THE PHILIPPINES needs to build fiscal buffers to remain resilient against economic shocks given the below-target growth projected over the medium term, the World Bank said.
“The Philippines will benefit from fiscal reforms. This will help the country rebuild fiscal space, and so give it room to act to support the economy, to support households in case of a growth downturn in the future,” World Bank Senior Economist Jaffar Al-Rikabi told reporters on Thursday.
These measures include tax reform, particularly closing compliance gaps, to increase the share of tax collection to gross domestic product (GDP).
The World Bank also proposed making expenditure more efficient through means such as improving public financial management, procurement and public investment.
Other structural reforms to safeguard and accelerate growth include investing in infrastructure, connectivity and addressing skills gaps.
In the first quarter, the fiscal deficit widened to 7.3%, driven by election-related spending.
“We expect there to be a deceleration in expenditure, which would bring the overall end-year fiscal deficit much closer to fiscal targets that the government has set,” Mr. Al Rikabi said.
“Risks to the macro-fiscal outlook (highlight) the need, therefore, to really double down on reforms so that the Philippines can safeguard and accelerate its growth journey,” he said.
Mr. Al-Rikabi said the bank expects the government’s efforts to strengthen domestic revenue mobilization to continue supporting “robust tax collection.”
In its recent Philippine Economic Update, the World Bank retained its target forecasts for the Philippines this year until 2027, saying growth will be dampened by heightened global trade uncertainty.
The bank expects the economy to grow by 5.3% this year, 5.4% in 2026 and 5.5% in 2027.
The World Bank’s forecasts are all below the government’s 6-8% GDP target range for this year to 2028.
The bank said externally, the risks are tilted to the downside due to trade uncertainty and escalating regional conflicts, putting upward pressure on commodity prices and logistics costs.
At the same event, the World Bank noted the constraints on small and medium enterprise (SME) exports.
“Regional and global value chains are more than just sales outlets; they are platforms for creating quality jobs and more value-added through benefits from scale, increased competition, and learning,” Jaime Frias, Senior Economist for the World Bank’s Finance, Competitiveness, and Innovation Global Practice said.
Among the constrainsts are access to testing facilities and certification services, limited availability of financing for equipment and quality upgrades, and insufficient market information to effectively match buyers and sellers.
Improving access to testing facilities and certification services are crucial investments to make these services more affordable.
“Equally important is the simplification of regulations for laboratories and the import of testing equipment, coupled with securing international recognition and compatibility of Philippine certifications and standards,” it said.
In addition, the bank said investing in credit information and collateral registries can help financial institutions better understand the financial position of SMEs, thereby lower borrowing costs. — Aubrey Rose A. Inosante
