The Philippines got a favorable score in terms of fiscal transparency, but there are still gaps that needed to be addressed, the multilateral lender International Monetary Fund (IMF) said, citing its latest report.
“The government’s public financial management reform strategy has helped initiate a wide variety of reforms, which are beginning to bear fruit,” the IMF said in its Fiscal Transparency Evaluation report for the Philippines.
Against the 36 principles of the IMF’s draft Fiscal Transparency Code (FTC), the Philippine evaluation is broadly favorable, as in the country is “advanced” in seven principles, “good” in 16, and “basic” in eight.
These indicators range across the three pillars of the FTC that include fiscal reporting, fiscal forecasting and budgeting, and fiscal risk analysis management.
“Overall, the country complies with generally good practices across all pillars, although with several areas for improvement in each of them,” the report read.
The IMF said fiscal reporting in the Philippines is relatively comprehensive, frequent and timely, with many areas of good and advanced practices.
The coverage of stocks and flows in public sector units is well-developed, but there is a lack of consolidated data that covers the public sector and as a whole.
One of the recommendations of the IMF is for the government to strengthen the executive branch in terms of its capacity to consolidate and report fiscal data and statistics.
“This could entail establishing a centralized data compilation unit in one of the central fiscal agencies and introducing a specific legal basis for the compilation, verification and dissemination of fiscal statistics,” it said.
The fiscal forecasting and budgeting are generally good, with several recent improvements, especially regarding fiscal policy objectives, performance orientation, public participation, and the comprehensiveness and orderliness of the budget, the report noted.
However, the budget’s credibility has been undermined by the complexity and flexibility of the annual budget framework in the sense that the principle on the supplementary budget is not rated, it said.
In the area of fiscal risk analysis and management the Philippines is relatively strong compared to other countries as reflected in the publication of a comprehensive Fiscal Risk Statement with a relatively comprehensive collation of risks that could affect public finances, the report noted.
Still, the IMF said improvements are needed in a few areas to capture the risks from guarantees and public-private partnerships and assess the scope of tax expenditures while introducing a longer-term perspective in analyzing fiscal sustainability.
Addressing the gaps
The Philippine government acknowledges the need to resolve some longstanding issues in the practice of fiscal management.
“From the DBM’s [Department of Budget and Management] point of view… we need to strengthen budget planning so that the National Budget can properly support our growth and development targets,” DBM Secretary Florencio Abad said.
As a government priority, enhancing fiscal transparency stands as one of the four pillars in the Philippines Cebu Action Plan for inclusive and sustainable economies under the auspices of the Asia-Pacific Economic Cooperation (APEC) Finance Ministers’ Process, Finance Secretary Cesar Purisima noted.
Some of the gaps identified by the IMF have been addressed, according to the Philippine government.
For example, agencies now prepare their own Annual Financial Reports for the Commission on Audit, it said.
The Department of Finance has released its Tax Expenditure Report for 2011, which addresses the issue of transparency in income tax incentives and other tax expenditures. This was done early this year.
The Development Budget Coordinating Council annually releases the Fiscal Risk Statement, which includes information on government guarantees.