By Michelle Remo
Philippine Daily Inquirer
First Posted 23:16:00 06/16/2009
MANILA, Philippines—Citigroup said the Philippine government could have underestimated the budget deficit ceiling for the year.
According to the international investment bank, the government may incur a budget deficit equivalent to P350 billion, or about 4.5 percent of the projected gross domestic product for the year because of the need to shore up public spending and weak tax collection.
Citigroup’s deficit forecast is much higher than the revised ceiling of P250 billion, or 3.2 percent of GDP, set by the government’s economic managers.
The government deemed it prudent to revise the ceiling in view of the programmed spending for the year and the likelihood of a shortfall in tax collection, which they said would result from a slowdown in corporate earnings and restrained household incomes.
But according to Citigroup, the deficit for the year would be even higher than the government’s new target.
“The combination of weak cyclical environment … could lead to fiscal deficit [of about] P350 billion,” Citigroup said in a paper on the Philippine economy.
The investment bank said it didn’t help at all that the cut in the corporate income tax rate, from 35 to 30 percent, took effect in January this year when the government needed to maximize its revenue resources to fund rising expenditures.
“Tax policy handicaps that only began this year, like the reduction in the corporate income tax rate from 35 to 30 percent, and the increase in individual income tax exemption probably enforced the tax ratio to decline,” Citigroup added.
A deficit of 4.5 percent of GDP as projected by Citigroup would go beyond the 3.5 percent deemed manageable and acceptable according to international standards.
The International Monetary Fund earlier said the government’s budget deficit could be raised to as much as 3.5 percent of GDP this year without harming its credit standing. But any amount higher than that could erode confidence of the financial market on the Philippine government’s fiscal condition.
The government was forced to raise its deficit ceiling for the year to P250 billion from an earlier limit of P199.2 billion following the release of the first-quarter GDP report. In the first three months, the economy, measured in terms of its GDP, grew by only 0.4 percent, the slowest in 10 years.
Economic managers were likewise forced to revise their GDP growth target for the year from a range of 3.1 to 4.1 percent, to a range of 0.8 to 1.8 percent.
They said that with an economic growth of only 0.8 to 1.8 percent this year, tax collection would be reduced and the deficit could go as high as P250 billion.
Citigroup said that with the government’s budget deficit expected to balloon this year, from only P68.1 billion last year, higher interest rates on its borrowings could result.
MANILA, Philippines—Congress has practically abdicated the power of the purse to the executive branch, failing to scrutinize the annual national budget thoroughly and facilitating corruption in the process, a UN-financed study released Wednesday said.
“Congress is given four months to debate the budget. But, more often than not, debates—particularly in the House of Representatives—deal not with policy but rather parochial concerns,” said the 2008/2009 Philippine Human Development Report (PHDR).
“Questions about agency performance are asked only intermittently and superficially. Cost estimates of budget proposals are rarely challenged,” said the PHDR, sponsored by the UN Development Programme (UNDP) and the New Zealand Agency for International Development.
“Weak accountability is facilitated by weak congressional oversight, not only in practice, but in law. In fact, it is the executive and not Congress that wields effective power of the purse,” said Toby Monsod of the NGO Human Development Network, which conducted the study. Monsod is one of the principal authors of the report.
81 excess undersecs, asecs
The 173-page report scored the presidential practice of making “political appointees,” noting 81 “excess” undersecretaries and assistant secretaries as of December 2007 costing the government P58 million a year.
It said 56 percent of the political appointees were “not eligible.”
The Office of the President also accounted for most of the “excess” officials (31), “of whom 89 percent were ineligible,” it said.
The report said Congress, entrusted with control of the purse by the Constitution, had failed to “adequately validate the performance of agencies or the consistency of proposed budgets with state policy.”
“While the budget intends to allocate funds for identifiable deliverables, it pays no attention to whether deliverables from the previous year(s) have been delivered or not,” the report said.
Unused audit reports
“Part of the problem is that audit and accomplishment reports of previous years are not used intensively during the budget preparation and debate,” it added.
The report said agencies were required by law to submit quarterly work and financial reports to Congress, Commission on Audit, Department of Budget and Management (DBM) and Office of the President.
“However, agencies fail to meet this requirement in a complete and timely manner, to the chagrin even of the DBM, the executive’s own budget oversight agency. Congress in turn fails to pursue the matter,” the PHDR said.
The report also scored the “imbalance in the power of the purse” with the executive branch able to “override the mandate of the General Appropriations Act.”
The executive branch does this by not releasing funds, transferring “unused” appropriations to “savings and using this amount for other purposes,” using “discretionary, intelligence, or confidential funds—over which the legislature officially has no oversight—as well as ‘unprogrammed’ funds in the budget.”
By deciding the level of debt service, Malacañang can significantly affect the “total amount of resources in play over the year,” the report said.
Huge Palace funds
Monsod, who presented highlights of the report at its launch, said the amount of presidential funds beyond congressional oversight was “overwhelming,” making the pork barrel of lawmakers “seem almost petty.”
In contrast to the graft-ridden pork barrel that averaged P8 billion from 2004 to 2008, the report said the one-liner appropriations or the “lump sums” under the control of the President amounted to P224.44 billion or 16 percent of the national budget in the 2009 National Expenditure Program (NEP).
“In the spirit of transparency, it is crucial to find out which of these one-liners are actually backed up by plans and programs or which simply serve as discretionary funds,” the report said.
Also “scattered” in the 2009 NEP are P1.12 billion in confidential and intelligence funds used “upon the discretion of the President and are not subject to proper audit.”
“Although one must assume the necessary secrecy in the use of these funds, it is possible to create appropriate oversight mechanisms,” the PHDR said.
The report suggested a bipartisan legislative select committee to exercise oversight over confidential, intelligence and similar discretionary funds “with the condition that the details of the use of these funds cannot be divulged to anyone outside of the committee in the interest of national security.”
“Weak congressional oversight over (foreign financial aid) and other funds, combined with inherently powerful spending powers of the executive has, unfortunately, also invited corruption, weakening government institutions even further,” the report said.
49 assistants, consultants
The PHDR also pointed out that the numbers of “presidential consultants/advisers (PC/PAs)” have “significantly” risen from 2002.
There were 22 presidential assistants in 2002, 39 in 2003, 44 in 2004, 37 in 2005, and 49 in 2008, the report said.
“The number has risen significantly since 2002 after a steady decline in the 1994-1998 period (the Ramos administration), a slight spike in 1999 (the Estrada administration) and a sharp decline in 2001. By the beginning of 2008, however, the number of PC/PAs had reached an all-time high of 49,” Monsod said.
Monsod said the report noted that “overlapping bodies cause confusion and demoralization.”
“How, for example, are authorities defined between the presidential adviser on foreign affairs, the special adviser for energy affairs, and two presidential assistants for education, and the official Cabinet secretaries for these same portfolios?” she said.
“Even the designations themselves show confusion, for instance, as between the PA for job generation and the PA for food security and job creation,” Monsod said.
And there are the “task force on anti-smuggling” and the “presidential smuggling group to apprehend, seize, investigate and prosecute acts involving smuggling, unlawful importation and other similar violation,” she added. With a report from Rose Ann Samorin, trainee
MANILA, Philippines—Amid doubts raised on the Philippine government’s ability to stay on track of its fiscal target for 2009, three investment banks said they believed the budget deficit for the year would not exceed the official ceiling.
ING, Citigroup and JP Morgan said the Philippine government was unlikely to allow the budget gap to surpass the ceiling for the year—set at 2.5 percent of the targeted gross domestic product, or nearly P200 billion.
Although the government has made pronouncements it would pump-prime the economy through aggressive spending in social services and infrastructure, the banks said the government seemed unlikely to do it to the extent of breaching the deficit ceiling.
“If correct, our view that the worst of the global downturn was behind [during the first quarter], the restrained public spending should form into a trend and keep the full-year deficit within the official target,” ING said in a paper on its latest assessment of the Philippine economy.
The Department of Finance reported this week that the government posted a P7.9-billion budget surplus in April. But for the first four months of the year, the fiscal position was at a deficit of P111.8 billion.
Critics said the four-month deficit was big that it could lead to a breaching of the full-year ceiling. But the DOF said the latest data were not worrisome, insisting that the government’s full-year deficit would stay within target.
Citigroup agreed with the DOF, although it described a P200-billion deficit as something huge. Last year, the deficit stood at only P68.1 billion.
“The single-digit surplus [in April] would momentarily disrupt the expanding deficit trend. Nonetheless, our forecast of a hefty fiscal gap close to P200 billion this year remains intact,” Citigroup said.
According to JP Morgan, the government would not spend as much as it intended if its revenue goals would not be achieved.
The Bureau of Internal Revenue, which contributes the bulk of the government’s revenues, missed its collection target in April as it collected P87.1 billion in taxes compared with its goal of P100 billion for the month.
The BIR blamed the shortfall on the economic slowdown.
JP Morgan said revenue data as of April indicated that spending could also be lower than programmed for the year. The bank said the government would only stick to its expenditure program for the year if revenue targets were also met.
“Expenditures [for the year] may run behind plan,” JP Morgan said.
The goal of limiting the deficit to about P200 billion this year assumed revenue collection of about P1.2 trillion and programmed expenditures at about P1.4 billion.
By Des Ferriols Updated April 28, 2009 12:00 AM
MANILA, Philippines – The Development Bank of Singapore (DBS) said it is possible that the country’s budget deficit will exceed the worst-case scenario of P256 billion as predicted by Socio-economic Planning Secretary Ralph Recto.
Because of dimming fiscal conditions, DBS said the Philippine peso will not fare well as long as the government’s budget deficit is causing worries over fiscal sustainability and the exchange rate is seen dropping to P51.5 by 2010.
DBS said its medium-term outlook for the Philippine peso is negative as the cumulative budget deficit surged to P119.7 billion in the first quarter, more than twice the level in 2008.
“Historically, the peso does not perform well when fiscal worries increase,” DBS said. “The peso is also not helped by slowing overseas worker remittances, which will no longer help the current account offset the persistent trade deficits.”
DBS said the country’s fiscal deficit is under widening pressure from both falling government revenues and rising expenditures.
“It is well possible that the budget deficit will not only surpass the official estimate of P199 billion for the full year, but also Economic Planning Secretary Ralph Recto’s current worst-case estimate of P257 billion,” DBS said.
“If revenue collection does not improve in the second quarter and the second half of 2009, the government would have to spend less than P91 billion on average per month to keep the deficit below P257 billion,” DBS said.
DBS pointed out that actual government expenditure levels going that low are unlikely in the current environment because P91 billion would be much less than the average monthly expenditure in 2008, which was P106 billion.
“Therefore, much depends on revenue collection which is unlikely to be boosted amid slowing economic growth,” DBS said.
Moreover, DBS said the market is not likely to be enthusiastic about the need for the government to return to the international debt market to raise funds, not when its latest balance of payments registered a deficit from debt repayments.
“Hence, we will keep a moderate depreciation profile for the peso, and see $/peso rising to 50 by the end of the second quarter in 2009 and to 51.5 by the end of the first quarter in 2010,” DBS said.
By Des Ferriols Updated April 24, 2009 12:00 AM
MANILA, Philippines – Government borrowings soared 130 percent in the first quarter of this year as the budget deficit of the Arroyo administration more than doubled during the review period.
Data from the Bureau of the Treasury (BTr) showed that the government borrowed a total of P351.29 billion from January to March this year – about P198.86 billion more than the P152.43 billion it borrowed in the same period last year.
The Department of Finance (DOF) said the increase in government borrowing was made necessary as the deficit also increased to P119.7 billion, overshooting its quarterly ceiling and surpassed its P51.6-billion deficit over the same period last year.
The government’s foreign borrowings increased by more than four-fold to P95.68 billion in the first quarter of the year from P22.36 billion.
The increase resulted from the doubling of the government’s foreign commercial borrowing from $750 million last year to $1.5 billion.
The government also availed of more official development assistance loans from multilateral lending institutions such as the World Bank, Asian Development Bank, Japan Bank for International Cooperation, and others.
Official development assistance or ODA loans in the first three months included P9.622 billion from the World Bank’s International Bank for Reconstruction and Development for “Food Crisis Response,” another P7.056 billion from ADB for the “Government Justice Reform,” and P4.63 billion from JBIC for the Development Policy Loan.
These were quick-disbursing program loans that went directly into the budget.
The government also used up P2.99 billion worth of project loans from international lenders in the first quarter of the year—these were funds that would be spent specifically on projects lined up for the purpose.
On the other hand, the government’s borrowings from domestic creditors almost doubled P255.61 billion in the first quarter from P103.1 billion in the same quarter last year.
Data showed that the BTr issued P144.5 billion worth of five- and seven-year benchmark bonds as it retired P136.6 billion worth of existing bonds in January as part of measures to boost the liquidity of the domestic bond market.
On the other hand, the BTr said the country also paid P321.8 billion worth of foreign-denominated debt as well as Treasury bills (T-bills) and Treasury bonds (T-bonds) from January to March, or P182.68 billion more than the P139.12 billion it paid in the same period last year.
In all, the BTr said the government borrowed P29.49 billion in the first quarter to finance the budget deficit.
The Arroyo administration has increased its borrowing for 2009 to P613.9 billion after it revised its deficit ceiling from P172 billion to P199 billion in anticipation of a bigger slowdown in the economy.
The bulk of this year’s government borrowing will remain domestic, but the proportion would decline slightly to 72 percent from the previous level of 75 percent.
Finance Undersecretary Roberto Tan announced that the revisions in the borrowing requirement for this year stemmed from the increase in the deficit ceiling.
The government was also forced to increase the amount it had to borrow because revenues were declining this year, indicating that there would be no other way to finance the increase in its spending.
MANILA, Philippines—The House of Representatives will need about P2.31 billion for the pork barrel alone of the additional 33 party-list lawmakers that should be proclaimed because of a Supreme Court ruling that is effective immediately. This, on top of the P200 million needed for their staff and day-to-day operations.
The amounts exclude the expenses for their new offices, electricity and other needs for the remaining eight months of the year, Speaker Prospero Nograles said in a statement.
On Tuesday, the Supreme Court increased to 55 the number of seats in the House for party-list groups, or 20 percent of the chamber as prescribed by the Constitution, when it ordered the Commission on Elections (Comelec) to follow a new formula for allotting party-list seats.
There are currently 22 seats in the 14th Congress occupied by party-list groups.
Each member of the House is entitled to P70 million a year in Priority Development Assistance Fund, more commonly known as the pork barrel, to finance their pet projects. Senators get P200 million a year.
The pork barrel is not given in cash, though. The lawmakers just identify the projects and beneficiaries for which funding should be allocated.
A total of P200 million is needed for the salaries of the lawmakers’ staff, office supplies and other office needs.
A lawmaker is entitled to a minimum of six regular staff members in the House, plus consultants.
Lawmakers also get transportation allowances, which varies depending on where their districts are located.
The House would need to pass a supplemental budget to fund the new lawmakers’ needs, according to Camarines Sur Rep. Luis Villafuerte and Cebu Rep. Pablo Garcia.
Garcia said the budget for 2009, which was already signed into law by President Gloria Macapagal-Arroyo, was intended for a House of 240 members.
Nograles also has another problem aside from where to get the funding.
Where to put them
He does not know where to put his 33 new colleagues since there are no office spaces currently available.
“My other problem is where to put these new party-list congressmen and where to get new funding for their staff and day-to-day operations because they have no allocation under the 2009 General Appropriations Act,” the Speaker said in a statement.
The other day, Nograles said that if there would be no budget for the new lawmakers, “then everybody takes a cut, I guess.”
He said new offices would be available at the Batasan Complex in Quezon City after the completion of the four-story South Wing Annex Building. The P700-million building is expected to be finished next year.
But the Speaker said he had no choice but to accommodate the 33 party-list representatives.
By Iris C. Gonzales Updated February 26, 2009 12:00 AM
MANILA, Philippines – The National Government (NG) incurred a budget deficit of P68.1 billion in 2008, well below the target of P75 billion, Finance Secretary Margarito Teves said yesterday.
At the Philippine economic briefing yesterday, Teves said the 2008 deficit represents 0.9 percent of gross domestic product (GDP) or the country’s total economic output.
“This was an over-performance of P6.9 billion compared with our programmed deficit of P75 billion or one percent of GDP for the year,” he said.
Revenue collections reached P1.202 trillion or P22.3 billion below the program for the year while expenditures reached P1.271 trillion or P29.1 billion below the program.
Of the P1.202 trillion in revenues, the Bureau of Internal Revenue (BIR) collected P778.6 billion or P31.4 billion below the revised collection goal of P810 billion while the Bureau of Customs (BOC) generated P260.2 billion for the year or P13.8 below its revised revenue target of P274.1 billion.
The Bureau of the Treasury (BTr) collected P63.7 billion while revenues from other offices amounted to P100.4 billion.
In December alone, the National Government incurred a deficit of P1.4 billion as revenues reached P121.3 billion while expenditures reached P122.8 billion. The December budget gap was narrower than the P4.3 billion deficit posted in November 2008.
During the month, the BIR collected P57 billion while the BOC collected P18.8 billion. The BTr generated P6.3 billion in December while revenues from other offices amounted to P39.2 billion during the period.
Teves expressed hopes that the two government agencies would be able to raise enough revenues for the year to be able to cope with the global financial crisis.
He is asking Congress to support pending legislative measures that would enhance tax revenues.
These include the measure to rationalize tax incentives and the so-called simplified net income tax scheme (SNITS) measure. Another measure is the proposal seeking to raise cigarettes on alcohol and cigarettes.
“The unprecedented challenges confronting us this year require extraordinary strength. We have to be tough to overcome these serious threats to fiscal and economic stability,” Teves said.
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