Duterte’s Plan wins plaudits from IMF

GOVERNMENT pledges to undertake structural reforms, such as liberalising foreign investment and land use, will help catalyse the effects of higher Government spending . . . 

MANILA — The Philippine’s newly-elected President, Rodrigo Duterte, has outlined a 10-point reform agenda.

According to the International Monetary Fund (IMF), if implemented expeditiously, it could lift the country’s growth potential to 7-8 per cent over the medium term, turning it into one of the fastest — if not the fastest — growing economy in the world when it comes to poverty reduction.

Duterte has acknowledged that he knows
little about economic management, and has quickly moved to appoint the best brains to the task. Much of the implementation of his programme will fall on Carlos G. Domingue, Secretary of Finance, Benjamin E Diokno, Budget Secretary, and Ernesto M. Pernia, Socio-
economic Planning Secretary .

The Philippine media has reported favourable comments from business on these and other appointments, which include Amando M. Tetangc to run the central bank (Bangko Sentral ng Pilipinas), Ramon M Lopez, Secretary of Trade and Industry, and Arthur P Tugade,
Secretary of Transport.

Duterte, who claims outsider status and stresses his affinity with the poor, has attracted attention in the lead-up to and since the
election, primarily for his emphasis on law and order. The media has focussed on his tough-man image, and played on his claims that he would have no compunction in having serious criminals, especially drug lords, executed.

Duterte comes to office at a good time
economically, as the Philippines has enjoyed steady growth under his predecessor, Noy Noy  (Benigno) Aquino, who left office on June 30.

 In a preliminary note on the Philippines, the IMF’s team writes that Duterte’s 10-point
reform agenda will anchor policy formulation and structural transformation over the medium term. His agenda covers foreign investment, tax reform, infrastructure development and family planning for the very poor.

The IMF says: “Given the large infrastructure and social needs and ample fiscal space, we support raising the national Government budget deficit to 3.0 per cent of GDP over the medium term, consistent with a broadly stable debt-to-GDP ratio.”

It says it encourages a comprehensive and equitable tax reform package that raises substantial additional revenue to finance higher productive spending that would bring in
private investment. “A higher revenue and productive spending scenario of about 3.0 per cent of GDP with expeditious implementation of the 10-point reform agenda would raise the IMF staff’s baseline growth outlook of about 6-7 per cent to a 7-8 per cent range over the medium term,” it says.

“This additional effort scenario would help reduce poverty towards the Government’s
ambitious target.”

The IMF notes that the Duterte Administration intends to bring in a comprehensive tax reform package which simplifies the personal income tax (PIT) rate structure, indexes tax brackets for inflation, and eliminates same
exemptions. It will raise the relatively low revenue ratio by offsetting higher excises on fuel and rationalising VAT exemptions and excises on sweetened beverages.

The package could also include simplifying and reducing the corporate income tax (CIT) rate structure, while simultaneously rationalising tax incentives.

A key take-away is that the new Government’s plan to spend on infrastructure, including in areas that have not benefitted from such investment in the past, should help create jobs and make growth more inclusive.

Government pledges to undertake structural reforms, such as liberalising foreign investment and land use, will also help catalyse the effects of higher Government spending.

As well, the new Government aims to
increase competition in the crucial transport, logistics and telecoms sectors.