APRIL 23, 2009
(STAR) By Des Ferriols - Accelerated spending and weak revenue collection pushed the country’s budget deficit to P52.6 billion in March, almost triple its level in the same month last year, the Department of Finance (DOF) reported yesterday.

The March deficit was the highest monthly deficit ever, the DOF said. The closest level was recorded in January this year when it hit P38.05 billion.

The latest figure brings the fiscal shortfall for the first three months of the year to P119.7 billion, already nearly two-thirds of the government’s revised full-year estimate of P199.2 billion or 2.5 percent of gross domestic product (GDP).

The first-quarter deficit was also higher than the P110-billion target for the period.

The government has been frontloading spending to overcome the slowdown in the economy, which it also blames for poor revenue collection.

Finance Secretary Margarito Teves said the fiscal program was adversely affected by the decline in revenues that reached only P235.4 billion; P16.4 billion lower than the P251.8-billion target.

More than missing the first quarter target, Teves said revenues actually declined by 7.2 percent compared with the actual collection recorded last year. Teves said the decline in revenues was a result of a slowdown in the economy that affected major revenue sources.

The Bureau of Customs (BOC) reported recently that it was P5 billion short of its P51-billion collection goal for the first quarter due to sluggish imports. The BOC accounts for a fifth of the government’s total revenues.

In January and February, government revenues retreated by 5.5 percent to P159.4 billion as the tax take of the Bureau of Internal Revenue, the country’s main revenue-generating agency, fell 4.6 percent to P102.6 billion while that of the BOC dropped seven percent to P28.3 billion.

“The problem really is with the revenue collections, certainly the January-February numbers were very soft even looking through the revised numbers,” said Nicholas Bibby, regional economist at Barclays Capital.

Bibby said the government would likely exceed its deficit ceiling this year.

“If we do see an improved economy through the second half of the year, the government may be able to scale back some of the spending in order to meet the target but certainly there is a risk that we could see the target being breached. I would say three percent of GDP (under a worst case scenario),” he explained.

Earlier, Socio-economic Planning Secretary Ralph Recto said the 2009 budget gap could widen to as much as P257 billion or about three percent of GDP if tax collections fall short of target and the government fails to sell some assets.

The government has revised its 2009 budget deficit target thrice since late last year, when it originally set a goal of P40 billion. This was raised to P102 billion, then to P177.2 billion, then to P199.2 billion recently.

The government earlier planned to balance the budget by 2010, but has pushed that goal back.

The Philippines expects to increase its foreign borrowings this year to P174.9 billion ($3.6 billion) from the previous estimate of P147.4 billion to plug the ballooning budget deficit, according to National Treasurer Roberto Tan.

Tan told reporters the government has adjusted its borrowing mix this year to 72-28 percent in favor of local debt from 75-25 percent previously.

The government wants to source more cheap funds from multilateral development lenders this year but it cannot rule out possible overseas debt issues, Tan said.

IMF downscales 2009 growth projection for RP to zero By Des Ferriols Updated April 23, 2009 12:00 AM

MANILA, Philippines - The International Monetary Fund (IMF) has revised its growth projection for the country for this year from 2.25 percent to zero, with remittances from overseas Filipinos actually declining by 7.1 percent.

Faced with the worst global recession since the Great Depression, the IMF said the Philippines is still in a good position to weather the storm, due in part to its strong fiscal track record.

The IMF said in its latest World Economic Outlook (WEO) that the country’s economy, measured as gross domestic product (GDP), would drop to zero this year because of declining trade and spending.

IMF resident representative Dennis Botman told reporters in a press conference late yesterday that revision in the country’s growth projections would have to be viewed in the context of the global economic recession.

World growth declined by 6.25 percent in the fourth quarter of 2008 and the IMF said it expected a similar decline in the first quarter of 2009, with emerging economies retreating by four percent.

Botman said world growth is projected to decline by 1.25 percent this year – the first decline since the Second World War and by far the deepest global recession since the Great Depression.

“The revision (in the Philippines’ growth outlook) reflected the prospect of a significant contraction in exports and imports and a weakened outlook for remittances which we now anticipate to decline by 7.5 percent in 2009,” Botman said.

Before the revision, Botman said the IMF projected zero growth in remittances this year, indicating that the inflows would match last year’s total inflow of $16.4 billion.

But Botman said the projection for the remittances was “highly uncertain” because remittances have often proved more resilient than anticipated.

Overseas workers send money home to their families depending on how much they need and if prices are low and consumption is declining anyway, the amount would tend to also decline.

Botman said the IMF expected private consumption to remain robust and grow by 2.7 percent – slower but still positive. He said the increase in public spending also indicated that public consumption would make a contribution.

“The recent announcement to increase the deficit target to close to three percent of GDP is appropriate and provides an upside risk to our growth projections while not affecting investor confidence,” Botman said.

Because of these factors, Botman said the IMF expected the Philippines to avoid a recession this year and start posting a modest but delayed recovery in 2010.

Overall, Botman said the growth outlook is still uncertain and certain factors would prove helpful, like the fiscal stimulus and the recent uptick in remittances.

The IMF said actions so far taken by the government were expected, such as increasing fiscal spending to finance a stimulus program as well as raising insurance cover.

The IMF said the key concern was a deeper and longer recession in advanced economies outside Asia.

The IMF said this could further reduce trade and could impact heavily on exports, investments and growth.

In addition, the fund said further deterioration in global financial conditions might further tighten financing.

The IMF said this would hurt financial and corporate sectors in the region and the impact of external shocks could be worse than originally expected.

The IMF had already downscaled its economic growth projections once this year, after its Article IV review. It went down from its 3.5-percent estimate in November last year to only 2.25 percent.

At the time, the IMF said the Philippines still had “considerable room” for monetary easing that would stimulate growth, especially if done in tandem with a calibrated increase in fiscal spending.

But in the latest WEO, the IMF said the Philippines’ fiscal flexibility has narrowed because of huge debts that could be made worse by higher deficit spending and higher borrowing.

The IMF said it saw growth slowing down even further than originally expected, mainly because of the easing of demand in the country’s major export markets.

The Article IV review is IMF’s annual examination of all its members to determine their macro-economic status. The Fund completed its review mission to the Philippines last January.

The IMF also sees remittances from overseas Filipino workers growing by two percent this year – dramatically lower than the double-digit growth rate seen in the last decade.

The IMF earlier expressed satisfaction over the strengthening of the financial sector, a development the IMF said would enable banks to better withstand the impact of the economic slowdown.

While it called BSP’s monetary easing “appropriate” in the light of receding inflation pressure, the IMF said the government should consider raising its tax effort to finance the planned increase in public spending.

“Given the still-high level of public debt, there should be a measured fiscal stimulus to avoid compromising fiscal sustainability and policy credibility,” the IMF said. “To provide more scope for fiscal easing and outlays on well-targeted pro-poor cash transfers, Directors suggested raising the tax collection effort, broadening the tax base, and rationalizing tax incentives.”

Chief News Editor: Sol Jose Vanzi

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