RP 2010 deficit could hit P320B — Fitch

The Philippines' budget shortfall could swell to as much as P320 billion this year, Fitch Ratings said, as it warned that the country's debt rating could get downgraded due to a sharp growth in public debt. "Currently, we forecast the 2009 deficit [at] P324 billion (4.1 percent of economic output) and the 2010 deficit [at] P320 billion (3.8 percent)," Andrew Colquhoun, director Fitch Asia-Pacific Sovereigns group, said in an e-mail. The computation excludes privatization revenues. Including privatization receipts, the budget gap could go as high as P319 billion for 2009 and P310 billion for 2010, he added. "If fiscal easing led us to think the debt ratio might climb sharply, that would be negative news for the ratings," Colquhoun said. The global debt watcher's deficit forecast for the year is higher than the initial P293 billion announced by the Finance department, up from an earlier target of P233.4 billion. It is also wider than that of fellow credit rater Moody’s Investors Service, which predicted a 2010 shortfall equivalent to 3.5 percent of GDP or around P291.8 billion. Officials have said that last year’s fiscal gap could have ranged from P290-298 billion due to the delay in the sale of key government assets, anemic collections, and the impact of tax cuts passed by Congress. Fitch has assigned a BB rating with a stable outlook on the Philippines. "As 2010 is an election year, we were not expecting a material consolidation. But if further fiscal easing occurred, leading to an even higher deficit than we expect, that would be negative news and add to a downward pressure on the rating," Colquhoun said. "On the other hand, if fiscal policy is tightened more quickly than we expect in 2010, that would be positive news for the ratings," he added. He noted, however, that a 2010 fiscal gap higher than P300 billion was expected and would not immediately affect the country’s credit standing. "We already expect a deficit above P300 billion in 2010, so it would take further significant negative news to change our view," Colquhoun said. Sought for comment, Finance Undersecretary Gil S. Beltran said: "We will continue to work to raise revenues and to cut the deficit. We have tax administration measures." "We will also urge our lawmakers to approve revenue-generating bills. We aim for fiscal consolidation," he added. Colquhoun cited the need to raise revenues to secure a better credit rating. "High government debt relative to rating peers is a key rating weakness for the Philippines," he pointed out. He said the Philippines has one of the lowest revenue-to-GDP ratios of any country it rates — only around 16 percent of GDP in 2008. Effective revenue-raising reforms, it added, would be one route to long-term strengthening in the public finances and higher ratings in the future. The country’s debt-to-GDP ratio is expected to have reached 57.6 percent last year, up from 56.3 percent in 2008. This year, the ratio is forecast to hit 56.7 percent. The Philippines’ outstanding debt totaled P4.22 trillion in 2008 and was projected to have reached P4.49 trillion last year. For 2010, the country’s outstanding debt is expected to climb to P4.72 trillion. — Alexis Douglas B. Romero, BusinessWorld