The Philippine Online Chronicles

Whether they like it or not, presidential aspirants are potential heirs to a record-high budget deficit as the Arroyo government spent more than what it earned. The Filipino people, meanwhile, stand to feel the lasting effects of President Gloria Macapagal Arroyo’s unsound fiscal policies.

The 2009 budget deficit could hit P290 billion-P298 billion as estimated by Department of Finance Secretary Margarito Teves, BusinessWorld reported. Teves attributed the gaping deficit to "combination of unfavorable external developments, some revenue-eroding measures, and result of the damage caused by typhoons.”

Apart from the reasons cited by Teves, poor tax collections significantly contributed to the drying up of national coffers. The Asian Development Bank (ADB) said the higher-than-expected deficit “was caused by the failure of the Bureau of Internal Revenue (BIR) to meet its monthly tax collection goals,” Inquirer.net reported. In the 11-month period last year, the BIR fell short of P50 billion from its target, citing the devastation wrought by typhoons as the main reason.

Early last year, the government also blamed its P330-billion Economic Resiliency Plan for bloating the deficit. But independent think-tank IBON Foundation said in its special report that “the Arroyo administration's deficit problems are not due to any stimulus efforts to deal with the crisis but because it is not addressing the roots of the deficit problem: graft and corruption, trade liberalization, foreign investment incentives, unproductive debt service and military spending.”

The near-P300-billion deficit blew past the government’s P250-billion ceiling for the year, which was surpassed in just 10 months. This amount is by far the largest under the Arroyo administration, larger even than that of previous regimes. Earlier government estimates even put the yearend budget deficit at P320 billion, or roughly four percent of the country’s 2009 gross domestic product (GDP).

In view of the staggering deficit figure, the Bangko Sentral ng Pilipinas (BSP) has urged the Arroyo government to go back to the “deficit reduction path” this year to give the country “better chances at cornering a bigger share of rising foreign direct and portfolio investments,” Inquirer.net reported.

Even credit rating agencies have raised their warning of a worse fiscal position for the Philippines in 2010 as government spending dramatically exceeded revenues last year. Fitch Ratings projected that the budget shortfall this year could swell to as high as P320 billion. Meanwhile, Moody’s Investors Service said the budget deficit may hit P291 billion or 3.5 percent of the GDP, citing the lingering effects of global economic recession, reported GMANews.tv.

Despite the bleak projections, local experts said the budget deficit problem is not in a worrisome situation yet if it is to be viewed of the current global economic crisis, ABS-CBNnews.com said.

From deficit to debt crisis

Still, a deficit crisis with a price tag of P300 billion has serious impacts on the lives of ordinary Filipinos. The country’s dependence on foreign borrowing dictates that easing a record-high fiscal shortfall comes in the form of incurring more tons of debt. Under this setup, a widening deficit can actually translate into debt burdens on present and future generations.

In September last year, the national government’s outstanding debt stood at P4.338 trillion, up P115 billion from the August level. With this total debt stock, each Filipino now owes P47,039 to local and foreign creditors, ABS-CBNnews.com reported.

In an effort to partly plug the widening deficit, the Arroyo government has planned to open 2010 with $2 billion in new debts, the Daily Tribune reported. On the first week of the year, the country incurred a $1.5-billion loan from a global bond sale, Asia’s first international bond offer for the year, GMANews.tv reported. The report added that the “government needs to borrow from the global debt market to plug a swelling budget gap, brought about by poor tax collections, inability to sell state assets and the need to spend on reconstruction following the devastation left by typhoons Ondoy and Pepeng.”

Next month, the government said, it might sell anywhere between 500 million and one billion euros worth of global bonds to “cover a yawning budget deficit” besides financing its maturing loans.

Due to the Arroyo government’s borrowing binge, cumulative gross borrowings from 2001 to 2009 has stood at an all-time high. IBON Foundation noted that the “Arroyo administration has earned the reputation of being the biggest debtor and payor in Philippine history, which is quite ironic for an administration that is also notorious for big-ticket corruption.”

A special report of ABS-CBNnews.com showed that the Arroyo government’s borrowings were way higher than those of the administrations of Cory Aquino, Fidel Ramos and Joseph Estrada combined.

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‘Fiscal flare-up’

Raising concern over the country’s ballooning debt, Sen. Loren Legarda warned of a worse fiscal crisis this year due to the “extravagance and over-borrowing of the Arroyo administration” in the past nine years, Philstar.com reported. Legarda said the Philippines may find it extremely difficult next year to acquire loans to finance national and local needs “because of the fiscal irresponsibility, overspending, corruption and over-borrowing of the administration.”

Early in October last year, University of the Philippines economics professor and former budget secretary Benjamin Diokno said the next administration “may face a fiscal crisis due mainly to dwindling revenues and legislated tax cuts.”

IBON Foundation has urged presidential aspirants to bare plans on debt and deficit crisis as it anticipates a “major fiscal flare-up” this year as the gap between national government revenues and expenditure continue to widen.

Midnight sale, new taxes

With barely four months before elections, the government is embarking on last-minute measures to narrow down the budget deficit. The success of these strategies, however, remains blurry as they run counter to the main goal of raising revenues and at the same time against public sentiment.

Last month, Finance Secretary Teves disclosed the government’s plan to sell its 60 percent stake in oil and gas company Philippine National Oil Co. – Exploration Corp. (PNOC-EC) to supposedly raise revenues, ABS-CBNnews.com reported.

But PNOC-EC officials have asked the government to spare the company from the list of government assets to be sold, arguing that PNOC has been a consistent revenue-earner for the government, Philstar.com reported. In a separate article, PNOC-EC was reported to have remitted P500 million to the government by the end of the year, proving its revenue-generating capacity.

Manila Standard Today reported that more assets are lined up for sale this year, including the controversial Fujimi property in Tokyo, Japan; the 102-hectare Food Terminal Inc. in Taguig; and the 24-percent government stake in San Miguel Corp., which is expected to raise around P50 billion.

But Senate Minority Leader Aquilino Q. Pimentel, Jr. warned President Arroyo against engaging in midnight sale of government assets, “to allay the apprehensions that such business deals are part of the fund-raising campaign for administration candidates in the 2010 elections.”

Labor center Kilusang Mayo Uno also opposed transfer of government properties to the private sector, saying privatization schemes cause massive worker layoffs.

Around September last year, administration lawmakers also proposed new tax measures to supposedly push revenues up, including a bill seeking to tax text messages. Government estimated that the proposed tax could raise between P20 billion and P36 billion a year.

Expectedly, the proposed measure drew strong criticism. Sen. Manny Villar said the proposal is an additional burden to the poor. Consumer group TXTPower meanwhile slammed the Arroyo government for pushing “a new and regressive tax in the middle of a worldwide economic crisis” instead of helping the people through safety nets.

Seeing through the gap

As time runs out, the government is still optimistic that it can narrow down the widening budget deficit. President Arroyo even said in an interview with GlobalSource Partners that the country is on track to a balanced budget by 2013.

Among the bright areas that the government is looking forward this year is the elections, which is expected to boost the economy. The BIR eyes up to P1.4-billion from election-related taxes, including the 5% withholding tax on all political contributions and expenditures of candidates running for public office.

Yet the BSP itself admitted that economic gains from the elections will just be minimal and temporary. The projected P1.4 billion revenue from election-related tax collection may not even cause the slighest relief from the P300-billion deficit. Privatization schemes in the past have already dried up the treasury and have deprived the government of possible revenue sources during these critical times.

IBON Foundation warned that the current deficit crisis could repeat the disastrous effects of the huge fiscal deficit in 2002, which ushered in a “long period of soaring debt service and declining spending on social services which culminated in the implementation of the regressive RVAT in November 2005.”

On January 14 to 15, top officials from around Asia will gather at the ABD headquarters in Manila to discuss the impacts of the global financial crisis in Asia and to agree on policy adjustments.

It remains to be seen, however, whether regional consensus on “policy adjustments” will avert a local sustained fiscal crash.

Photo: “i made rizal fly” by rein sy, c/o Flickr. Some Rights Reserved.