PHILIPPINE NEWS SERVICE — A LONDON-BASED credit rating agency warned the Philippines may miss its fiscal target this year because of poor tax collection, but kept its stable outlook on the country on the back of its declining debt ratios.
Philippine bonds dropped as a result, but the peso held at 44.82 to the dollar after closing at 44.81 on Monday.
FitchRatings revised its forecast on the Philippines’ budget deficit to P125 billion—almost double the government’s P63-billion target—because of weak tax collection, but said public spending remained under control.
“The positive momentum behind Philippine fiscal performance in recent years faltered badly in 2007, particularly with respect to tax collection,” said James McCormack, head of Asia Sovereigns at Fitch.
“With real economic growth expected to have averaged about 6.5 percent in the first half of the year, the 3.4-percent increase in tax receipts was rather poor,” he said.
But a top official said the government was sticking to its original budget deficit forecast of P63 billion by intensifying revenue collection and not by cutting on spending.
Finance Secretary Margarito Teves said Internal Revenue and Customs hoped to raise P1.12 trillion in tax and non-tax revenues this year to finance P1.18 billion in government spending.
“Both [Internal Revenue] and [Customs] have stepped up their collection efforts to boost revenue,” he said, adding Internal Revenue hoped to recover P20 billion of its shortfall in the first half, while Customs had committed to wipe out its P13-billion deficit.
The Philippines hopes to trim the budget deficit to P63 billion, or 0.9 percent of the gross domestic product, this year from an eight-year low of P64.8 billion, or 1 percent of GDP, last year.
But the deficit widened to P41 billion in the first half from P31.5 billion in the same period last year, overshooting the government’s first-semester goal of P31.3 billion by P9.7 billion.
Revenues reached P510.3 billion in the year to June 2007 from P471 billion last year, but it was P47.7 billion short of the P558-billion target.
Internal Revenue collected P334.7 billion—P38.6 billion short of its P373.3-billion target—while Customs fell P13.1 billion short of its P105.3-billion target.
Teves said the Philippines was sticking to its budget deficit target because it expected to raise at least P105 billion from the sale of its shareholdings in San Miguel Corp., Manila Electric Co., and Philippine National Oil Co.-Energy Development Corp.
But Fitch said the government’s privatization program and improved tax administration would not make up for the shortfall in the first half.
“Fitch does not believe it will be possible for the first-half tax shortfall to be made up over the balance of the year,” McCormack said.
“In our view, optimism regarding revenue prospects in the short term is unwarranted, since various measures to improve tax collection and reduce evasion have been in place for some time, without meaningful results.
“In the absence of a significant improvement in tax collection, it will not be possible for the Philippine government to implement its ambitious—and much-needed—infrastructure development program,” FitchRatings said.