RP fiscal deficit worsens, forcing revision of targets

RP fiscal deficit worsens, forcing revision of targets

Cecil Morella, Agence France-Presse, Manila

A blowout in the Philippines' budget deficit has forced the
government to raise its deficit ceiling for this year and 2003,
Budget Secretary Emilia Boncodin said Thursday.

Boncodin also said the economy is expected to grow at a slower
clip of 4.2-5.2 percent next year, compared with an earlier
forecast of 5.0-5.5 percent.

The budget deficit soared to 187.6 billion pesos (US$3.5
billion) in the 10 months to October, she said. The government
had originally targeted a 130 billion peso deficit for the whole
of this year.

While the economy was on track to meet its forecast four
percent economic growth target this year, the budget deficit
remained an "important challenge", she told a news conference.

Because of lower than expected government revenue, the budget
deficit target for this year was being revised to 5.6 percent of
gross domestic product (GDP) and the 2003 target to 4.7 percent.

Manila earlier set the deficit target at 4.0 percent of GDP
this year, and 3.3 percent for 2003.

Boncodin said Bureau of Internal Revenue collections fell 18
percent in October from a year earlier as individual and
corporate taxpayers shifted to monthly payments from their
previous practice of paying every three months.

She said she expects this factor to hurt revenue again -- but
for the last time -- in January.

At the same news conference, Finance Secretary Jose Isidro
Camacho said Manila intends to tap the domestic market for 52
percent of the funding shortfall, with 48 percent to be borrowed
from abroad.

The earlier plan was to borrow 56 percent abroad, but the
spreads on Philippine global bonds have widened since global
ratings agency Standard and Poor's last month lowered the outlook
for the Philippines sovereign rating to negative from stable.

Standard and Poor's warned that Manila's eroding fiscal
position could put pressure on the peso. The local unit plunged
to a 15-month closing low of 53.66 to the dollar on Wednesday.

"We are modifying our borrowing program," Camacho said, to
recognize "market conditions make it more attractive to borrow
domestically."

Boncodin said that over the medium term, President Gloria
Arroyo's government would rely on Congress to pass new tax laws
to ensure the progress of reforms.

She said this would include a revision of excise taxes on
motor vehicles, as well as amendments to taxes on tobacco and
liquor.

The news of the worsening budget deficit saw Philippine share
prices close down 3.36 points or 0.3 percent at 1,030.84 shortly
after the announcement.

Boncodin also warned that circumstances beyond Manila's
control, such as terrorism or war in the Middle East could put
further pressure on the economy next year.

"Terrorism is a major consideration we have factored into our
many scenarios with the onset of the bombings in key Asian
destinations and the possible war between the U.S. and Iraq," she
said.

"Events related to them will have a direct bearing on the
global investment climate and the volatile prices of specific
items such as crude oil and foreign currency."

Economic prospects next year remained optimistic despite the
lower growth forecast, she added. Inflation and interest rates
were at record lows of 3.2 percent and 5.5 percent respectively
and export growth has been stronger than expected.