Arroyo confident government will meet deficit target

President Arroyo reiterated confidence yesterday that the government will meet its P145-billion budget deficit target for 2001, although figures have yet to be finalized.

"We will probably meet the P145-billion deficit," Mrs. Arroyo said in a foreign correspondents forum. She said the government will also be able to balance its budget by 2006.

The Philippines sees its budget deficit shrinking to P130 billion in 2002.

Finance Secretary Jose Camacho said that barring any further natural or man-made disasters, the Philippines should expect a better year in 2002.

"We should also have a more relaxed budget with a broader and enhanced revenue base that will result in a smaller budget deficit target of P130 billion. We also expect prices to remain moderate and inflation to stay within the five-to six-percent level," he said.

In the same forum, the International Monetary Fund (IMF) said the government may have no other option but to raise taxes if it wants to meet its budget deficit target and have a balanced budget in the medium-term.

"It is going to be difficult for government to eliminate its budget deficit if it relies solely on improving its tax administration," Sean Nolan, IMF representative in Manila, said.

"At the end of the day, adjustments in taxes will have to be made," he added.

However, Camacho said tax adjustments are not the priority of the Arroyo administration. He said there are already several proposals submitted to Congress that are meant to increase the tax base as well as improve tax administration.

Nolan said tax administration won’t be enough if government wants to achieve fiscal balance, reiterating the recommendation of the IMF team last December to look at specific measures such as increasing the specific taxes on petroleum products along with an increase in value added tax (VAT) rate.

Earlier, IMF mission head Joshua Felman said an increase in excise taxes on petroleum products can be carried out without the oil firms passing these on to consumers.

The IMF said the government’s first order of business will be to balance its budget so that it will be stronger in coping with the harsh external environment in the coming year.

"A central challenge will be to restore fiscal balance, while ensuring adequate budgetary outlays for the government’s socio-economic reform program," Felman said.

He said this will require rebuilding of government revenues which observed, has declined significantly, relative to the GDP (gross domestic product) in recent years.

Meanwhile, Camacho said government is planning to raise $500-$600 million from foreign sources this year to service its funding needs, after a successful $750 million 15-year sovereign bond float on Wednesday.

He said there was an estimated $1.5 billion funding need for 2002, of which half has already been procured last year.

Government will use part of the funds raised from foreign sources to redeem maturing bonds, the amount which is not included in the total funding requirement of $1.5 billion, Camacho said.