MANILA, January 20, 2005 (STAR) By Des Ferriols - The country’s budget deficit hit P186.1 billion in 2004, well below the government target of P197.8 billion, the Department of Finance (DOF) reported yesterday.

The 2004 figure was also P12 billion lower than the 2003 budget shortfall.

Finance Secretary Juanita Amatong said the 2004 deficit was equivalent to 3.9 percent of gross domestic product (GDP), also below the 4.2-percent ceiling targeted by the government.

Revenues increased by 11.4 percent hitting P698.3 billion in 2004, above the 676.5-billion target set by the government, Amatong said.

Expenditures rose seven percent over 2003 to hit P884.4 billion or P10 billion more than the ceiling set by the government.

Amatong said the government’s 2004 performance resulted both from the depreciation of the peso which effectively increased collection of the Bureau of Customs (BOC) and the implementation of administrative measures that improved the collections of the Bureau of Internal Revenue (BIR).

Amatong credited a "sustained vigilance in the revenue effort," for the lower deficit, adding that "improved revenue collections allowed some fiscal space for increased government expenditures."

However, she warned that these positive developments left "no room for complacency," stressing that the government would continue to work to pass crucial revenue measures needed to sustain economic growth.

Bangko Sentral ng Pilipinas (BSP)) Governor Rafael B. Buenaventura for his part said the better-than-targeted budget deficit last year "proves that reforms put in place are effective."

But he cautioned that there are still more work to be done like financial sector reforms and the proposed tax measures.

Despite being able to keep its budget deficit on track, however, the Arroyo administration still got bad marks from credit rating agencies which expressed pessimism that the government would be able to raise the needed revenues to stay on track after absorbing about P200 billion of the debts and obligations of the National Power Corporation.

Fitch Ratings and Standard & Poors downgraded the Philippines one after the other and Moody’s Investor Services is expected to announce another downgrade in mid-February.

"While there have been improvements in fiscal position, that is no longer good enough, moving forwards," said S&P which announced its downgrade earlier this week.

The deficit is the most-watched economic indicator as credit rating agencies and the country’s foreign creditors examine the government’s fiscal performance for any indication of looming crisis.

For this year, the Arroyo administration said its deficit target would be lowered to about P179 billion, anticipating new revenues from its new tax and administrative measures intended to raise collections beginning this year.

However, the added burden from the National Power Corp. was expected to blow a wider gap in the national budget from the original P184.5 billion target deficit to P193.3 billion in 2005.

The 2005 deficit was revised by the Development Budget Coordination Committee (DBCC) yesterday to reflect the impact of the decision made by the Arroyo administration to absorb an initial P200 billion of Napocor’s debts.

According to the DOF, there would be no principal payments in 2005 but the debts that the national government has decided to absorb would generate additional interest payments amounting to P18 billion, about P3 billion more than the original estimate of P15 billion. with reports from Ted Torres, AFP

Reported by: Sol Jose Vanzi

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