Thursday, November 1, 2018

DTI-DOF JOINT STATEMENT On the 2019 World Bank Doing Business Survey

The Department of Finance (DOF) and the Department of Trade and Industry  (DTI) unequivocally express their strong objections to the 2019 World Bank Doing Business (DB) report,  which shows a drop in the Philippines’ ranking by 11 notches from 113 (2018) to 124 (2019).

We demand that the World Bank review the Philippines’ rating, and make a correction immediately given our country’s increases in the Ease of Doing Business (EODB) scores, which was, unfortunately, offset by the grossly  inaccurate and understated findings in the Getting Credit indicator of the Report.

This correction should be done soon as the Report could unduly compromise the Philippines’ standing among the investment community and negatively impact the country’s development, considering that this document is widely used as a reference by investors and survey organizations. As a highly respected institution, the World Bank has a responsibility to ensure that an economy is not unduly disadvantaged and that its report reflect the realities on the ground.  

The DOF has submitted a letter to the World Bank challenging the data used in the report. We believe that the World Bank has gotten this one wrong. This is regrettable considering the significant headway made by the Philippines on the other indicators. The Philippines registered a +1.36 increase in the Ease of Doing Business (EODB) score at 57.68 yet received a lower ranking.

While the World Bank has taken governments to task by fostering an enabling environment characterized by efficient business regulations, so must the World Bank exercise responsibility and greater transparency in its methodology.

The Philippines’ drastic slide in the rankings was attributed mainly to the country’s Getting Credit indicator where the EODB score significantly fell from 30 to 5, because of the failure of the World Bank’s survey team to gather the correct information on the country’s credit information database. As a result, the country registered a substantial decrease in the credit bureau coverage (from 8 in 2018 to 2.7 in 2019), and reduced scores on depth of credit information (from 5 to 0).

Considering that higher borrower coverage is associated with larger share of adults with credit cards and borrowing from financial institutions, we find the report grossly inaccurate and the coverage severely understated.  

The Philippines should have obtained a higher score if the World Bank included data from all the credit bureaus—the BAP Credit Bureau Inc., TransUnion Information Solutions, Inc., and Microfinance Information Data Sharing Inc. (MIDAS), to name a few. Instead, it obtained its data only from the BAP Credit Bureau Inc, which has the smallest database of 1.7 million borrower-entrepreneurs. The Philippines could easily have hurdled the 5% coverage, if the World Bank selected the largest credit bureau, as its methodology prescribed. The major credit bureaus with high coverage were included in previous year’s survey.

Moreover, it is ironic that the Philippines’ Getting Credit score slumped from 30 points in the 2018 survey to only 5 points in the 2019 survey when credit is growing year-on-year by 19% mostly to micro, small and medium enterprises, the highest among the ASEAN-5.

Unfortunately, this drop in the EODB Score reflected a 42-notch slide in the Getting credit ranking, with the Philippines now at the bottom tier at 184/190 (from 142).  This is the reason for our very low overall EODB score of 57.68, and contributed to the steep decline in the country’s  overall ranking of 124 (2019), from 113 (2018).

2019 DB performance generally improved

In contrast, the rest of the DB 2019 report for  the Philippines showed the country  posting increases in the EODB scores on 7 out of 10 indicators, namely (1) starting a business, (2) dealing with construction permits, (3) getting electricity, (4) registering property, (5) protecting minority investors, (6) paying taxes, and (7) protecting minority investors, while it retained previous scores on two indicators, namely (1)enforcing contracts and (2) resolving insolvency.

The DTI has been monitoring the Distance to Frontier (renamed as EODB) scores because these scores benchmark economies with respect to regulatory best practices. The DTF/EODB scores assess the absolute level of regulatory performance over time, and measures the distance of each economy to the “frontier.” An economy’s distance to frontier is reflected on a scale from 0 to 100, where 0 represents the lowest performance and 100 represents the frontier.

Accordingly, the DTI simulation shows a much favorable scenario if the Getting Credit scores are adjusted, or remained the same as last year—the Philippines’ EODB score for 2019 should be at least 60 (vs 57.68) and the country’s rank would be in the range of 101-108 (vs #124). Compared with other countries, the Philippines could have fared better with an improvement of at least +5 notches.

Lest we be misconstrued, we recognize that the Philippines needs to improve access to credit information. Borrowers must have the (1) right to access their data, (2) banks and financial institutions must have online access to credit information, and (3) credit scores are offered as a value added service.  Both positive and negative credit information must be reported and the credit registry must have data from retailers, utility companies, telecommunication companies.

We also acknowledge the fact that while instituting significant reforms, we must also let the public become aware of them.

Thus, for the 2020 DB Report, our strategy is  two pronged: One,  we shall continue to pursue regulatory reforms i.e.– streamlining of processes, repeal of outdated/redundant and obsolete rules and regulations that create undue regulatory burden;  and Two, implement an effective communication campaign.

The DTI and DOF, in coordination with other agencies concerned, will launch an aggressive communication campaign in the next three months so that the planned regulatory reforms that the agencies have started to implement will be credited in the 2020 DB report cycle.  

We must, among others:
  • Inform the public about Revenue Memorandum Order 19-2018 and Revenue Memorandum Circular No. 30-2018 issued by the Bureau of Internal Revenue (BIR), which (1) specified that registration of the book of accounts can be done 30 days, authority to print receipts should be given together with the certificate of registration, and (2) reiterated the removal of the requirement to submit books of accounts to be issued a certification of registration, respectively;
  • Inform the clients of QC of the issuance of Executive Order 11, and EO-11A, which created the One-Stop Shop of Quezon City; and
  • Encourage citizens to have the titles digitized.  We must scale up the implementation of the Land Titling Computerization Project, which should convert almost 25 million certificates of title into digital form.

We must also conduct a massive information campaign on the recently enacted Ease of Doing Business/Efficient Government Service Delivery Act, and the Personal Property Security Act which are expected to directly impact the competitiveness ranking.

Table 1. Comparison of Distance to Frontier Scores among the Doing Business Scores for the Philippines

2019 DB Report
2018 DB Report
Getting Electricity
Starting a Business
Paying taxes
Trading Across Borders
Dealing with Construction Permits
Registering Property
Resolving Insolvency
Enforcing Contracts
Protecting Minority Investors
Getting Credit

Reforms Slowly Bearing Fruits But We Must Sustain Our Momentum

Each year, the Government strives to improve ease of doing business by implementing significant reforms that will bring us closer to the frontier. Last year, we have been relatively aggressive in instituting regulatory reforms.  For the 2019 report, the Philippines submitted 18 reforms and 1 data correction, resulting in improvements in the EODB scores in 10 sub-indicators (compared to only 5 in 2018). Unfortunately, not all reforms were considered because as reminded by the World Bank, the Doing Business Report:

  • measures procedures as they occur in practice (de facto) in addition to those required by law (de jure); and
  • that for a reform to be accepted, it must be fully implemented during the period June 2, 2017 – May 1, 2018.

Not all of the reforms submitted were effectively implemented by government, hence most respondents were not aware of these initiatives.  

Confident but never complacent

Since the start of the Duterte administration, government agencies have been hard at work in implementing initiatives to increase the country’s competitiveness.  We believe we are on the right track, and expect upward trajectory in our competitiveness ranking.  And we recognize the efforts of the following agencies that have shown commitment and tenacity:

  • Local Government of Quezon City
  • Securities and Exchange Commission
  • Bureau of Internal Revenue
  • Bureau of Customs
  • Land Registration Authority
  • Bureau of Fire Protection
  • Social Security System
  • Pag-IBIG Fund
  • PhilHealth
  • MERALCO, and the
  • Supreme Court of the Philippines

WEF Global Competitiveness Index for Philippines Improved

We are particularly appreciative that these efforts have started to impact, with the recent jump in the World Economic Forum (WEF) Global Competitiveness Index, up by 12 notches.  We believe that this fairly reflects the impact of the government’s efforts.

The Philippine Government urges the World Bank to immediately correct this error in data gathering, and to prevent such errors from happening in future surveys as well. 

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