Aquino, for one, needs to think of how to fix the nation’s fiscal purse. His focus on this pressing reality is a must, because a government with a coffer in negative territory will not be able to fund growth and spend on infrastructure and other projects to stimulate the economy.
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Fitch Ratings said Aquino must support the administration of outgoing President Gloria Macapagal-Arroyo's plan to increase spending and raise more revenue this year, as the nation seeks to continue its recovery from last year’s global economic slump.
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Should the government spend extra revenues effectively, it could push the economy’s long-term growth in a way that could “lead to a sustainable rise in incomes and higher ratings in the future," said the New York- and London-based global rating agency that supplies the world credit market with independent and prospective opinions, research, and data on credit. The government has raised this year’s spending budget for public works, salaries and debt payments to a record P1.62 trillion from a previous forecast of P1.58 trillion.
Revenue, including gains from the sale and lease of assets, may climb to P1.3 trillion compared with an earlier estimate of P1.28 trillion.
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Stand on taxes
“We’re still cautious about [this] deficit, especially with the stand of the new administration not to impose new taxes," said Michael Joseph Delfino, Metropolitan Bank & Trust Co.’s head of fixed-income trading of local-currency debt.
Developing Countries--by Analytical Criteria: Balance of Payments and External Financing [1].(Statistical Data Included): An article from: World Economic Outlook
Policy makers predict the budget shortfall to be little changed at P297.2 billion this year from a record P298.5 billion in 2009. That is more than the P293.2-billion gap forecast earlier.
According to government forecast, this year’s budget gap is estimated at 3.6 percent of gross domestic product (GDP) from 3.9 percent last year. Fitch expects the deficit will be 4 percent of GDP, excluding asset sales. A widening budget gap means less government spending on social services and infrastructure.
The government may opt to borrow more to fund its shortfall to maintain the delivery of its services. This could push interest rates higher that roughly translates into higher cost of doing business.
For Juan de la Cruz, this could mean some adjustments in the cost of living and a salary increase may be hard to get.
“Aquino’s biggest challenge is how to manage the deficit," said Steve Sevidal, who helps manage $880 million at United Coconut Planters Bank.
Put under question
If the President-elect would not properly address and manage the budget deficit dilemma, the confidence in his administration’s ability to manage the government and the economy would be put under question, Sevidal said.
Finance Secretary Margarito Teves has proposed to raise the Expanded Value-Added Tax or E-VAT to 15 percent from the current 12 percent at 1-percent gradual increases per year.
Teves said the government stands to generate P11 billion to P30 billion in the first year, P30 billion in the second year, and P40 to P50 billion in the third year with the new E-VAT rates.
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However, Aquino told reporters in April that he would go after tax evaders and corrupt government officials to ease the revenue shortfall. On June 9, he said new taxes would be the last step to narrow the deficit.
The proposed reforms on the excise tax on tobacco and cigarettes as well as petroleum products could generate up to P40 billion, according to the Finance Department.
Help reduce borrowing
Developing Countries: Debt-Service Ratios [1].(Statistical Data Included): An article from: World Economic Outlook
Economists from the University of the Philippines School of Economics are also pushing for a higher value-added tax and the lowering of the income tax, Finance Undersecretary Gil Beltran said.
Higher taxes may help reduce local and overseas borrowing, which is forecast to total a record P718.5 billion this year.
Funds are also needed for the roads, seaports and airports required for the Philippines to compete for foreign investments. The Philippines received $1.5 billion in foreign direct investment in 2008, against $9.8 billion for Thailand and $7.9 billion for Indonesia, Association of Southeast Asian Nation statistics showed.
As a result of underinvestment that could create jobs, more people are going abroad. In 2008, 1.2 million left for jobs abroad.
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Still, the money sent home by overseas Filipino workers, which totaled $5.86 billion in the first four months, continues to finance consumer spending.
Unfortunately exporting people
“Governance affects economic development," said Bert Hoffman, World Bank’s country director. “The labor force remains highly skilled. Unfortunately, the country is exporting people."
To attract investments, Aquino earlier said he would promote free and fair competition in a level playing field. “We will streamline the approval process, not only for setting up new businesses but also in regular day-to-day transactions with the government. We will also directly target industries with the greatest potential for growth and where the Philippines has a competitive advantage," he added.
The government raised this year’s growth forecast to 6 percent after the economy expanded by 7.3 percent in the first quarter, from 1.1 percent a year earlier, largely on consumer and election-related spending.
Aquino has also focused on combating poverty in nation where one in four people live on less than $1.25 a day, according to World Bank data.
Aquino said he would extend social programs to all people, ensure that the informal sector would gain access to credit and full protection of law, and implement an expanded conditional cash-transfer program.
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Aquino, who had no plans of running for president until the death of his mother, former President Corazon Aquino, in August, also made the fight against corruption a mainstay of his campaign pledges. VS
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