IN FOCUS: Fiscal Reforms

After decades in the doldrums, the Philippines is gaining ground economically. This is in part due to fiscal reforms carried out in recent years. These crucial reforms have yielded fruit—the three major rating agencies have rewarded the Philippines with successive credit upgrades this year. The country’s investment-grade status reflects a picture of fiscal health: the budget deficit has been kept at just around two percent of gross domestic product (GDP). National government debt has also gone down relative to the size of the economy, compared with previous years. The tax effort or the ratio of tax collections to GDP has increased—a reflection of the government’s firm resolve in increasing revenue collections and improving the administration of tax laws.

Key reforms have expanded the fiscal space, allowing the government to increase spending on social services and making its annual budget outlay more inclusive. The passage of Republic Act 10351 or the “sin tax” law, which raised the excise taxes on tobacco products and alcohol, has yielded billions for the universal health care program, the improvement of health facilities, and the attainment of the Millennium Development Goals. Analysis made by PIDS Senior Research Fellow Rosario Manasan on the various versions of the sin tax bill provided valuable inputs to legislators during deliberations on the tax measure. Manasan notes that the bicameral version of the bill has greatly simplified the excise tax structure, easing tax administration by minimizing opportunities for mis-classification or mis-declaration of goods and transactions. PIDS has also provided research support for a signature budget reform of the Aquino II Administration: zero-based budgeting (ZBB), which aims to do away with wasteful incremental budgeting and ensure fiscal discipline. Among the ZBB studies conducted by PIDS researchers pertain to the cost-efficiency and effectiveness of sitio and household electrification, reforestation, housing resettlement, and agricultural support programs.

Still, the latest Analysis of the President’s Budget by Dr. Manasan shows that the country’s fiscal space remains limited. Although the government has arrived at a more balanced budget distribution between social and economic services in the 2013 national budget, it continues to underinvest in certain basic services.  For instance, our 2013 education budget still pales in comparison with those of our Southeast Asian neighbors. Low priority was also given to national defense, a critical area given current geopolitical issues.

To know more about the latest PIDS research on fiscal reforms and budget policy, visit the SocioEconomic Research Portal of the Philippines. Simply type ‘fiscal deficit’, ‘zero-based budgeting’, and related terms in the Search box.

• Analysis of the President's Budget for 2013: Making Health Spending Inclusive
• Analysis of the President`s Budget for 2012: Financing of State Universities and Colleges
• Amending the Sin Tax Law
• Who really holds the “power of the purse?”
• Assessment of the Efficiency and Effectiveness of the Reforestation Program of the Department of Environment and Natural Resources
• Cost Efficiency and Effectiveness of the Sitio and Household Electrification Programs
• Efficiency and Effectiveness Review of the National Housing Authority Resettlement Program
• Financing the MDGs and Inclusive Growth in the Time of Fiscal Consolidation
• New Tax Measures Needed to Achieve the Millennium Development Goals
  
  

NEW PUBLICATIONS

PIDS Book 2013-04: Analysis of the President’s Budget for 2013: Making Health Spending Inclusive
by Rosario G. Manasan

This is the prepress version of the Analysis of the President’s Budget for 2013. The government in its effort to make growth inclusive has again arrived at a more balanced budget distribution between social and economic services in the 2013 national budget. Social services, especially the education sector, accounted for the significant increase in the outlay. But the country’s basic education budget still pales in comparison with those of its peers in the region. This year’s budget analysis also shows the limited fiscal space as highlighted by the low spending on national defense, a critical area given current geopolitical issues. Still, it presents a better picture of the country’s fiscal health in terms of deficit and debt.

Meanwhile, the accompanying special papers in this volume take a look at some of the government’s policies on health financing. The first paper points to the inefficient financing of health facilities nationwide and how various government processes hinder the upgrading of such facilities, thus stunting public health services. The second paper reviews the cheaper medicines program and outlines its strengths and weaknesses.  Click here for the full article

PN 2013-16: Water Financing Programs: Creating Incentives for Private Sector Participation
by Gilberto M. Llanto

Lack of access to safe drinking water takes its toll on the health and productivity of people, especially poor households. The 2011-2016 Philippine Development Plan (PDP) reports that about 15.73 million Filipinos still do not have access to a safe water supply. This can be attributed to the low level of investments in water supply and sanitation. The PDP notes that this is highly linked to the lack of a coherent water financing framework in the Philippines. Traditionally, the government has provided financing to the water supply sector through budgetary appropriation and foreign loans coursed through the Local Water Utilities Administration and government financial institutions.

However, there are limitations to what government agencies can do with public financing of water delivery systems. It will be helpful to think of innovative approaches to entice private sector participation in the water supply sector. This Policy Note argues the case for working with the private sector on innovative financing schemes for the water supply sector. Public-private partnership or private sector participation arrangements or schemes may provide innovative schemes to address the inaccessibility of safe water in small municipalities or rural areas.  Click here for the full article.

PN 2013-15: Export Processing Zones, Special Economic Zones: Do We Really Need to Have More of Them?
by Rosario G. Manasan

Export processing zones (EPZs) are considered an important economic strategy to boost export promotion, attract foreign direct investments, and create employment opportunities for the domestic workforce. With our more than 40 years of experience in managing ecozones, it is but fitting to know if these ecozones have been successful in facilitating economic development for the Philippines. This Policy Note briefly reviews the performance of EPZs and special economic zones (SEZs). It also provides some guidance in evaluating ecozone proposals by drawing on the lessons learned from our experience in SEZs and that of other countries to ensure the success of future ecozones.  Click here for the full article.

PN 2013-14: The Impact of Natural Disasters on Income and Poverty: Framework and Some Evidence from Philippine Households
by Danilo C. Israel and Roehlano M. Briones

This Policy Note provides a framework for analyzing the impact of natural disasters on household income and household poverty and empirically estimates the effects of natural disasters on household income using 2011 CBMS data for Pasay City, Metro Manila. It summarizes some of the results and findings of a recent study conducted by PIDS and funded by the Economic Research Institute for ASEAN and East Asia (ERIA).

The framework explains that after the physical impact, the social impact of a natural disaster on the households follows, which is determined by the physical impact, as well as household recovery resources or coping mechanisms, extra assistance, and sociodemographic and economic factors. Both the occurrence and frequency of typhoons and/or floods have significant negative effects on household per capita income as the case of Pasay City has shown. Click here for the full article.

PN 2013-13: Border and Behind-the-Border Restrictions in Logistics and Trade Facilitation in the Philippines: Some Results of Regulatory Dialogues
by Gilberto M. Llanto, Adoracion M. Navarro, Keith C. Detros, and Ma. Kristina P. Ortiz

The Philippines’ potential to capitalize on the gains of regional economic integration depends on its resolve to address the reform gaps and challenges that undermine the efficient and effective regulation and management of trade facilitation at the border and behind the border.

This Policy Note summarizes the findings of the Philippine research team in a study funded by the Economic Research Institute for ASEAN and East Asia that probed the regulatory environment and the remaining border and behind-the-border restrictions in logistics and trade facilitation in the region. The study also covered customs services as these are the forefront services in trade facilitation. Based on the findings, the research team formulated some policy recommendations intended to guide the way forward.  Click here for the full article.

PN 2013-12: Key Reforms for an Effective Regional Comprehensive Economic Partnership
by Gilberto M. Llanto and Ma. Kristina P. Ortiz

The Association of Southeast Asian Nations (ASEAN) is looking at the Regional Comprehensive Economic Partnership (RCEP), a region-wide free trade agreement, as an important step toward a deeper and integrated production base in the region that is also open to the rest of the world. If successfully negotiated, the RCEP can be the world’s biggest trading bloc covering at least 40 percent of world trade and offering significant benefits to participating countries.

This Policy Note points out key reform challenges facing the Philippines during the difficult period of negotiation and the necessary structural and institutional reforms that must be taken to ensure that the country will benefit from the RCEP.  Click here for the full article

DP 2013-51: Regional Comprehensive Economic Partnership: Reform Challenges and Key Tasks for the Philippines
by Llanto, Gilberto M.,Ortiz, Ma. Kristina P.

The ASEAN+6 countries are currently engaged in negotiation for a Regional Comprehensive Economic Partnership (RCEP). If successfully negotiated, RCEP will result into the world`s biggest trading bloc, 40 percent of world trade, that offers significant benefits to participating countries. The first round of negotiations was held in Brunei in May 2013. The second round was recently held in Brisbane, Australia in September 2013. Negotiations are expected to conclude in 2015. The focus of the RCEP negotiations will be on the following eight key areas: trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, and other issues. The paper discusses some of the challenges facing the Philippines during the difficult period of negotiation and the necessary structural and institutional reforms that it has to take to ensure that it will benefit from RCEP. Click here for the full article

PRESS RELEASES

Off the press: Book on ASEAN Energy Market Integration

A new book containing the outcome of the “Forum on ASEAN Energy Market Integration (AEMI)” held on August 27 – 28, 2013 in Bangkok, Thailand, has been released by the ASEAN Studies Center. Two of the seven chapters of the book were co-written by Dr. Adoracion Navarro, a senior research fellow of state think tank Philippine Institute for Development Studies.

Titled “ASEAN Energy Market Integration (AEMI): from coordination to integration”, the book contains seven papers authored by AEMI Group members as a first step toward providing the analytical underpinnings for the rationale of the AEMI, its building blocks, and implementation. Navarro co-wrote the chapters “AEMI and ASEAN energy poverty” and “The pathway to AEMI”. Read more

PHL has second poorest quality of Infrastructure in ASEAN

Quality of infrastructure in the Philippines is second to the last in the ASEAN region. This was disclosed by Dr. Adoracion Navarro, Senior Research Fellow of the Philippine Institute for Development Studies (PIDS), during the forum "Financing Infrastructure in the Philippines " held at PIDS.

In the Global Competitiveness Report 2012-2013 of the World Economic Forum, the Philippines is ranked 98th among 144 countries in terms of quality of overall infrastructure. Philippine infrastructure is worse than Cambodia's, Navarro said. Read more

ASEAN has inadequate access to electricity

About 130 million people in Southeast Asia lack access to electricity.

This was revealed by the Philippine Institute for Development Studies (PIDS) in a study by Dr. Adoracion Navarro, a senior research fellow of the Institute, Mr. Maxensius Tri Sambodo of Indonesian Institute of Sciences Economic Research Center, and Mr. Jessie Todoc, Philippines Country Manager of SEA Energy Access and Alternative Energy, International Copper Association Southeast Asia. Read more

PIDS signs MOA with DFA for the Research Project APEC 2015

State think tank Philippine Institute for Development Studies (PIDS) signed a memorandum of agreement with the Department of Foreign Affairs (DFA) for the Research Project APEC 2015 on November 14, 2013 at the Carlos P. Romulo Hall, NEDA sa Makati Building, Makati City. PIDS President Gilberto Llanto and DFA Undersecretary for Administration Rafael Seguis signed for PIDS and DFA, respectively. Under the agreement, DFA will lead in the conduct of the project that will provide the requisite analytical framework for determining the substantive priorities the Philippines will push for as APEC Host Economy in 2015. Meanwhile, PIDS will provide technical expertise in the conduct of the project. Read more

SEMINAR UPDATES

• UNESCAP-PIDS National Launch of the Social Protection Toolbox
  Sponsors: PIDS, UN Economic and Social Commission for Asia and the Pacific (UNESCAP)
  Date: December 5, 2013
  Time: 10:00 a.m.-12noon
  Venue: Carlos P. Romulo Hall, NEDA sa Makati Bldg., Legaspi Village, Makati City
  
  

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