Government may breach 2007 deficit target, dof officials warn

Finance officials expressed concern the government may breach its 2007 deficit target if it was not able to contain the programmed acceleration in public spending in an attempt to pick up the slack from this year’s re-enacted national budget.

Finance Secretary Margarito B. Teves told reporters yesterday that keeping the fiscal program on track would become even more critical next year since it would set the homestretch towards the programmed balanced budget in 2008.

The deficit is expected to decline to P125 billion this year and down even more sharply to P63 billion by 2007. By 2008, the deficit is projected to drop to a residual amount of less than P100 million.

"I know it looks good today, but we are not out of the woods yet,"said Teves.

Teves said using the re-enacted 2005 budget this year would also have repercussions on economic growth that have not been fully anticipated which, in turn, would have an impact on 2007 revenues.

"If there is a slowdown next year because we underspent this year, that would affect our revenue collections," he said. "Moreover, my headroom for the rest of the year is really only P12 billion. There are three months to go."

Teves, an economist, said that fiscal balancing would also have to take into account the increased public spending in countries such as Vietnam and Indonesia which compete directly with the Philippines for a share of the highly-contested export market.

"But I’m worried about exceeding our P63-billion target deficit in 2007. At this point, the government would have to be an economic catalyst," he said.

Operating under the 2005 re-enacted budget, the Arroyo administration posted another budget surplus in August as revenue agencies exceeded their collection targets for the month amid moderate growth in public spending.

The surplus was created mainly out of slow government spending under a re-enacted budget and a P5.1-billion advance tax payment made by Mirant Philippines Corp.

Teves told reporters that the August fiscal performance brought the government’s budget deficit in the first eight months of the year to P34.2 billion, way below the P80.82-billion budget deficit in the same period of 2005.

With the August surplus paring down the cumulative budget deficit, the Arroyo administration now has a P88-billion headroom for September, just to stay at par with its P122-billion target deficit for the first three quarters of the year.

National Treasurer Omar Cruz said that the eight-month deficit was roughly 27 percent of the whole-year budget deficit ceiling of P125 billion, providing enough room for the P46.4 billion supplemental budget approved by the Senate last week.

The Arroyo administration has been on a surplus since April as government spending practically screeched to a dramatic slowdown in the absence of a new budget for 2006 which forced line agencies to hold back on programs and project spending.

The combined effect of low public spending and the increase in taxes created enough room for three consecutive months of budget surpluses except in July when the government reported a P17-billion deficit.