The decision spurred an upgrade in the country’s sovereign bonds from "neutral" to "overweight" by the ING Group who said the country was on track for a cycle of ratings upgrade.
"Rejection of proposals to raise the 2007 fiscal deficit is positive," ING said in a statement. "We now consider the government’s commitment to balancing the budget by 2008 as solid."
Wire reports earlier indicated that the Arroyo administration is open to pushing back the deadline for balancing the budget to 2010 to allow increased government spending in the hope of spurring economic growth.
According to Finance Secretary Margarito B. Teves, however, the government’s policy has not changed and its 2007 budget deficit target was still P67 billion.
"The government remains committed to balancing its budget by 2008 without sacrificing badly needed spending on infrastructure and social services," Teves said.
The original 2006 deficit target was P125 billion but the Arroyo administration has been operating on the 2005 reenacted budget which was estimated to cut the deficit down to as low as P20 billion this year.
ING said in its latest ROP bond rating that although increasing the 2007 deficit ceiling would accommodate infrastructure spending, the increase in the target could seriously dent investor confidence.
"Based on the initial proposal (to reduce revenue targets), we anticipated a P30 billion cut in the 2007 target," ING said.
"Although the economic team has yet to finalize the 2007 program, the latest signs make us comfortable that fiscal consolidation remains on track and that the target of balancing the budget in 2008 will be met," ING said.
ING said sticking to its fiscal target would sustain the progress in 2007. "This would put the Philippines on a rating upgrade cycle," ING said. "We revise our weighting on ROPs to overweight from neutral."
The Philippines is Asia’s most active issuer of sovereign debt after Japan and this year, it has thus far issued $2 billion worth of sovereign bonds to a market eager to take advantage of the recovering fiscal sector and growing economy.