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THE government plan to triple its foreign commercial borrowing next
year represents a sharp reversal from its current tack of trimming
its external liabilities in favor of domestic debt.
Last week, the Department of Finance said the
government would borrow $1.5 billion from abroad in the form of
sovereign bonds or IOUs. This is three times the $500 million
programmed for this year.
Besides the commercial component, the government
would also tap $1.1 billion in official development assistance (ODA)
or foreign donor aid, which is less stringent as the loans are
relatively longer-term and charge interest below commercial rates.
The ODA is broken down into $500 million program
loans and $600 million project loans. Program loans are tied to
policy reforms and so their disbursement would depend on how fast
Congress acts on the proposed measures tied up to the aid.
The huge amount to be sourced from abroad
indicates that revenue agencies would still be unable to address the
government’s bigger funding requirements for next year. The Arroyo
administration has submitted to Congress a P1.415 trillion spending
plan, which is higher than this year’s approved budget of P1.2
trillion.
The government expects to raise P1.393 trillion
in revenues to finance next year’s proposed budget, or higher than
this year’s P1.25 trillion collection goal. This presumes that the
domestic economy, as measured by the country’s gross domestic
product (GDP), would grow between 6.1 percent and 7.1 percent in
2009, or faster than this year’s target of between 5.5 percent and
6.4 percent.
Of the revenues expected to come on stream next
year, about P1.28 trillion would be in the form of various taxes,
for a collection efficiency of 14.7 percent of GDP, or slightly
higher than this year’s expected 14.6 percent. Tax revenues would
finance 90.4 percent of next year’s budget, or down from 91.6
percent this year.
Non-tax revenues would fall to P114.4 billion
from this year’s P127.3 billion after the finance department cut
the privatization target to P10 billion from last year’s over P90
billion in actual proceeds.
Despite the higher tax revenue target, the
government still expects to incur a budget deficit of P40 billion to
P45 billion, which is lower than this year’s ceiling of P75
billion. This is where the planned borrowing comes in by definition,
as whatever amount the revenues cannot cover will be made up for by
loans.
So far, the government’s efforts to trim its
debt, especially the foreign commercial component, have generated a
lot of goodwill from the international financial community. The
major credit rating companies have put on notice that an upgrade may
be in the works, considering the positive outlook they have on the
Philippines.
We cannot overemphasize the benefits of a credit
rating upgrade, as this would not only make it cheaper for the
government and companies to borrow money abroad, but also open the
country to a vast reservoir of foreign investments heretofore
forbidden by their charters from placing their bets on a market that
is rated junk or below investment grade.
So far, the creditor community has been generous
enough to turn a blind eye on the government’s decision to push
back its balanced-budget target to 2010, given the unanticipated
spike in prices worldwide and the global economic slowdown.
The country’s revenue-generating agencies
should take their cue from this unusual goodwill, and roll up their
sleeves to show us the money the government desperately needs this
year onwards.
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