MANILA, Philippines - Despite the revenue drop in April, analysts said the budget deficit of the Arroyo administration would remain at P200 billion this year although spending might have to slow down unless revenues actually improve.
The Finance department reported a P7.9-billion budget surplus for April, normally the biggest tax month of the year, dropping 69 percent compared to last year’s April surplus of P25.8 billion.
April revenues fell 4.4 percent compared to the 2008 level while spending was up 12.9 percent and similarly, collections for the first four months dropped by 6.3 percent while spending was up 14 percent.
Citi analyst Jun Trinidad said the April surplus would “momentarily disrupt” the country’s deficit trend but Citi’s forecast was unchanged, advising investors to “sell on news”.
“Our forecast of a hefty fiscal gap close to P200 billion this year remains intact,” Trinidad said. He observed that the country’s primary fiscal surplus was P23.7 billion, contracting by 46.6 percent year-on-year in April. He said this was a strong indicator of expansionary fiscal spending bias.
ING, on the other hand, said that if it was true that the worst of the global downturn was behind in the first quarter of the year, the Arroyo administration would be able to restrain spending.
“It would keep the full-year deficit within the official target of P199 billion, equivalent to about 2.5 percent of gross domestic product,” ING said.
JP Morgan said in a separate review that public spending was actually below the programmed amount despite a 19.8 percent yearly increase, helped in part by lower-than-expected expenses for debt servicing.
JP Morgan analyst David Fernandez said this could mean that expenditures in general might run behind the programmed spending level—something that budget officials first attributed to a timing lag rather than a fundamental problem in absorptive capacity.
As a result, Fernandez said ING now forecasts the 2009 deficit at P200 billion.
Meanwhile, Philippine Equity Partners said that the Arroyo administration had already front-loaded some spending with the aim of providing a cushion against a slowing external economy.
“However, if the revenue trend does not improve, we think government spending may have to slow down in the second half of 2009,” said PEP analyst Jojo Gonzales.
The Bureau of Internal Revenue (BIR) had set its April target at P100 billion but actual collections reached only P87.1 billion.
Revenue officials reasoned that the government lost, among others, about P13 billion to a “misinterpretation” of the new law that exempted minimum wage earners from income taxation.
Customs collections also declined because of the decline in imports which had an impact on tariffs and duties collected by the Bureau of Customs.
With the deficit soaring faster than expected, economic officials have been forced to increase the government’s programmed borrowing to finance its ever-expanding budget gap.