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By Angelo S. Samonte, Reporter
AFTER the overhaul at the Bureau
of Internal Revenue (BIR), all eyes are on the Philippines’ June
fiscal performance, which is seen as key to the government’s
attainment of its budget deficit target this year.
“Leaving aside the question of
global risk aversion, from a local point of view a major question is
how determined the administration is in achieving its targets,”
UBS said. “The June performance will confirm if the government’s
annual targets are on track,” it added.
The foreign investment bank said
that the May deficit puts the government’s second quarter targets
at risk. The local bond market has been volatile in recent weeks
partly due to the disappointing fiscal data for May, which has held
back any significant return to the low yields of that month.
“Yesterday’s replacement of
the commissioner for the [BIR] underlines a commitment to meet
revenue targets,” UBS said.
The first five months deficit has
already exceeded the government’s first-half target ofP31.2
billion by P10.6 billion. While this could be a signal of more
permanent slippage, a comparison with last year’s dramatic
improvement still looks favorable, the bank said.
“The question is how long can
the improvement last. In our view, the result at the end of this
year may still end up reasonably close to the official target of P63
billion that is around 1 percent of [economic output], which would
be close to last year’s performance. June ought to see an
improvement, seasonally it has been a surplus month so a number
bigger than P10 billion would put the trend back on track,” UBS
said.
Although the second half is
usually the slack season when spending slows, a worrying sign is the
steady rise in expenditures, which have crept into the mid-teens
year on year, the bank said.
The BIR tax collection growth has
slowed down to around 10 percent in recent months, or back to 2004
growth rates. At some stage, too large a divergence here would pose
a more serious market risk, the bank said.
However for now, there is still
room for intra-year catch up and the bank said it continues to
expect that the 2007 deficit will be either on track or not far from
it.
“Hence, the fiscal risk to bond
markets is probably overexaggerated at present,” it added.
For its part, DBS Bank Ltd. of
Singapore said it is getting increasingly uncomfortable with the
high degree of dependence on asset sales to make up for below target
tax revenues.
“As we saw earlier this year, the government’s sale of its
46-percent stake in Philippine Telecommunications Investments Corp.
did not manage to bring revenue collection on target,” it said.
The government plans to raise
another P65 billion from stakes in other listed companies, including
San Miguel Corp., Manila Electric Co., PNOC-Energy Development Corp.
and Philippine National Bank.
“Should equity market
conditions prove unfavorable then these sales would raise less than
estimated, or worse, could be shelved entirely. These are not
possibilities to be discounted—as the monetary [authorities]
remain biased toward further tightening over the course of the
year,” DBS said.
Separately, UBS said the Bangko
Sentral ng Pilipinas (BSP) may tighten interest rates in the second
half to reduce money supply growth and keep inflation low.
The investment bank said this
would also involve raising the tiered structure of interest rates,
which the BSP imposed to encourage more bank lending to the public.
 --With
Maricel E. Burgonio
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