FEBRUARY 3, 2007 (STAR) By Aurea Calica - The prospects of having a balanced budget by next year would clear the way towards an "economic home run," making the Philippines "shine in the eyes of investors" and "break the shackles of the debt cycle," President Arroyo said yesterday.

"A balanced budget heightens the signals to the world that the Philippines is seriously back in business; and we are marking gains ahead of schedule," she said.

Mrs. Arroyo noted the country’s budget deficit shrank in 2006 to P62.2 billion, the lowest in eight years and the third year in a row that the shortfall was smaller than target.

The President commended the revenue collection team and the people who rallied behind the goals to boost the public coffers, cut spending and curb graft.

"Closing the gap also means pouring the money where it works most to improve productivity and to dent poverty," Mrs. Arroyo said.

She added the "welfare of the average Filipino is at the core" of a balanced budget, which would also drive a strong market, generating investments and jobs.

She stressed a balanced budget would also enhance economic diplomacy and political stability in the long term.

Finance Secretary Margarito Teves said a combination of good revenue collection and lower than expected expenditure had allowed the government to perform better than its target.

The government had estimated last month that the 2006 deficit was P60 to P65 billion, half the initial target of P125 billion. The 2005 shortfall was P146.5 billion.

The 2006 deficit was the lowest since 1998 when the budget gap was recorded at P53 billion.

Teves said this year’s performance brought the government closer to achieving a balanced budget by 2008.

The government had originally set a 2006 budget deficit goal of P125 billion, or 2.1 percent of the gross domestic product.

According to Teves, total revenues reached P978.7 billion, exceeding the target by P4.6 billion despite shortfalls in the income tax collection.

Teves said the government did relatively well with non-tax revenues which made up for shortfalls.

There were also additional revenues in the form of proceeds from privatization which exceeded target, he added.

National Treasurer Omar Cruz said the government also generated savings of P30 billion from declining interest rates which lowered the cost of debt servicing.

Cruz said there were also savings from the bond swaps that cleaned up the government’s debt portfolio, amounting to P18 billion.

Cruz noted the government was spending less in debt service and the appreciation of the peso also made some of the foreign loans cheaper.

The government relies heavily on borrowing to fund its budget deficit and to pay off maturing debt, so it spends about a third of its budget on interest payments on about $80 billion in foreign and domestic debt.

The government also spent P58 billion less than expected after Congress failed to pass the 2006 funding bill which forced agencies to shelve big-ticket spending, particularly on infrastructure projects.

The government’s fiscal performance was helped by additional revenues from a two-step reform in a sales tax that was fully implemented last February.

The government collected P76.9 billion in extra value added tax revenues last year as a result of the changes, slightly ahead of a P75.8-billion target.

Chief News Editor: Sol Jose Vanzi

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