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NORMALLY
liberal in its comments on the country’s economic
performance, the UK-based Fitch Ratings has strong
doubts on the government’s ability to limit the budget
deficit within P63 billion this year, saying its near
doubling to more or less P125 billion was more likely.
It is
Fitch’s harshest comment yet since first putting the
country under regular economic surveillance in July
1999, when the sovereign began tapping the European
credit market for loans.
Since
then, about a third of the country’s foreign exchange
reserves have been denominated in euros, the European
Union’s single currency.
Fitch’s
Asian unit said it was “disappointed” by Manila’s fiscal
outturn in the first half, the same period when local
output, measured as its gross domestic product, was seen
to have accelerated to 6.5 percent.
In
contrast, tax revenues for the period grew by only 2.7
percent based on data supplied by the Department of
Finance.
“In our
view, optimism regarding revenue prospects in the short
term is unwarranted, since various measures to improve
tax collection and reduce evasion have been in place for
some time, without meaningful results,” Fitch analyst
James McCormack said.
“With
real economic growth expected to have averaged about 6.5
percent in the first half of the year, the 3.4-percent
increase in tax receipts was rather poor,” he noted.
This
made it imperative “for government revenues to increase
if public spending were to be met without incurring
additional debt,” McCormack said.
Without
significant improvement in this area, “it will be
impossible for the Philippine government to implement
its ambitious, and much-needed, infrastructure
development program,” McCormack said.
Finance
Secretary Margarito Teves, in reaction, said in an
e-mail there will be no expenditure cuts just to keep
the lid on the deficit no matter that revenue flows
proved weaker than anticipated.
“The
Philippine government remains confident that it will be
able to attain its budget deficit target of P63 billion
[equal to 0.9 percent of GDP] this year by intensifying
revenue raising efforts and not through expenditure
cuts,” Teves said.
He noted
Fitch did not factor forecast proceeds from the sale of
government assets of more or less P100 billion to help
underwrite this year’s public spending program reaching
P1.18 trillion against revenues of only about P1.12
trillion.
“Both
the Bureau of Internal Revenue [BIR] and the Bureau of
Customs [BOC] have stepped up their collection efforts
to boost revenues. The BIR is hoping to recover P20
billion of its shortfall in the first half while the BOC
has committed to wipe out its P13-billion shortfall,”
Teves noted.
He also
said the agencies are expected to benefit from
technology-based projects to be implemented in the
coming months.
The BIR
will start carrying out by August two intelligence
technology projects, the Revenue Watch Dashboard and LGU
Revenue Assurance, that will enhance transparency and
tax-collection efficiency.
The BOC,
on the other hand, will pilot the use of fuel marking
technology in Subic and Clark, both special economic
zones, to curb oil smuggling.
Teves
was relieved that the Fitch report ruled out the
likelihood of a credit downgrade that would have grave
consequences on the country’s creditworthiness as a
whole.
“Perhaps
most importantly from a rating perspective, the increase
in the 2007 national government deficit is not
sufficient to reverse the trend of declining government
debt ratios. Philippine debt dynamics are favorable in
2007, and are likely to remain so in 2008 and 2009.
Strong GDP growth, a sizeable primary surplus and a
stable or appreciating exchange rate will ensure the
government’s debt/GDP ratio continues to fall this
year,” McCormack said in his report. |
