MANILA, Philippines - The government expects the ratio of the country’s debt to gross domestic product (GDP) to remain high at 57.6 percent from the current 56.3 percent following an upward revision in the budget deficit ceiling for 2009.
Finance Undersecretary Gil Beltran said the debt to GDP ratio is expected to hit 57.6 percent for 2009.
“If you increase the deficit you have to borrow more,” Beltran noted.
Last week, the Development Budget Coordination Committee (DBCC) revised upward the 2009 deficit ceiling to P250 billion from the previous programs of P199.2 billion, P177 billion, P102 billion and P40 billion on account of the prolonged impact of the global financial turmoil.
The DBCC, the interagency group that sets the country’s macroeconomic assumptions, had to raise the deficit ceiling for 2009 following a downward revision in the economic growth projection for the year to 0.8 percent to 1.8 percent from 3.1 percent to 4.1 percent previously.
Beltran said a higher deficit ceiling would also raise the government’s borrowing costs.
“This would mean a higher price on anything that we sell such as bonds,” he said as he noted that the yields would go up.
However, Beltran said that despite the higher budget deficit, credit rating agencies watching the country are likely to understand the situation.
“I think they will understand. Other countries have bigger deficits,” Beltran noted.
The Finance department wanted to slash debt by 50 percent this year and raise the revenue effort to 20 percent from 16 percent.
It earlier planned to improve the debt to GDP ratio to 55.7 percent this year and to 53.4 percent in 2010 but this program would now have to be shelved.
The Finance department said that because of the country’s high debt level, the government needs new sources of revenues.
These include measures to raise sin taxes, rationalize tax incentives and to simplify the country’s net income taxation system.
The government wants to change the current excise tax system on cigarettes and alcohol or the so-called sin products by adopting a single rate structure for each category of alcohol such as distilled spirits, wine and fermented liquor and for each category of tobacco products such as tobacco, cigar and cigarettes.
According to government estimates, the sin tax measure could raise as much as P19 to P20 billion in the first year of implemenation, P30 to P40 billion in the second year, P40 to P50 billion in the third year and P60 to P70 billion in the fourth year.
The department said that the current tax structure is inequitable because products having the same current net retail price can be taxed differently if one was introduced before January 1997 and other one after 1997.
The government, meanwhile, expects to raise P10 billion a year from the measure seeking to rationalize fiscal incentives and another P6 billion a year from the measure seeking to simplify the country’s net income taxation scheme.