RP fiscal program at risk due to missed deficit goal

Investment bank Merrill Lynch warned that the Philippine government’s fiscal program is at risk after the Philippines overshot its first quarter budget deficit goal due to weak revenue collections and higher spending. In its “Cutting to Market Weight: Tax Revenue Losing Steam" report, Merrill Lynch macro and financial strategist Benoit Anne said the poor revenue performance by both the Bureau of Internal Revenue and the Bureau of Customs disappointed investors, casting doubt on the credibility of the government’s fiscal program. “The credibility of the government’s fiscal program is at risk, in our view. We are disappointed to see that the tax revenue performance was quite poor in the first quarter. Going forward, the poor revenue performance may jeopardize the attainment of the annual fiscal deficit target," Anne said in the report. For the first quarter of the year, the Philippine government had a shortfall of P52 billion, overshooting its programmed deficit of P45.8 billion for the period. The Finance department attributed this miss to significant collection dips by both the BIR and Customs. The government hopes to post a P63-billion budget deficit this year, before moving on to a balanced budget in 2008. “Unless tax revenue collection recovers dramatically, we think that it is unlikely that the government will meet its deficit objective, even with the help of large privatization receipts (which the government records as non-tax revenue). This may send a negative signal that could erode the government’s credibility," the report, dated April 24 stated. “So far, the outcome has been quite disappointing, with poor tax revenue performance and reliance on privatization receipts, which in our view, raises serious doubts about the quality of fiscal adjustment," the report added. On top of this, Merrill Lynch warned about rising political risks due to the scheduled May 14 elections that could further worsen the fiscal outlook of the Philippines . “In addition to the worsening fiscal outlook, we also foresee rising political risks in the context of the forthcoming election," it said. Due to these factors, Merrill Lynch has downgraded the country’s bonds to market weight encouraging investors to hold instead of the previous recommendation or overweight urging investors to build up their position.-GMANews.TV