S&P RATINGS:  ADDITIONAL  GOVT  REVENUES  NEEDED  FOR  RP RATNG UPGRADE

MANILA, MAY 30, 2007
(BULLETIN) By LEE C. CHIPONGIAN - Standard & Poor’s Ratings said the "stable" outlook on Philippine ratings could be upgraded to "positive" if the government will produce additional revenue measures to fuel economic growth.

"The outlook on the ratings could change to positive if additional revenue measures are forthcoming early on in the life of the new Congress—including the passage of existing fiscal initiatives that are currently stranded in the legislature," S&P credit analyst Agost Benard said.

"Conversely, the outlook on the ratings could again come under downward pressure in the event that fiscal correction is endangered by stalling reforms," Benard said. "This would make the government’s balanced budget goals unattainable and/or necessitate continued expenditure compression at the expense of future growth prospects."

S&P yesterday assigned a "BB+" senior unsecured rating (foreign currency BB-/Stable/B, local currency BB+/Stable/B) for the new three- and five-year benchmark bond issues worth P55 billion and P58 billion, respectively. The new bonds, launched in February, will mature in 2010 and 2012 and carry interest rates of 5.5 percent and 5.75 percent. The bonds are part of the government’s efforts to "consolidate a multitude of illiquid bonds into large benchmark issues, thereby deepening the local currency government debt market," said S&P.

The National Government had a budget surplus of P12 billion for the month of April because there was under spending in the weeks before the elections last May 14. The NG basically frontloaded its spending in the first quarter ahead of the rainy season in the second half and before a 45-day ban on project approvals before the elections.

Finance Secretary Margarito B. Teves said earlier that there is a need to go beyond the program revenues for May and June of P189.4 billion to get to the final tally by the end of the year. This means collecting P10 billion more than P189.4 billion. "Assuming May and June tax collection will amount to more than that – then we can get to our P31.3 billion deficit program for the second quarter."

For the second quarter Teves said they need to collect P302.2 billion and spend P287.6 billion. By the third quarter, the NG is targeting a deficit of P22.7 billion and about P9 billion in the last quarter of the year.

The government fiscal program this year includes collections of total tax revenues of P1.118.8 trillion, or 16.7 percent of GDP. Tax revenues – or taxes that will be collected by the Bureaus of Internal Revenue and Customs are programmed at P1.003.1 trillion.

The International Monetary Fund said achieving the P63-billion budget deficit target "may require new tax measures," and failing to do that, it is recommending that officials bring the program deficit higher. New tax measures would include the rationalization of tax incentives

In addition, the IMF said more efforts is required at reducing tax incentives and raising and indexing excise taxes to inflation, as potential source of new revenues. "(The) early announcement of tax measures for the 2008 budget would help to convey (government’s) commitment to continued fiscal consolidation." Congress have yet to pass the fiscal incentives rationalization bill to cut perks – such as tax breaks, given to industries.

"Over the medium term, balancing the budget will require new tax measures," the report said. It added that increasing tax effort by 2 ½ of GDP is also crucial over the medium term to balance the budget next year.


Chief News Editor: Sol Jose Vanzi

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