RP back on IMF watchlist due to fiscal blowout

An International Monetary Fund (IMF) mission currently in the country has placed the country on the multilateral financing institutions watchlist amid the government’s falling revenue collections and the widening budget deficit.

Department of Finance (DoF) officials said the IMF is particularly interested on how the government plans to ramp up tax effort to improve the ratio of revenues to gross domestic product (GDP).

The budget deficit shot past the full-year target of P250 billion hitting P266 billion for the year until October. The DoF is relying on asset sales to keep fiscal blowout to within P300 billion by the end of the year.

The tax collection to GDP ratio was initially projected by the World Bank to return to its dismal 2002 level of 12.8 percent after improving to 14.1 percent last year and at 14 percent in 2008 mainly as a result of the expanded value added tax (eVAT) law that raised the sales tax to 12 percent from 10 percent and widened the products and services that it covers.

“The IMF mission team has asked the Department of Finance how it plans to go back to fiscal consolidation, which has unhinged,” the DoF official who requested not to be identified told reporters.

The IMF team which is conducting a week-long review under the so-called article 4 of consultation agreements with member countries, had asked economic officials what the government intends to do to raise tax collections, which is the root of the record blowout.

“They asked government what it plans to do with the deteriorating tax effort and what the prospects are,” the official said.

The IMF is also interested in finding out proposed measures in improving the performance of revenue agencies, particularly the Bureau of Internal Revenue (BIR) and the Bureau Customs (BoC), which are both consistent failures in hitting periodic targets.

The IMF noted that for more than two decades, the government had been operating on deficit spending except in 1994 when it last had a budget surplus but due to the sale of government assets.

“The issues center on lifting tax collection and reducing the budget deficit,” the official said.

“The IMF supports our view that there is no urgency for us to implement an exit strategy on fiscal stimulus. They agreed with us on this,” Bangko Sentral ng Pilipinas (BSP) Gov. Amando Tetangco Jr. told reporters.

The exit plan involves the gradual withdrawal of fiscal and monetary measures implemented the past 18 months to pump prime the economy through massive government spending that in turn worsened the already deterioated fiscal numbers.

The inflation rate has remained within forecast range this year proving an exit plan was not warranted under the circumstance, Tetangco stressed.

Australia had been the first to implement an exit plan by hiking its policy rates just weeks earlier even as the United States and Japan said it was still “too early” to withdraw their respective fiscal stimulus programs.

India, however, is seen as likely the first among the G-20 countries to unwind its stimulus program. –RP back on IMF watchlist due to fiscal blowout

11/23/2009

An International Monetary Fund (IMF) mission currently in the country has placed the country on the multilateral financing institutions watchlist amid the government’s falling revenue collections and the widening budget deficit.

Department of Finance (DoF) officials said the IMF is particularly interested on how the government plans to ramp up tax effort to improve the ratio of revenues to gross domestic product (GDP).

The budget deficit shot past the full-year target of P250 billion hitting P266 billion for the year until October. The DoF is relying on asset sales to keep fiscal blowout to within P300 billion by the end of the year.

The tax collection to GDP ratio was initially projected by the World Bank to return to its dismal 2002 level of 12.8 percent after improving to 14.1 percent last year and at 14 percent in 2008 mainly as a result of the expanded value added tax (eVAT) law that raised the sales tax to 12 percent from 10 percent and widened the products and services that it covers.

“The IMF mission team has asked the Department of Finance how it plans to go back to fiscal consolidation, which has unhinged,” the DoF official who requested not to be identified told reporters.

The IMF team which is conducting a week-long review under the so-called article 4 of consultation agreements with member countries, had asked economic officials what the government intends to do to raise tax collections, which is the root of the record blowout.

“They asked government what it plans to do with the deteriorating tax effort and what the prospects are,” the official said.

The IMF is also interested in finding out proposed measures in improving the performance of revenue agencies, particularly the Bureau of Internal Revenue (BIR) and the Bureau Customs (BoC), which are both consistent failures in hitting periodic targets.

The IMF noted that for more than two decades, the government had been operating on deficit spending except in 1994 when it last had a budget surplus but due to the sale of government assets.

“The issues center on lifting tax collection and reducing the budget deficit,” the official said.

“The IMF supports our view that there is no urgency for us to implement an exit strategy on fiscal stimulus. They agreed with us on this,” Bangko Sentral ng Pilipinas (BSP) Gov. Amando Tetangco Jr. told reporters.

The exit plan involves the gradual withdrawal of fiscal and monetary measures implemented the past 18 months to pump prime the economy through massive government spending that in turn worsened the already deterioated fiscal numbers.

The inflation rate has remained within forecast range this year proving an exit plan was not warranted under the circumstance, Tetangco stressed.

Australia had been the first to implement an exit plan by hiking its policy rates just weeks earlier even as the United States and Japan said it was still “too early” to withdraw their respective fiscal stimulus programs.

India, however, is seen as likely the first among the G-20 countries to unwind its stimulus program. –Daily Tribune