Forecast of P370-B well past 2010 target of P293-B

MANILA, Philippines - Continued revenues weakness -- compounded by 2010 being an election year -- will likely lead to a substantial overshoot of this year’s budget deficit target, economists said.

Latest estimates by HSBC and think tank GlobalSource put the 2010 shortfall -- despite the economy likely recovering better than the official forecast -- beyond the programmed cap of P293 billion.

"For this year our deficit forecast is over P370 billion, considerably bigger than last year and it is in part because we see the growth rebound not necessarily benefiting revenue growth," HSBC economist Frederic Neumann said in a press briefing yesterday.

"The reason why we don’t see revenue growth this year is it is an election year; there is uncertainty and it will be difficult to grow revenues rapidly."

US-based GlobalSource, meanwhile, said this year’s fiscal gap would likely hit 3.8% of gross domestic product (GDP), equivalent to P316 billion.

"Our own reading is a 3.8% fiscal deficit in 2010 which is no different from our estimate for 2009, when both structural and cyclical forces brought down revenues at a time when spending was accelerated to counter a downturn," it said in a research note dated January 15.

The government has said the deficit likely rose to a record P298 billion last year, blaming the economic slowdown and revenue-eroding laws passed by Congress. The shortfall was at 272.5 billion as of November, well past the official cap of P250 billion.

GlobalSource, whose local partner is former Finance Undersecretary Romeo L. Bernardo, said: "Although the economy looks set to recover this year, there remains some risk ... with Congress reallocating P65 billion worth of debt service to infrastructure and social services spending, effectively bloating the budget since debt service is automatically appropriated."

"We still see structural weakness in revenues this year, as various legislative measures continue to take their toll on state collections."

HSBC’s Mr. Neumann said Congress must pass revenue measures to improve the country’s tax take. But this, he added, may be difficult given the up-coming elections.

This was echoed by GlobalSource, which believes Malacañang will not veto revenue-eroding bills to preserve ties with Congressional allies.

"With measures to enhance revenue collections on the backburner ... we will probably see little improvement in the tax effort ratio...," it said in the January 15 report.

"Officials at the budget and finance departments are currently pushing for a veto of these pending revenue-losing bills but it is unlikely that the President will choose to antagonize allies in Congress going into election season," it added.

The Finance department has been asking Congress to pass revenue-generating measures such as the simplified net income taxation scheme (SNITS), the rationalization of fiscal incentives and the restructuring of excise taxes on alcohol and tobacco.

Malacañang trimmed the list to just the SNITS and incentives reform but Congress leaders said there was not enough time.

Both the House of Representatives and the Senate went back to work yesterday following a month-long holiday break. Congress will be in session for just three weeks, or up to Feb. 5, after which legislators turn their attention to the May elections.

Lawmakers next meet starting May 31 to June 4 for the canvassing of the election results, a task that will basically wrap up the 14th Congress’ three-year term.

The 15th Congress starts work in late July and all revenue measures passed over by its predecessor have to be refiled.

Also yesterday, Mr. Neumann said the economy could grow by 4.2% this year as domestic consumption is expected to remain robust due to public spending and remittances from overseas Filipino workers (OFWs).

The economy may have grown by 1.1% last year, he said, within the official forecast of 0.8-1.8%.

GlobalSource has a 2010 growth forecast of 3.7%, a figure also offered by Metropolitan & Bank Trust Co. (Metrobank) in a report released yesterday.

All three outlooks are higher than the government’s projection of a 2.6-3.6% expansion.

"Personal consumption spending is expected to rebound this year on increased government spending and robust OFW remittances. The domestic economy is seen to post a 3.7% growth this year," Metrobank said.

"Election spending is expected to stimulate economic growth this year ... Businesses like consumer goods, publishing and printing, media and public relations are expected to benefit from this year’s poll spending.

For GlobalSource, "There may still be a moderate revival of business confidence but growth in the base case would still be driven by overseas workers’ remittances with an additional boost from export recovery and slight activity from elections."

Earlier this month, debt watcher Fitch Ratings said the 2010 deficit could hit P320 billion, while Moody’s Investors Service set its outlook at around 3.5% of GDP or P291 billion.