Hit goals to stay credible in global marts, gov't told

International capital markets may no longer be as accommodating if the government continues to miss its macroeconomic targets, New York-based think tank Global Source said on Tuesday. "Investor appetite will likely depend in large part on the next administration’s ability to present a coherent fiscal consolidation plan that economic players will buy into," the company said in a market brief. Last year, it said, a "compelling case" for stimulating domestic growth had allowed the government to raise over $3 billion in three global bond sales as its budget deficit ballooned. "While we will not be greatly surprised by similar ‘opportunistic’ moves down the road, we think that with greater global attention on debt sustainability issues, markets may not be as accommodating if [the] government continues to underperform targets," it said. Global Source noted that meeting revenue targets remains the key challenge, even as the main revenue agencies were likely to exceed targets for the second straight month this year in February. "On the other hand… the cost of revenue-eroding legislation, including those granting tax incentives to particular sectors, can easily add up to over P75 billion," it pointed out. The Philippines has had difficulty raising tax revenues due to widespread evasion, corruption and weak implementation of tax laws, leading to a record budget deficit last year as collections failed to keep pace with spending to stimulate the economy amid the global downturn. The government incurred a shortfall of P298.5 billion last year, equivalent to 3.9 percent of the gross domestic product (GDP), slightly over its worst-case estimate of P298 billion. It had held out the hope that the deficit, way over the year’s cap of P250 billion, would be limited to P290 billion. The target for this year is P293 billion, or roughly 3.5 percent of the GDP. Global Source said the government’s ability to sell various assets also remains uncertain since as a matter of practice, the state avoids privatization as elections near. Still, the think tank cited the country’s robust external accounts — a $6.2-billion current account surplus last year — which it said is a source of comfort, counterbalancing fiscal risk. And while local market players have become more cautious in light of the fiscal situation, less pressure on local interest rates can be expected in the near term as the government’s cash-rich position allows it to continue to enjoy some pricing power at local Treasury auctions. At several auctions this year, the Treasury bureau rejected bids that it deemed too high. "Hence, local interest rates on average have been slow in rising. High domestic liquidity will also help keep interest rates low, considering as well that further monetary tightening is not expected until after the elections," Global Source said. "It bears noting that local investors tend not to fret too much about election uncertainties," it added. Meanwhile, the think tank said the successful pricing on Tuesday of the government’s ¥100-billion yen ($1.1 billion) yen bond should be a welcome relief for finance officials. The 10-year issue, done through private placement targeted mostly at Japanese banks and insurance companies, was priced to yield 0.85 percentage point more than the yen swap rate. — Norman P. Aquino, GMANews.TV