Phl seen to trim deficit to P256 billion in 2011

MANILA, Philippines - UK-based Standard Chartered Bank said it sees the Philippines trimming its budget deficit to P256 billion next year from a record P325 billion this year on the back of sustained economic growth resulting to better tax collections.

In its Global Focus 2011 report titled “Philippines: Boom-Time Challenges,” StanChart regional economist Simon Wong said the bank’s forecast was better than the programmed budget deficit ceiling of P290 billion set by the Aquino government under the P1.645-trillion 2011 budget approved by Congress last October.

“We forecast an even smaller shortfall of P256 billion in 2011, as we expect a booming economy and improved tax collection efforts to boost revenues,” Wong stressed.

The Philippines is staring at a record budget shortfall of P325 billion, or 3.9 percent of gross domestic product (GDP), this year from P298.5 billion or 3.9 percent of GDP last year.

The Aquino administration has committed to trim the budget deficit to two percent of GDP starting 2013 until the end of the chief executive’s term in 2016.

He pointed out that the Aquino government’s maiden budget for 2011 envisions a mild tightening of fiscal policy as it only expects a 6.4 percent rise in expenditures to P1.645 trillion.

“This lags the projected 8.8 percent gain in nominal GDP and reduces spending as a percentage of GDP to 18.2 percent from 18.5 percent in 2010,” he stressed.

He explained that there is a clear shift in spending away from capital items like infrastructure and towards social services like welfare and transfer payments.

President Aquino has launched the government’s Public-Private Partnership (PPP) scheme to undertake major infrastructure projects.

However, StanChart doubts that there would be enough funds to bankroll the projects that could reach P718.8 billion over the next two years, or about eight percent of the projected 2011 GDP.

“There is considerable uncertainty as to whether the government can secure sufficient and stable funding to finance the so-called PPP for infrastructure projects. Failure would not only undermine the government’s goal of fiscal consolidation, but would also prevent the economy from closing the infrastructure gap with the rest of the region,” Wong said.

Economic managers, through the Development Budget Coordination Committee (DBCC), expect sees the country’s GDP expanding between 7-8 percent next year from the projected 5-6 percent this year.

But the bank believes that the country’s GDP growth would ease to 5.4 percent next year from the projected strong expansion of 7.2 percent this year.

StanChart also sees the country’s inflation rising to 4.3 percent next year from about 3.8 percent this year or within the Central bank’s target of 3.5-5.5 percent this year and 3-5 percent next year.

“Even as inflation remains well behaved for now, we believe current real interest rates are too low for such a strong economy,” it added.

The Central bank’s Monetary Board slashed its key policy rates by 200 basis points between December 2008 to July 2009 to cushion the impact of the global financial crisis on the domestic economy. This brought the overnight borrowing rate to a record low of four percent and the overnight lending rate at six percent.

The Central bank has kept its key policy rates unchanged for 12 straight policy setting meetings due to the benign inflation outlook.