Philippine policy-makers say they can breathe life into the
countrys flagging deficit reduction programme despite two
years in which previous progress has been reversed.
We should be able to hit our deficit target this
year to put our long-term budget goals back on track,
Margarito Teves, Secretary of Finance for the Philippines, told
Emerging Markets this weekend.
Fiscal consolidation has been a vital mainstay of government
policy in recent years, in order to free up money that goes on
interest payments for other vital work.
In 2004 government debt was equivalent to 79% of GDP and
interest payments on that debt were taking 37.3% of all
revenues. The budget deficit has been similarly damaging, and
its ratio to GDP stood at 5.4% in 2005. The government reduced
it to 0.2% by 2007 and had planned to balance the budget in
But the onset of the global economic crisis convinced
us that it was far more important to invest in stimulating our
economy and providing social services for our people,
Teves said. In 2009 the deficit was back at 3.9% of GDP and in
March 2010 stood at a total of 63.9 billion Philippine
The target now is to balance the budget by 2013 but
to do this, the government will have to improve its record on
tax collection, a perennial problem in the Philippines.
Teves said Bureau of Customs collections grew 40.5% in the
first quarter and the Bureau of Internal Revenues by 12.4%. But
he added: Our revenue collection was inevitably adversely
affected by the slowdown in the global economy.
He called upon the incoming Congress to pass new tax
measures, such as changes to excise rates on alcohol and
tobacco and a review of VAT exemptions, after this months
The election itself is being closely watched by investors,
but Teves tried to distance economic performance from electoral
uncertainty. The Philippine economy has time and again
proven that it is much more decoupled from political
developments in our country than in the past, he
Amando Tetangco, governor of Bangko Sentral ng Pilipinas,
said he believed the Philippines should grow closer to
the higher end of the governments GDP growth rate
target of 2.6-3.6% for 2010.
The Philippines is in a good position to reap the
benefits of the global rebound, he said, adding that it
can profit from a pick-up in external demand and an
acceleration of its remittance proceeds. He emphasized
strong domestic consumption, strong prospects in BPO and
tourism, and a rebound in investments.
Analysts are less sure. Barclays Capital analyst Rahul
Bajoria thinks the budget shortfall will get worse, not better,
and will hit 4.2% in 2010. He also expressed concern about slow
progress in privatization of state assets, with PNOC
Explorations planned sale of a stake in Malampaya natural
gas project, expected to raise 14 billion pesos, pushed back to
at least the third quarter.
This may put additional pressure on the fiscal balance
in the short term, he said. But he did not think the
situation was bad enough to trigger rating movements in the