PHL protests Ease of Doing Business survey results, demands World Bank review of credit coverage data

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THE Philippines’s ranking plunged 11 notches to 124th among 190 economies in the 2019 edition of the World Bank’s ease of doing business survey, largely due to Manila’s restrictive trade measures, but the government quickly protested its rating, and demanded a review.

In a joint statement, the departments of Trade and Industry and of Finance expressed their “strong objections” to the WB’s Doing Business 2019 report, which dropped Manila to 124th from 113th. In a strongly worded letter, they demanded that the Washington-based lender review the country’s rating and to make corrections immediately.

“This correction should be done soon as the report could unduly compromise the Philippines’s 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 joint statement read.

The Philippine government has transmitted to WB a letter challenging the data used in the report. The world’s largest lender reportedly got it wrong, according to Manila, as the country made “significant headway” on EODB indicators.

“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 joint statement read.

Flawed data gathering

According to the report, the Philippines made strides in a couple of indicators, particularly on starting a business, dealing with construction permits and protecting minority investors. However, the survey took note the country raised its tax registration costs and made trading across borders more difficult by increasing the number of import regulations.

Manila, for its part, contested its score of 5 on getting credit, which resulted in the country placing 184th on this indicator. “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 joint statement read.

The Philippines, said the DTI-DOF, should have received a higher score if the WB included data from all the credit bureaus—the BAP Credit Bureau Inc., TransUnion Information Solutions Inc. and the Microfinance Information Data Sharing Inc.

The government accused the WB of obtaining figures only from the BAP Credit Bureau Inc., which reportedly has the smallest database of 1.7 million borrower-entrepreneurs.

“The Philippines could easily have hurdled the 5 percent 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,” the joint statement read.

Manila argued if the scores are adjusted, particularly on getting credit, the country should have scored at least 60—and not 57.68—putting it in the range of 101st to 108th.

“Compared with other countries, the Philippines could have fared better with an improvement of at least five notches,” the joint statement read. The Philippine government, though, recognized the country still needs to improve on a number of EODB indicators, including access to credit information.

Second year

This was the second consecutive year the Philippines’s ranking fell in the annual survey that assessed economies according to their ease of doing business. The country placed 113th in the 2018 cycle, which was also a decline from its 99th place finish in the 2017 edition.

The Philippines improved its score by 1.36 to 57.68, but was unable to keep up with the large number of reforms on doing business implemented by its Asian counterparts. Malaysia, for one, rolled out six reforms, including streamlining the process of obtaining a building permit and introducing an online registration system for the goods and service tax.

Indonesia and Vietnam enforced “doing business” measures centered on easing the procedures for starting an enterprise, registering property and improving access to credit. Vietnam improved its laws on contract enforcement, tax payment and starting a business.

The report counted three reforms from the Philippines: on starting a business, dealing with construction permits and protecting minority investors. However, its import regulations, according to the survey, overshadowed the gains it made on EODB.

“The Philippines made starting a business easier by simplifying tax registration and business licensing processes. At the same time, the Philippines increased tax registration costs,” the report read.

“The Philippines improved risk management practices in the construction sector, with latent defect liability insurance now commonly obtained by industry players,” it added.

The World Bank report noted that the Philippines also strengthened minority investor protections by increasing shareholders’ rights and role in major corporate decisions and clarifying ownership and control structures.

However, the Philippines made trading across borders more difficult by increasing the number of inspections for importing, thereby, increasing the average time for border compliance, according to the report.

The Philippines ranked 166th in starting a business; 94th in dealing with construction permits; 29th in getting electricity; 116th in registering property; and 184th in getting credit. It landed 132nd in protecting minority investors; 94th in paying taxes; 104th in trading across borders; 151st in enforcing contracts; and 63rd in resolving insolvency.

The country placed seventh among the 10 Southeast Asian economies, as Singapore (second), Malaysia (15th), Thailand (27th), Brunei Darussalam (55th), Vietnam (69th) and Indonesia (73rd) took the lead once again for the region.

The government is banking on the recently passed EODB law to improve its placing in competitiveness reports. The law seeks to cut red tape in the bureaucracy to simplify business transactions with state agencies.

Below, the full text of the 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

  Indicator 2019 DB Report 2018 DB Report Difference
1 Getting Electricity 87.45 84.31 3.14
2 Starting a Business 71.97 68.88 3.09
3 Paying taxes 71.80 69.27 2.53
4 Trading Across Borders 69.90 69.39 0.51
5 Dealing with Construction Permits 68.58 66.84 1.74
6 Registering Property 57.56 57.55 0.01
7 Resolving Insolvency 55.22 55.22 0
8 Enforcing Contracts 45.96 45.96 0
9 Protecting Minority Investors 43.33 40.00 3.33
10 Getting Credit 5.00 30.00 -25.00

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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