Gov't sticks by budget deficit target despite shortfall

MANILA (AFP) - The Philippines said Wednesday that it was confident of meeting its 2007 budget deficit target despite a report by credit rating agency Fitch that it will double to 125 billion pesos (2.78 billion dollars).

Finance Secretary Margarito Teves said the report was disappointing but added that the government remained confident of meeting its target ceiling of 63 billion pesos, or 0.9 percent of the gross domestic product (GDP).

Fitch Ratings said Tuesday it does not expect the government to be able to meet that target given a disappointing first half fiscal performance.

"Fitch did not really say anything new. All Fitch did was double the deficit that was programmed for this year and arrived at 125 billion pesos," Teves said during a briefing.

Weak tax collection pushed the budget deficit to 41 billion pesos (906 million dollars) in the first half, exceeding the 31.3 billion-peso target.

Teves stressed the government will continue to intensify revenue raising efforts while it also seeks to cover any shortfall in tax collections from planned asset sales in the second half.

Based on the first semester data, Fitch projected the budget deficit for 2007 to hit 125 billion pesos, equivalent to 1.9 percent of GDP.

That amount excludes revenue from planned asset sales in the second half.

James McCormack, head of Asia Sovereigns at Fitch, said the rating agency doubts Manila can collect more taxes in the second half to cover the shortfalls of the first.

"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," McCormack said.

But Teves said he remained hopeful the government will raise more than 100 billion pesos from the sale this year of its stakes in thee big-ticket companies -- geothermal power producer PNOC Energy Development Corp., power distributor Manila Electric Co., and food and beverage group San Miguel Corp.

Fitch said it is critical for government revenue to increase if public spending needs are to be met without incurring additional debt.

"In the absence of a significant improvement in tax collection, it will not be possible for the Philippine government to implement its ambitious -- and much-needed -- infrastructure development program," it said.

"That, in turn, would jeopardize the country's medium-term economic growth outlook, and ultimately, undermine its sovereign creditworthiness."

On Monday in her state of the nation address, President Gloria Arroyo promised an ambitious 1.7 trillion pesos infrastructure programme over the next three years that would help turn the Philippines into a first world country within the next 20 years.