Budget deficit soars to P107.5B

The budget deficit, the country’s standard of fiscal efficiency, soared way above target to P107.5 billion in the first five months of the year, spreading gloom to an already depressed financial market.

The disclosure sent the stock market plunging 49 points with the composite index settling to a six-month low of 1,141.55 points.

This also prompted the government’s economic managers to consider withholding P83.7-billion worth of unreleased funds intended for various projects and operating expenses.

"Let me be frank. The deficit for the first five months of the year exceeded the programmed targets," Finance Secretary Jose Isidro Camacho announced yesterday.

Camacho said that while the five-month deficit was almost 83 percent of the full year 2002 target he remained confident that the government will achieve its target of P130 billion for 2002.

"We are getting better indicators (and expect) trends reversing from June onwards," Camacho said, adding that "we are confident that we will Budget deficit achieve our target of P130 billion by the end of the year."

Government officials maintained the situation would reverse before the end of the year through improved tax collections, most analysts were unconvinced.

"Based on current numbers and tax collection levels, there is no way in hell," said Song Seng Wun, regional economist at GK Goh Securities in Singapore.

"At best, the budget deficit (at the end of the year) will be near last year’s level, if not above... I was looking for P137 billion previously, now I see it at around P195 billion," Song said.

The Department of Finance (DOF) said revenues over the five-month period were a lower-than-expected P223.84 billion, which the government blamed on a shortfall in tax collections from companies because of weak corporate earnings.

It also said expenditures were front-loaded, or weighted higher in the first few months of the year, to take advantage of low interest rates and to jump-start the stalled economy.

"The wider gap between revenue and expenditures for the five-month period of 2002 is not indicative of our full-year performance," Camacho said.

After years of ballooning deficits, economists hailed last year’s performance in delivering more or less on target.

"We met these challenges in 2001, we are confident we will do so again in 2002," Camacho said.

Besides being keenly watched by financial markets as a sign of government efficiency, the deficit also has implications for interest rates as the Treasury will have to finance the shortfall with local or foreign borrowings.

More budget cuts

To achieve this year’s deficit target, officials said government may have to implement more cuts in the budget, initially trimming off at least P83.7 billion that has been allocated but not yet released to the different government agencies.

Budget and Management Secretary Emilia T. Boncodin said the budget department could withhold the amount as well as cut back on "unnecessary expenditures."

"Theoretically, we could cut the unreleased funds," Boncodin said. "Normally, we would just release the money and pray that the agencies would not spend it. But this time, we just won’t release it anymore," she said.

Boncodin said government agencies have already been warned that they will be getting no bonuses or incentives and any savings from operations will be plowed back into the Treasury to support the budget.

"One thing that government employees could count or are their regular salaries and their mandated allowances," Boncodin said. "We have been front-loading our expenses but the trend in disbursement is slowing down and what we are doing is making sure that the slowdown continues," she added.

She also said they expect next year’s budget deficit target to be lower or equal with this year’s figure.

"In the past, we have shortfalls because we were optimistic. In 2003, we want to be realistic. If we hit our targets, we will be comfortable. There will be a basic change in our strategy," Boncodin explained.

Analysts skeptical

Camacho said the government had drawn up a seven-point program to boost revenues by raising tax collections, especially from large corporate players.

"In the second half of the year, supportive macroeconomic conditions, the measures we have outlined, interest savings and other non-tax revenue should take hold and enable us to meet the target," he said.

"We are confident that we will achieve our fiscal deficit target by the end of this year with trends reversing from June onwards," Camacho said.

But analysts were generally skeptical.

"Realistically, (new) revenue is not coming through," said Jojo Gonzales, research head of Philippine Equity Partners.

He said financing the deficit will not be much of a problem, but higher rates will be the result.

"The local financial system is liquid enough to accommodate an overshot of around P20 to P30 billion... there is enough money sloshing around, though it may be (borrowed) at a slightly higher rate," Gonzales said. – With Ted Torres, Reuters