BSP won’t revise assumptions

Despite fears of a fiscal blowout looming over the horizon, the Bangko Sentral ng Pilipinas (BSP) said it is still too early to press the panic button and start considering the impact on macro-economic fundamentals.

BSP Governor Amando M. Tetangco Jr. said over the weekend that the BSP is still using the assumption that the fiscal deficit for the year would be in the P63-billion level set by the government.

According to Tetangco, the projected foreign exchange inflow for the year is still set at the $26.6-billion level with a steady inflow of portfolio investment and foreign direct investment unfazed by the possibility of a larger deficit.

“We are still using the same assumptions, we are still looking at the scenario laid out by the finance department including the option of generating revenues from privatization,” Tetangco said.

According to Tetangco, privatization revenues are non-recurring gains but the BSP is optimistic that the tax administration reforms laid out by the Department of Finance (DOF) would boost revenue collections in the succeeding years.

In the event of another fiscal blow-out, the immediate impact would be on foreign exchange inflows when investors decide to dump Philippine bonds and equities, ultimately affecting the foreign reserves and the balance of payment.

Tetangco brushed aside these speculations, however, saying it is too early to anticipate the fall-out from a widening deficit that may or may not happen.

“As far as we are concerned, it’s still the DOF scenario we are using,” he said.

Foreign investments have been fueling a steady inflow of foreign exchange into the country but the market outlook is also tainted by the possibility of an increase in US interest rates which could make fund managers more discriminating about where their funds go.

Already, credit rating agencies have deferred upgrading their outlook on the country’s rating, waiting for more definitive indications that the government would be able to sustain its revenue flows.

Given the track record of the Bureau of Internal Revenue (BIR), investors are reminded that the government’s fiscal problems stemmed from the sustainability of its revenue flows.

The BIR earlier admitted that it could recover only part of its P40-billion revenue shortfalls but the Arroyo administration announced that it would not revise its 2007 fiscal targets.

Privatization is expected to generate over P100 billion in non-recurring revenues, mainly from the sale of the government’s remaining shares in San Miguel Corp. (SMC) and the power assets of the PNOC Energy Development Co.