Fitch remarks on RP fiscal performance dampen market

Share prices fell yesterday after Fitch Ratings assessed the first-half fiscal performance as disappointing and the 2007 deficit target as unrealistic.

The benchmark 30-company Philippine Stock Exchange Index slipped 31.55 points, or 0.8 percent, to 3,706.24, adding to Monday’s 0.01 percent loss.

“Fiscal condition remains a concern. Apart from privatization receipts, something must be done on the revenue side,” said Wealth Securities analyst Ricardo Puig.

Fitch said the positive momentum behind the country’s fiscal performance — which was trumpeted by President Arroyo in an address to Congress Monday — faltered badly early this year because of poor tax collection.

“With real economic growth expected to have averaged about 6.5 percent in the first half of the year, the 3.4- percent increase in tax receipts was rather poor,” said James McCormack, head of Asia Sovereigns at Fitch. He noted that first-half tax receipts were about P52 billion below target.

Fitch said the 2007 deficit target of P63 billion “is unlikely to be met.”

Ongoing initial public offerings, such as Vista Land & Landscapes Inc., Philippine National Bank and GMA Network Inc., tied up much of the market’s liquidity, Puig said.

Philippine Long Distance Telephone Co. (PLDT) fell 1.1 percent to P2,655 Metropolitan Bank & Trust Co. dropped 2.1 percent to P68.50 and Manila Electric Co. B shares retreated 2.8 percent to P105. Decliners outnumbered gainers 61 to 40, and 70 listings were unchanged.

“Investors were trying to figure out if the President’s flagship infrastructure projects are realistic, while Fitch’s statement brought out concerns as to how government will go about funding these (projects),” said Ron Rodrigo, analyst of Unicapital Securities.

Fitch said based on the first-half fiscal data, it now expects the Philippines’ budget deficit for 2007 to hit P125 billion or 1.9 percent of GDP, excluding revenue from planned asset sales in the second half. The government’s target is for the full-year deficit not to exceed P65 billion.

“The positive momentum behind Philippine fiscal performance in recent years faltered badly in early 2007, particularly with respect to tax collection,” Fitch said.

James McCormack, head of Asia Sovereigns at Fitch, said the rating agency does not believe the government will be able to collect more taxes in the second half to cover the shortfalls in the first. — AP