Fitch says RP to miss balanced budget goal

By Ruben Hortelano

04/23/2008

International ratings firm Fitch Ratings does not expect the government to meet the much-ballyhooed balanced budget this year as the country grapples with the problem of soaring food prices.

Fitch nevertheless said the budget going into a deficit year is not the main problem for the country but more on the level of government debts.

A small deficit is understandable if growth continues, Fitch Asia Pacific Sovereign Group managing director James McCormack told reporters yesterday.

“Once debt ratios fall, you can’t be overcritical of public finance even if there’s a small deficit,” he said.

McCormack heads a team from the ratings agency which is in the country this week to meet with finance and monetary officials to assess the country’s fiscal situation.

McCormack indicated that even a P100-billion deficit can be tolerated if it can be matched by stronger growth this year. Percentage-wise of gross domestic product a P100-billion deficit could be quite small with strong growth, he said.

The government targets to balance its budget this year after years of being in deficit, but economic officials had stated that the government may defer the target due to measures to soften the impact of a slowing global economy and the rising prices of commodities, particularly rice.

The government is estimated to spend more than P53 billion this year to subsidize the price of rice sold to the poor.

Last year, the government posted a P12.4-billion deficit, which is below a P63-billion limit but this was done only after generating P90 billion from the sale of assets.

Finance Secretary Margarito Teves said the government is considering the possibility of delaying the balanced-budget goal given the current global economic situation.

Fitch rates the country three notches below investment grade and has a “stable” outlook on debts.

McCormack said Fitch “hasn’t alluded to any changes” in the country’s credit rating since it is still concerned about the “revenue side of public finance” or whether the government can sustain its revenue efforts.

“There will be probably some growth risks this year with weaker global environment but still debt ratios are quite going down and external side is still quite strong,” he said.

He also noted the government had grown less dependent on foreign borrowings and the country’s balance of payment position posting a $8.6 billion, higher than the $8 billion to $ 8.5 billion forecast of the Bangko Sentral ng Pilipinas due to strong dollar inflows primarily from remittances of Filipinos abroad and foreign investments.

“There are always positives and negatives. I think where we are right now (is) we’re sitting in the middle of a stable outlook,” McCormack said.

On the issue of rising rice prices, the Fitch official said the firm has not looked into this in connection with its effect on public finance “because there might be some subsidy issues and might be a broader public finance issue.”

Also, the plan to increase funding for the country’s staple food is a political issue rather than economic, he said.

”There may be some room to do something in terms of addressing that issue because it’s a legitimate social and political concern,” he added.

Back to top

For comments about this website:Webmaster@tribune.net.ph
The Daily Tribune © 2006