The Asian Development Bank (ADB) warned yesterday that the Philippines could face economic instability unless it tackles its growing budget deficit and improves revenue collection.
The bank said despite moderate growth in recent years, averaging 4.7 percent to 5.7 percent, unemployment remains high and investments have faltered as the deficit, projected at 197.8 billion pesos (US$35 billion) this year, hampers higher growth rates.
"The grave fiscal situation -- caused mainly by weak revenue mobilization -- dominates macro-economic management and, if not urgently addressed, has the potential to cause economic instability," ADB country director Thomas Crouch and economist Xuelin Liu said in the bank's annual economic review.
The ADB joined economists and international credit rating agencies in raising concern over the country's growing debt of 3.36 trillion pesos and the govern-ment's ability to push through tax reform measures needed to narrow the fiscal gap.
While the ADB said Manila will achieve its budget deficit target for this year, it noted that the country remains susceptible to international interest rate hikes and poor market sentiment due to its increasing reliance on borrowing money to finance development spending.
President Gloria Macapagal Arroyo has envisaged a balanced budget by 2010 through eight tax measures that would raise an additional 80 billion pesos and steps that would yield another 100 billion pesos a year.
``Things are looking up in the economy,'' Arroyo said yesterday, noting 6.3 percent growth in the third quarter of this year. ``We will push this higher and do better in 2005.''
Meanwhile, the Senate announced yesterday that it had passed a bill raising taxes on tobacco and liquor products -- the first step in Arroyo's effort to control the budget deficit and debt levels. The so-called "sin tax" will generate 18 billion pesos in revenues by next year, Senate President Franklin Drilon said.
The "sin tax" law is the centerpiece of eight tax measures sought by Arroyo to enable the government to avoid a debt default in three years.