The Wallace Business Forum Inc. expressed concerns that the budget deficit would go out of control due to the confusion and uncertainty caused by the May elections, which has become the benchmark for the first six months of 2004.
Despite the good performance of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) last year, the group said the momentum can’t be sustained without aid from legislation.
BIR and BOC revenue collections improved last year due to the 10-percent value-added tax (VAT) on professionals; the tax mapping initiative; the payment of bank’s gross receipts tax (GRT) deficiencies; and increased imports of refined oil products.
"That raised the tax ratio to 14 percent of gross domestic product (GDP) from 12 percent in 2002," said Peter Wallace, the consultancy firm’s president.
He warned the country’s tax base would erode unless tax reforms are put in place.
Delays in the passage of several revenue-related legislations could cost the economy another P15 billion and thus raise the budget deficit close to five percent of GDP.
That, he said, would force higher than projected government borrowings and causes spreads to rise, worsening international perception and ultimately further downgrading the country’s credit rating.
Thus the country’s foreign debt would increase on higher deficit spending, "most likely the highest debt in the Asian and Latin American region."
"That would bring the country closer to a debt crisis forewarned by former Finance Secretary Jose Isidro Camacho," Wallace said.
Maturing government debt in 2004 is estimated to reach $8.5 billion as against the country’s gross international reserves (GIR) of $17 billion.
Wallace added that following projections that the peso will remain in the P56 to P57 level to the US dollar, GDP is forecast to grow by 4.7 percent in 2004 and 5.3 percent the following year. By 2006, it will expand by 5.5 percent but start slipping to 5.1 percent in 2007 and 4.8 percent in 2008.
Further, the peso would probably close at P56.40 at end-2004 but drop further to P59.90 in 2006, P62.40 in 2007 and P64 in 2008.
The 91-day Treasury bills (T-bills) is anticipated to close at 6.8 percent and increase to 7.6 percent the following year, before easing to 7.0 percent in 2006.
However, it will decrease anew by 6.8 in 2007 to 6.7 percent in 2008. In contrast, bank lending rates will remain in double-digit rates all throughout the five-year period starting from a low of 10 percent.