MANILA - The fiscal sector is deteriorating quickly and is feared to revert to a level where it is again confronted by economic dilemmas rather than opportunities, a senior executive of one of the largest and most profitable insurance groups in the country said on Wednesday.

Former Bureau of Treasury chief Omar Cruz, current executive vice president and chief investment officer at Philippine-American Life and General Insurance Co. (Philamlife), said government finance had been very poor and its ability to generate funds is at question.

“The fiscal situation is worsening and, as a result, we could slip back to economic dilemma in the years to come,” Cruz said at the Asian Institute of Management, which hosted the forum where the Asian Development Bank (ADB) bared its updated growth outlook for the Philippines.

He particularly said the fiscal performance thus far displayed had been “dismal,” largely because the government’s ability to generate revenues has proven below par.

According to Cruz, the areas of fiscal and debt management will prove “areas of concern” very soon.

His comments came in the wake of the latest fiscal report that said the main collection arm of the government, the Bureau of Internal Revenue (BIR), fell short of year-ago collection to only P500.8 billion in the first eight months this year.

In 2008, the BIR collected P532 billion in the same period.

That the fiscal sector is deteriorating is supported by the fact that the latest tax-to-GDP ratio averaged only 13.5% in the first half, sharply down from the ratio of 14.7% of output or the gross domestic product last year. The deterioration mirrors the sharply eroded capacity of the government to collect taxes even as the economy continues to expand.

Cruz also noted that the government, under Finance Secretary Margarito Teves, engaged in rather heavy borrowing activities both locally and abroad to finance a budgetary shortfall as wide as P250 billion this year, or 3.5% of GDP.

While the broad intent for these activities was to support the thin budget for the year, Cruz nevertheless expressed apprehension the exercise could quickly turn ugly and cause the Republic to post a credit downgrade instead.

He cited this risk when he noted the dollar-denominated ROPs, which are the dollar notes of the Philippine government, trade at rather expensive rates in the market at present.

According to Cruz, putting one’s money in ROPs is every expensive because it pays 6.5% when that of Brazil, for instance, pays roughly about the same.

The thing is, Cruz pointed out, Brazil is at least four or five notches higher up the credit rung than the Philippines and it pays roughly the same as Brazil’s.

“That is why I am bullish on Asia as a region but bearish on the Philippines. Its fundamentals are not very good,” Cruz said.

The only reason the ROPs are patronized is because there is plenty of liquidity in the market, he added.

But down the line, Cruz said, one could get trapped in the ROPs as the level of liquidity recedes.