(STAR) By Des Ferriols - Despite renewed interest from multilateral and bilateral fund donors, the Arroyo administration said it would hold back on official development assistance (ODA).

Finance officials told reporters that economic planners are still concerned about the sustainability of the governmentís fiscal consolidation program and did not want to overburden the national budget with fresh borrowings.

Finance Secretary Margarito B. Teves said balancing the budget by 2008 is a critical milestone but paring down the government debt is being watched by credit rating agencies as well.

"We donít want to borrow too much, even if ODA sources are willing to lend again," Teves said. "We have critical projects that need funding but that would put weight on our budget again."

"We have to be very careful, now more than ever," he said.

According to Teves, balancing the budget for the simple sake of balancing the budget would not ensure the sustainability of fiscal prudence and consolidation.

The government has assumed a budget shortfall of P125 billion for 2006, equivalent to 2.1 percent of gross domestic product (GDP). By 2007, this deficit is programmed to drop to P63 billion and finally to less than P100 million by 2008.

According to Teves, it is not surprising that ODA sources would be eager to return to lending to the Philippines but said even these institutions are very carefully weighing their options.

Multilateral ODA donors such as the Asian Development Bank (ADB) and the World Bank (WB) are both interested in revenue-related programs ranging from tax administration to anti-corruption projects that would ensure a steady, if not maximum flow of government revenues.

Ensuring the sustainability of government revenues meant that there would be less pressure to adjust the current tax levels in the near future which would add more burden on the economy.

Teves said the government itself needed to establish credibility among ODA donors to show that it would be able to get funding as well as spend it.

Absorption has been a perennial problem of the governmentís line agencies, often incurring huge cost overruns due to their inability to spend funds in the rare times that they get them.

"We have to be able to say that we are able to do it at the leadership and operational levels," Teves said.

The Arroyo administration has been able to generate four monthly budget surpluses and this has been due to the constraints of the re-enacted 2005 budget and, alarmingly, the inability of line agencies to spend.

Teves said budget and finance officials have not closed the book on the absorptive problems of the bureaucracy despite the steps already taken by the Department of Budget and Management which are intended to unclog the congestion in public spending.

"We need to look at that closer, we need to make sure this is not going to be a systemic and perennial problem that would only erode the impact of the increase in public spending," Teves said.

The Arroyo administration has been on a surplus since April as government spending slowed down dramatically in the absence of a new budget for 2006 which forced line agencies to hold back on programs and project spending.

The combined effect of low public spending and the increase in taxes created enough room for three consecutive months of budget surpluses except in July when the government reported a P17-billion deficit.

Chief News Editor: Sol Jose Vanzi

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