PH gov’t gets fresh $400-M ADB loan

MANILA  -The Philippine government secured fresh funding through $400-million loan from the Asian Development Bank, intended to help the Marcos administration be more efficient revenue-wise in order to achieve achieve its medium-term fiscal goals and finance its post-pandemic economic recovery.

The multilateral lender expect this to happen through the government’s stronger focus on revenue mobilization, including modernizing tax administration, systems, and processes.

The ADB on Tuesday announced the approval of the Domestic Resource Mobilization (DRM) Program Subprogram 1, its first policy-based loan dedicated to DRM reform, as Fitch group’s BMI Country Risk and Industry Research said the Philippine government’s annual growth target of 6.5 percent to 8 percent for 2024-2028 was “incredibly hard to achieve.”

According to the ADB, the new loan addresses the country’s need to tackle discrepancies in tax policy frameworks to boost tax compliance, reduce tax avoidance, and raise more revenues from activities and products that have a major impact on the environment or contribute to climate change.

“The program recognizes that DRM reforms necessitate not only raising revenue, but also designing a revenue system that fosters inclusiveness, encourages good governance, promotes investments and job creation, reduces inequality, and tackles climate change,” said Aekapol Chongvilaivan, ADB senior economist for public finance.

He said ADB supports the government’s DRM program, which will result in a higher tax-to-GDP (gross domestic product) ratio and ensure sustainable financing for the country.

Tax-to-GDP ratio

The ADB notes that the Marcos administration wants to raise the tax-to-GDP ratio from 15 percent in 2020 to at least 15.9 percent by 2026.

Part of this goal is to slowly narrow the gap with the ratio among other Asia-Pacific economies, which is pegged at 17.6 percent.

Earlier this month, the Cabinet-level Development Budget Coordination Committee continued to take the needed steps to ensure that the economy remained on track with the Medium-Term Fiscal Framework and among the best-performing economies in Asia.

The DBCC Said that, in light of this, the Bureau of Internal Revenue and the Bureau of Customs are implementing several reforms to strengthen tax administration and enhance revenue collection.

These reforms which include digitalization programs intended to eliminate corruption, increase transparency, and improve the ease of paying taxes.

In particular, these programs are meant to modernize key taxpayers’ services, including online tax registration, return filing, and payment.

The ADB said such efforts could potentially increase the ratio of actual tax revenues to tax potential, from 75 percent in 2020 to at least 85 percent by 2026.

In a commentary, the research group BMI said the government’s growth target range for the next years will be hard to meet because, first, high interest rates will limit investment activity.

The Monetary Board last Oct. 26 raised the Bangko Sentral ng Pilipinas policy rate by 0.25 percentage point to 6.5 percent. BMI expects another such increase on Thursday due to concerns about continued upward pressure on prices of goods and services.

A second reason is that an expected sharp economic slowdown in China and a shallow recession in the United States — both major trading partners of the Philippines — would keep demand for Philippine goods and services subdued.