Credit Suisse sees RP missing fiscal targets this year

Despite minimal spending risks, Switzerland-based global financial services company Credit Suisse said the Philippine government would likely miss its fiscal targets for 2007 as revenue collections would be lower than projected.

In its latest reading of the country’s macroeconomics, Credit Suisse said the 2007 deficit is more likely to be at around 1.5 percent of gross domestic product (GDP) as against the official target ratio of one percent of GDP.

It said revenues are likely to be below the target set by economic planners who projected tax collections to reach almost one percent of GDP.

"The National Government is thus likely to overshoot its fiscal deficit target for 2007," Credit Suisse said in its report. "We estimate a fiscal deficit to GDP ratio of 1.5 percent for 2007 versus the official target of one percent."

However, Credit Suisse said the proportion of public sector debt to GDP would fall to 72 percent in 2008 from 84 percent in 2006 because of the acceleration in the sale of publicly-owned power plants as well as the improvements in the finances of state enterprises and the Social Security System.

"The projected decline in public indebtedness notwithstanding, the Philippines remains one of the most highly indebted emerging sovereigns," Credit Suisse said in the report.

It added the Arroyo administration could not possibly miss its spending targets unless the government actually decides it would need a supplemental budget in 2007.

"We perceive the economic team to be unwavering in its commitment to containing the fiscal deficit in order to cement gains in fiscal credibility before potentially increasing expenditures on infrastructure," the report said.

Credit Suisse said the coming elections is not a risk factor either since in the last three election years of 1998, 2001 and 2004, the government spent less in the months before elections than afterwards.

"The pattern of under-spending is likely to continue through 2007," the report said.

Credit Suisse said President Arroyo’s frequent reference to spending P1 trillion for infrastructure over the next several years is conditional upon the government achieving its fiscal deficit targets rather than a blue-print for an immediate surge in spending.

"Our estimate assumes that revenue growth will under-perform ambitious targets and grow roughly in line with nominal GDP," it said.

The report said there is no foreseeable relief from legislation either since it is not likely for Congress to get around to serious discussions about revenue measures this year.

"This May’s Congressional elections and the political environment in general provide little scope for passing additional fiscal measures, including a bill in Congress that rationalizes the vast array of fiscal incentives, to help offset revenue shortfalls," Credit Suisse said. "Hence we do not take them into account."

Credit Suisse said its estimates also assumed that interest payments and capital expenditures would be lower than budgeted, curbed in part to prevent the National Government fiscal deficit from drifting towards two percent of GDP in 2007.