.7 trillion this year and PHP7.4 trillion in 2028.

"It is indeed the case that fiscal consolidation is slower over the medium term and that's driven by a slower revenue mobilization that's projected over the medium term and at the same time there is also a shift to higher spending on infrastructure," Saxegaard said.

She said revenue mobilization remains critical to sustain a credible medium-term fiscal consolidation strategy, rebuild buffers, and create space for poverty reduction efforts.

She noted that tax administration improvements should also be supplemented with tax policy changes, to improve the efficiency of value-added tax (VAT) and broaden the tax base.

"Our point is that the Philippines has significant scope to raise revenues both through tax administration measures which is something that the authorities have highlighted and it's part of their strategy and we fully support that, because we do believe that there is significant scope to raise revenues through tax administration measures," she said.

On the tax administration side, Saxegaard cited the importance of digitalization and using data analytics to improve compliance.

For VAT, she said the government also has a lot of scope to raise the value added tax by improving efficiency.

"And that doesn't necessarily require an increase in the tax rate. But really base broadening and improving its implementation can be one area, for example," she said.

"Some measures could be [done] to reduce some of the exemptions and also improve the tax refund system, which can increase compliance. So that's another potential," she added. (PNA)