The Department of Finance (DOF) said the government should continue adapting fiscal reforms as tax collections begin to recover in the first three months of the year following the unprecedented spending last year due to the pandemic.

Based on the latest DOF economic bulletin, Finance Undersecretary Gil S. Beltran said the government’s tax collection effort improved by 0.44 percentage point in the first-quarter of the year to 14.41 percent from 13.96 percent a year earlier.

Tax effort is the ratio of tax collected in relation to the domestic economy, which is measured in terms of gross domestic product (GDP).

Beltran attributed the increase to fiscal reforms adopted by the Duterte administration, which boosted the tax effort to its highest first quarter level in history.

“These reforms made the country one of the few emerging economies to maintain investment grade rating and avoid a credit rating downgrade which would have pushed up interest rates and delayed nascent economic recovery,” Beltran said.

However, the finance official maintained that the country should continue to adopt fiscal reforms, particularly tax reforms still pending in Congress, to sustain these fiscal gains.

“Due to fiscal reforms, the country was able to fund the unprecedented fiscal requirements imposed by the pandemic and, at the same time, protect its strong macroeconomic fundamentals,” he said.

At end-March, the Bureau of Internal Revenue, the government’s tax main agency, registered a tax-to-GDP ratio of 10.81 percent, slightly higher than 10.54 percent in the same period last year.

The Bureau of Customs also improved its tax-to-GDP ratio at 3.43 percent, an increase compared with 3.27 percent a year ago.

Meanwhile, the government’s revenue effort slid by 1.14 percentage points in January to March from 17.16 percent to 16.03 percent.

However, expenditure effort of the national government rose by 4.32 percentage points to 23.42 percent in the first-quarter from 19.10 percent.

“The historic growth in expenditures led to a higher NG deficit that settled at 7.4 percent of GDP, likewise the highest first quarter deficit in the postwar period,” Beltran said.

The Philippines shrunk deeper into recession in the first-quarter of the year, the nation’s longest downturn since the foreign debt crisis in the 1980s.

The local economic output declined by 4.2 percent at end-March, worse than the 0.7-percent contraction in the same period last year, but better compared with the 8.3 percent drop in the first three-months of 2020.