The Department of Finance (DOF) said it incurred a budget deficit of P61.208 billion in the first quarter, P8.275 billion above the target of P52.93 billion, mainly because of a shortfall in revenues blamed on poor tax collections and lower interest rates.
However, the DOF said the government remains confident of meeting the full-year P130-billion deficit ceiling.
Revenue collections were off target by 7.8 percent at P125.12 billion as income tax collection suffered "mainly due to the weakness in some sectors in the economy, lower interest rates and reduced issuances of government securities," the finance department said.
The DOF said excise tax collection was "adversely affected by the downtrend in domestic production of petroleum companies and a consumer shift towards tax-exempted motor vehicles."
Value-added tax collection also underperformed "due to the lower than expected inflation rate that prevailed during the period, while customs duties were weak due largely to continued slack in imports," the DOF said.
Expenditures, on the other hand, were recorded at P186.33 billion or 1.2 percent below target.
Global credit rating agencies upgraded the long-term outlook for the Philippines this year after President Arroyo succeeded in reigning in the budget deficit in 2001, leading to improved investor confidence.
Runaway deficits bring the government in competition with the private sector for their funding needs.
The finance department said savings in interest payments are expected given the low interest rate environment.
Finance Secretary Jose Isidro Camacho said tax collections "are expected to improve with the implementation of identified administrative measures" in the middle of the year, while the internal revenue and customs offices "should also generate more revenues as the real economy continues to grow during the year."
He also said the finance department speeded up the disbursement of capital outlays on infrastructure and agriculture support projects to cushion the expected effects of the El Niño weather phenomenon later this year.
Agriculture accounts for a fifth of the country’s gross domestic product and employs 40 percent of the labor force.
Analysts said investors are waiting for the government to explain why it missed the target and whether it had a fallback strategy for keeping within its 2002 deficit target.
"Government has been telling everyone that they are frontloading their expenses for the quarter but this has negative implications because it’s the first data of the year and its not good," said JP Morgan vice president for credit and rates David Fernandez.
According to Fernandez, the more fundamental macro-economic indicators were outperforming all expectations. Last year, despite difficulties, the government managed to stick to its deficit target.
"Although one year does not make a trend, they have shown that if they want to make it, they will," Fernandez said.
Other analysts said the government’s GDP growth projections could be overly optimistic because of the low tax collections. The government has said it expects 3.8 percent to 4.3 percent economic growth in the first quarter.
" A lower than targeted tax collection performance indicates the tax base did not grow as much as expected and that’s not a good sign," said Jose Vistan, an analyst at AB Capital Securities.
"The government’s GDP growth projection is based on the assumption that target revenues will be met... if they are not met it indicates that the government may have been over-optimistic," Vistan said.