THE government has abandoned its bid to a balanced budget and instead will allow its financial plans to run a deficit of up P75 billion, or about 1 percent of the gross domestic product.

The decision was prompted by a slew of developments, primarily the US economic slump as a result of the subprime woes and runaway oil prices.

Thus, the Arroyo government will try to spur economic activity by spending more than it can afford this year in the hope that deficit spending will, in the end, pay off and allow for a balanced budget by 2010.

Finance Secretary Margarito Teves acknowledged the policy toward a balanced budget no longer holds, and that the Cabinet-level Development Budget Coordination Committee (DBCC) gave the government the go-ahead to spend beyond the original program.

Teves, who spoke to reporters during the business forum hosted by Sterling Bank Wednesday at the Oriental Mandarin Hotel, said the government is also prepared to turn once again to the overseas credit market and borrow up to $750 million to help underwrite the deficit.

He told reporters the decision was prompted by the need to spend more for infrastructure and still have plenty left for the delivery of social services, especially for the poor.

“But the revenue target this year remains sacrosanct,” Teves said of the anticipated P1.236 trillion in collections programmed for 2008.

According to Teves, the DBCC decision was prompted by “the need to spend more for the poor” who have been hardest hit by the sharp and continuing increases in food and non-food prices.

“It’s a planning figure, meaning we will try to lower it….” said Budget undersecretary Laura Pascua in another interview at the end of the committee.

“But due to developments, and our desire to be able to provide the expenditure requirements for infrastructure, social services and agriculture production, we are looking at the possibility that the  deficit will reach up to 1 percent of GDP,” she said.

The new assumptions mean the government will increase spending by P90 billion more this year, part of which will be coming from oil value-added tax proceeds and a large chunk from foreign sources of funds, Pascua added.

The finance secretary said there are “external imperatives” forcing the government to push forward the goal of balancing the budget not this year but to 2010 instead.

The P75 billion is “the limit of the projected deficit,” Teves stressed.

As for foreign borrowings, Teves said it was also possible for them to tap quick-disbursing official loan sources should this prove more attractive than commercial borrowings.

Official development assistance, or ODA packages of some $1.5 billion were previously programmed this year. Less than $500 million have so far been tapped at this point.

The committee also lowered its GDP growth forecast for 2008 to 5.7 percent to 6.5 percent. The new targets compare with the previous growth assumptions of 6.3 percent to 7 percent, when the country’s economic managers met last December.

With the new plan, the government reverted to a previous blueprint for a balanced budget before President Arroyo steps down from power in 2010, said Pascua.

Teves also said they failed to launch the planned pump-priming in the first three months and anticipate catching up on it in the second quarter.

“The constraints to pump-priming was not due to the lack of revenues but more on the utilization of available resources.

“I must emphasize there will not be a compression of expenditures this year, particularly as we expect to generate a windfall of around P18 billion from the value-added tax on oil,” Teves said.

The national government is targeting a collection of P1.236 trillion for the year. Of the figure, the Bureau of Internal  Revenue  would account for P844.95 billion, or 76 percent, of the budget, the Bureau of Customs for P254 billion, the Bureau of Treasury for P57 billion and  other offices for P80 billion, of which P30 billion will come from proceeds of the privatization effort.

The DBCC, composed of the  Department of Budget and Management, the Department of Finance, National Economic and Development Authority and Bangko Sentral ng Pilipinas (BSP), may have to meet again after the central bank has deferred its take on the inflation forecast since a policy meeting is calendared for June 5.

Pascua said the BSP is still discussing whether to adjust its 4-percent to 5-percent inflation forecast and Dubai crude assumptions $99 per barrel on average for the year. (With reporting by VG Cabuag)

THE government has abandoned its bid to a balanced budget and instead will allow its financial plans to run a deficit of up P75 billion, or about 1 percent of the gross domestic product.

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