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NEWS UPDATES 16 July 2009

Philippine rejects WB’s suggestion to raise oil taxes

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The Philippines on Wednesday brushed off a World Bank suggestion that it raise oil taxes to shore up revenues, saying it did not wish to hit people in the pocket amid a slowing economy that has already crimped consumer spending, AFP reported.

Raising oil taxes “will have a dampening effect on the economy since higher prices will discourage consumer spending,” Socioeconomic Planning Secretary Ralph Recto said in a statement.

“We do not believe that a further [oil] tax increase should be a priority in the short term,” he added.

The World Bank also on Wednesday said that it had increased development aid to the Philippines by almost a third, with an eye on easing the burden of high food costs on the country’s poor.

The bank will lend $320 million for fiscal year 2009, an increase of 31 percent from the previous year. Its fiscal year starts July 1.

It said that $200 million of that development aid will support the national budget in stabilizing over the short- and medium-terms the price of rice, the staple food, a year after export prices surged to near 30-year highs.

The aid package also includes $70 million to improve irrigation services and $40 million to help provide electricity to the southern region of Mindanao.

Repayment terms were not disclosed.

Latest government data show that 32.9 percent of the country’s 90 million population earn 312 peso (85 US cents) a day. The National Statistical Coordination Board estimates at least 53 percent of that would have to be spent on food.

At the same time, the World Bank hinted that it was looking beyond the May 2010 elections as it came up with a new Country Assistance Strategy for 2010 to 2012 for the Philippines, saying that it was expecting to work with the government, apparently, under the new leadership. Next year’s polls will pick President Gloria Arroyo’s successor.

“From fiscal year 2010 until 2012, [we are] looking forward to working closely with the government in strengthening macroeconomic stability, improving the investment climate and improving public service delivery,” World Bank Country Director Bert Hof¬man said also in a statement.

With the theme “Making Growth Work for the Poor,” the new Country Assistance Strategy covering fiscal year 2010-2012 was designed to help the Philippines address poverty and promote good governance.

The World Bank, which sees the economy contracting this year, said plunging revenues could “jeopardize” a government spending package aimed at boosting growth, or lead to large deficits, or both.

It urged Manila to “consider further desirable revenue measures, such as raising gasoline excises.”

It noted in its latest country report that the Philippines is “lightly taxed by international standards for an oil-importing country” with a specific excise tax rate of 4.35 peso (nine US cents) a liter that has been “fixed in nominal terms since 1996.”

The Philippines budget deficit soared 556.2 percent year-on-year in the first five months to 123.2 billion peso ($2.56 billion) on increased spending to stave off recession after economic growth slowed to 0.4 percent in the three months to March.

The World Bank and the International Monetary Fund had cited the gross domestic product (GDP) growth of only 0.4 percent in the first quarter of 2009 as evidence of a slowing economy. GDP is the total value of goods and services produced in a country in a year.


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