The country's budget deficit may swell to about P197 billion this year as the global economic meltdown cuts tax receipts, according to American banking giant Citigroup.
The projected budget shortfall, equivalent to 2.4 percent of gross domestic product (GDP), is slightly higher than the government's revised target of P177.2 billion or 2.2 percent of GDP.
Jun Trinidad, Citigroup economist, said they arrived at the wider deficit forecast after scaling down the tax to GDP assumption to 14 percent this year due to a lackluster revenue backdrop in fiscal year 2008.
He explained that poor macroeconomic conditions, rising layoffs and potential business failures, lack of tax reform legislation ahead of the May 2010 elections, and one-off dilutive effects of the corporate income tax reduction to 30 percent do not support a tax base and collection efficiency that can facilitate incremental gains in the tax to GDP ratio.
"With the official downgrade of the government's fiscal year 2009 macro assumptions and fiscal deficit target, we think local financial markets could be bracing for more negative economic readings - clearly a drag to market sentiment," said Trinidad.
He noted, however, that revenues from the government's privatization program could make up for the slack in tax collections by both the Bureau of Internal Revenue (BIR) and the Bureau of Customs.
"Privatization may again surprise on the upside. We assume privatization revenues (from sale of government assets) of only P10 billion this year," he said, adding that the government may opt to sell its 27 percent interest in diversified conglomerate San Miguel Corp. for a conservative price of P50 billion.
Last year, privatization proceeds, particularly from the sale of the government's remaining 40 percent stake in oil giant Petron Corp., helped raise non-tax revenues by 35 percent.
Earlier on Wednesday, Finance Secretary Margarito Teves reported the country's budget deficit widened to P68.1 billion or 0.9 percent of GDP last year from P12.4 billion or 0.2 percent of GDP in 2007.
The BIR, the government's main revenue-generating agency, confirmed that it missed its 2008 target by a whopping P67 billion, a new record high.
The bigger shortfall last year forced the country's economic managers to raise the budget deficit ceiling this year to P177.2 billion or 2.2 percent of GDP instead of the revised ceiling of P102 billion or 1.2 percent of GDP.
"We've highlighted in the past that a larger deficit target this year would enable the government to pursue a more aggressive fiscal expenditure stance, perhaps with a preference for quick-disbursing programs, without having to constantly worry about revenue slippage and fiscal performance," Teves said.
Likewise, the managers tightened the range of GDP growth to 3.7-4.4 percent instead of the previous forecast of 3.7 percent to 4.7 percent.