Gov’t overshoots H1 deficit target

The Arroyo administration breached its budget deficit target in the first half of 2004, but the 0.6 percent overshoot was smaller than expected as the government reined in spending in June, the Department of Finance (DOF) reported yesterday.

The finance department said the closely watched gap between spending and revenues reached P80.1 billion in the first six months of the year, versus the target of P79.6 billion.

An overshoot was widely expected after a spike in the deficit for the year through May due to spending related to national elections that month. This pushed the shortfall for the first five months to within P2 billion of the first-half target.

Revenues for the first half of the year reached P343.3 billion, 3.1 percent higher than the expected revenue collection of P332.8 billion. However, expenditures reached P423.4 billion, overshooting the target of P412.4 billion for the six-month period.

The Department of Budget Management (DBM) said that increase in spending was traced to increases in the settlement of accounts payable and election-related spending.

During the period leading up to the elections, the Arroyo administration also spent heavily on payments of pensions and retirement benefits of policemen and the settlement of landowners’ compensation under the agrarian reform program.

Budget Secretary Emilia Boncodin said that the increase in spending was "deliberate," especially since the government expected an improvement in its revenue position.

"We’re still very on track to meet the full-year target. We’re exercising fiscal discipline," Finance Secretary Juanita Amatong said.

The government has a full-year goal of P197.8 billion, or 4.2 percent of gross domestic product (GDP), slightly lower than last year’s deficit of P199.9 billion.

Analysts had expected a sharper overshoot for the first half.

"It could have been much worse, bearing in mind the expected over-spending during the elections in the second quarter," said Danny Suwanapruti, an analyst at Forecast in Singapore.

Based on the first-half figure given by Amatong, the June deficit was P2.7 billion, down from P4.2 billion a year ago.

That means the second quarter deficit of P23.3 billion was more than 12 percent above target. The first-quarter deficit was about P2 billion within target.

Revenues reached P343.3 billion, in the first half, above the target of P332.8 billion, Amatong said. Spending totalled P423.4 billion, exceeding the target of P412.4 billion.

Quality Not Quantity

Song Seng Wun, regional economist at G.K. Goh Securities, said the government should be able to meet the full-year target, but expressed concern about the huge portion of spending that goes towards financing the country’s debt.

"What concerns me is not the deficit level, but the quality of deficit relative to revenues and spending," he said.

"The government is spending not for the economy or maintaining infrastructure but paying for borrowed money."

The Philippines – Asia’s most active sovereign debt issuer outside Japan – has outstanding debt of about $61 billion, and spends about a third of revenues funding that borrowing.

Moody’s Investors Service joined Standard & Poor’s in rating the country’s credit two notches below investment grade in January on concerns about a government debt pile worth 77 percent of GDP.

Economists and investors say newly re-elected President Arroyo needs to reinforce efforts to reduce chronic tax evasion and corruption. Those attempts had little impact during her first three years in office.

"We still expect investors to be cautious, with markets unlikely to receive a significant boost from this figure since the government is not completely out of the danger zone," Suwanapruti said.