SINGAPORE, Nov. 15 (UPI) -- Although the Philippines has made progress on the macro-economic front, policy progress is slipping and "strong action" is needed get reform back on track, the International Monetary Fund said in its annual consultation report.
Implementation of power sector reform and passage of a bill on asset management corporations have been delayed, which raises questions about whether the authorities' aims can be achieved. Further, fiscal performance has veered away from the programmed path, the IMF said.
Revenue collection was below target during January-August and was essentially unchanged from its year-earlier level; meanwhile, spending was well ahead of last year's pace, the result of the government's conscious decision to front-load expenditures.
Further, the economy has suffered from asset price volatility, which has saddled domestic banks with large and growing problem with non-performing assets.
The IMF noted that these problems, if left unattended, "could trigger a decline in investors' confidence and an adverse market reaction that would affect the country's growth prospects."
The most urgent task was re-establishing fiscal discipline, the IMF said. It urged the country to continue developing a detailed fiscal adjustment plan that contains revenue and expenditure measures aimed at a balanced budget.
Although steps have been taken to improve revenue collection and cut expenditures, more work was needed, it added.
Such measures could be higher tax rates and/or expanding the tax base by reducing exemptions.
On the spending side, the IMF stressed the need to streamline the civil service and increase budget flexibility, so resources could be freed to balance the budget while still meeting the authorities' social and infrastructure objectives.
The IMF also urged Manila to limit the risks of foreign commercial commercial borrowing, which has grown rapidly in recent years, "increasing the country's vulnerability to external shocks."
To minimize this risk, it suggested greater reliance be placed on concessional borrowing and the domestic capital market.
It also encouraged the monetary authorities to keep building international reserves through increased market purchases of foreign currency.
