Deutsche Bank shows faith in RP

A leading foreign investment bank has given the Philippines high marks despite its not-too-good fiscal position in the first three months of the year.

Deutsche Bank, in a global report to its clients, said the Philippines looks poised to meet full-year 2003 budget deficit target.

"In our view, the government is on track to meet its deficit target this year of P202 billion," Michael Spencer, Deutsche Bank chief economist in Asia, said in a short positive research report issued last week.

"The (Philippine) government confirmed today (April 23) that the fiscal deficit in the first quarter was above its P55-billion target, coming in at P58.9 billion. Still, that was below last year’s P61.2-billion first quarter deficit," Spencer said. "However, the primary fiscal position was much stronger than last year, and much better than we had hoped for."

Through the first three months of the year, the government ran a surplus of P1.4 billion before interest payments (and privatization receipts) compared with a deficit of P19.6 billion during the first quarter of 2002.

In March, revenues were up 13.2 percent year-on-year (y-o-y) – the strongest in six months – and were 3.5 percent above target. This was mainly due to very high Customs and Treasury income, with the former being partly due to the weak peso.

The Bureau of Customs (BOC) outdid itself in the January to March period, collecting P26.721 billion or nearly P4 billion over its target P22.52 billion. The Bureau of Treasury (BTr) outperformed its target of P7.9 billion by raising P13.4 billion in the same period.

The Bureau of Internal Revenue (BIR) collected 7.2 percent more in March 2003 than it did a year ago, but for the quarter as a whole, receipts were up only about 4.5 percent y-o-y and were 4.9 percent below target for the quarter.

"Indeed, it could do better than that if it wanted," Spencer added in its client report.

Non-interest expenditures fell 7.5 percent y-o-y in March and have fallen about 6.5 percent y-o-y so far this year, the bank said.

Reportedly, P5.8 billion of expenditures in March (12.4 percent of the non-interest expenses) were actually programmed for April, suggesting that the decline in spending could accelerate this month.

The stronger peso could take some of the growth out of the customs receipts, but would also reduce interest payments.

"Still, we expect the April fiscal report to continue the trend of slightly lower headline deficits and sharply lower primary deficits – indeed, a surplus," the investment bank’s report said.

Last September, Deutsche Bank forecast that the Philippines would record a budget deficit of at least P145 to P150 billion or nearly four percent of the country’s gross domestic product (GDP). It turned out even higher at P212.7 billion from the original ceiling of P130 billion.

At the present rate of budgetary failures by the National Government, the global financial institution felt that the Philippines would experience a budgetary balance by 2007. That time last year, the National Government target for a budgetary balance was 2006.

Spencer said the key to the country’s economic recovery is the fiscal policy or improved budget deficit.

And that could be attained if the Philippine government strictly enforce its collection strategy rather than overhaul its tax system in the short term.