EDITORIAL - Now sustain it

Several months after three major credit rating agencies upgraded their outlooks on the Philippines, Moody’s Investors Service finally followed suit the other day, raising its outlook on the country from negative to stable. Moody’s had deferred an upgraded outlook last February, saying it first wanted to see if the government could collect the expected revenue and meet fiscal targets following the imposition of a higher value-added tax.

After considering the country’s fiscal performance in the first three quarters of the year, Moody’s has joined Fitch Ratings, Standard & Poor’s and Japan Credit Ratings Agency in giving the Philippines a stable debt outlook. The country’s fiscal targets for 2006 appear attainable, Moody’s said, with deficit reduction on track and prospects bright for further reduction in the coming year. The central bank governor said the upgrade was a vote of confidence on the sustainability of the country’s economic reforms.

This vote of confidence, however, can be reversed if the country backslides on those reforms. Corruption and inefficiency continue to bedevil revenue collection. An official of Moody’s noted that deficit reduction may no longer be as readily achievable as in previous years. Of particular concern, even for Philippine finance officials, is reckless government spending for the elections in May 2007.

The spending may not be directly linked to the campaigns of specific individuals or political parties. But political patronage may be doled out at taxpayers’ expense, with public funds wasted on badly planned and non-priority projects. Already the House of Representatives, in preparation for the approaching campaign, has restored the congressional pork barrel for both chambers to levels before economic experts started warning about a possible fiscal crisis.

Budget officials allayed such fears yesterday, vowing discipline in public spending even in an election year. Government fiscal managers have also vowed to further improve revenue collection and promote the judicious use of public funds. The markets welcomed Moody’s upgrade yesterday. That jubilation can quickly end if the fiscal performance and economic reforms that led to the upgrade are not sustained.