Saturday, 1 May 2010

RP on track to meet deficit target says JP Morgan


Despite the large deficit incurred in March, the government is on track in meeting its budget shortfall for the year due to the expected slow down in spending for the second quarter as well as improved revenues, US investment banking giant J.P. Morgan said in a statement on Friday.

It said the government’s budget deficit for March reached P63.9 billion, roughly twice the budget shortfall incurred in January and February. The government’s deficit in January was of P37.1 billion, while the shortfall for February reached P33.2 billion.

J.P. Morgan said the large deficit in March was due to the rise in non-interest payment spending.

Expenditures for March totaled P160.7 billion.

J.P. Morgan said that while the government incurred a budget deficit of P134.2 billion in the first quarter -- which exceeded the P110.9 billion target -- "there are several reasons to expect improvement in the months ahead."

"Spending is expected to have slowed this month due to election-related restrictions placed on the fiscal authorities," it noted.

Lower spending, it said, combined with higher revenues in April, which is the tax filing month, should lead to a smaller second quarter deficit.

J.P. Morgan noted that the government has estimated tax revenues for the year based on a projection of 2.6% gross domestic product (GDP) growth. It said the government’s projection was too low as it expects Philippine GDP to be 4.5% this year.

It said that every 1 percentage point increase in GDP growth is equivalent to a P13 billion increase in nominal revenue collections.

It also said that so far, collections of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BoC) have been higher than expected. BIR collections reached P173.9 billion, exceeding its goal by P16.2 billion in the first quarter, while the BoC collected P60.6 billion, exceeding its target by P5.4 billion for the same period.

But J.P Morgan noted that since expected privatization proceeds in the first quarter were not available as the government was unable to sell the assets, there is a risk to later revenues if the privatization receipts do not materialize.

The government intially set the first quarter as the deadline for the privatization of three assets: the sale of the 10% participating stake of the Philippine National Oil Co.-Exploration Corp. in the Malampaya natural gas project, the sale of a portion of the Food Terminal Inc. complex, and the lease of the property in Fujimi, Japan. It had expected to raise P30 billion from the privatization efforts, P14 billion of which was programmed to be spent in the first quarter.

The completion of the privatization of the assets was however moved to the second quarter due to difficulties encountered by the government.

"Despite the larger than expected budget deficit in Q1, improvement in Q2 should enable the government to meet its year-end target," J.P. Morgan said.

The government has programmed the shortfall to reach P34.2 billion in the second quarter. The government expects the budget shortfall to reach P293.5 billion this year. Last year, the deficit hit P298.5 billion, breaching the government’s P250 billion cap.

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