S&P sees Philippine economic expansion fall to 1%

STANDARD and Poor’s (S&P) forecast Philippine economic expansion to slow down to 1 percent this year due to the lower than expected first quarter growth and a significant shortfall in government revenues.

The government’s budget deficit ballooned by more than 556 percent to P123.2 billion in the first five months this year from last year’s P18.8 billion.

Revenues declined 2.5 percent to P104.2 billion for May and by 5.4 percent to P456.2 billion in the first five months.

“The long delay by Congress in passing crucial revenue measures is regrettable, as it prevents a much needed expansion of the revenue base. The low revenue base coupled with collection inefficiency in turn constrain the government’s ability to spend on needed human and physical infrastructure,” Agost Benard, S&P analyst, said.

This also delays the reduction of the fiscal deficit and associated debt burden, thereby “prolonging the country’s still relatively high vulnerability to shocks, such as adverse exchange rate movements,” S&P said.

“Given the constraints on fiscal resources, and the fact that the global recession appears to have bottomed, we believe that the government’s spending targets for this year are appropriate and affordable,” Benard, however, said.

The Department of Finance is pushing for the passage of three revenue enhancement measures, namely sin tax reform, the rationalization of tax incentives, and the simplified net income tax system.

The agency prefer the early passage of these three measures over other bills aimed at raising the tax on mobile phone use, and on so-called sin products like tobacco.

S&P earlier said it is keeping its current credit score of below-investment grade or junk on the Philippines, adding that this rating would likely persist in the next six months to a year.

A below-investment grade or junk rating means that a borrower—in this case, the Philippine government—would have to bear higher interest rates whenever it taps the bond market for its financing needs.

S&P affirmed the Philippines’ “BB-” long-term and “B” short-term foreign-currency sovereign credit rating.

The rating company also affirmed the “BB+” long-term and “B” short-term local-currency credit score on the country. –Lailany P. Gomez, Reporter, Manila Times