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November 19, 2008

Infrastructure spending deepens Philippines’ Oct budget deficit
The Philippines' budget deficit swelled in October from a year ago, with revenues failing to keep pace with higher spending as the government invested more in infrastructure to boost the economy amid the global crisis, reported Reuters.

The budget deficit ballooned to 9 billion pesos in October from 1.5 billion pesos deficit a year ago but was smaller than the shortfall of 21.6 billion pesos in September.

The October data brought the ten-month fiscal shortfall to 62.3 billion pesos ($1.2 billion), which means Manila needs to narrow its monthly shortfalls for the rest of 2008 from October's level to keep within its full-year goal of a 75 billion pesos deficit.

"We can expect that the budget position will continue to be under pressure," said Vishnu Varathan, an economist at

"The weaker economic outlook translates into pressure on tax revenue collections," he said. "Spending is expected to be expansionary and a weaker peso increases the financing burden of foreign currency liabilities."

Revenue at the main tax agency, the Bureau of Internal Revenue, grew 6.4 percent in October from a year earlier, slowing from a 14 percent growth in September. Annual growth in total revenue was at 10.7 percent in October, the same as in September.

But spending expanded an annual 19.3 percent in October from a year earlier, faster than growth of nearly 17 percent in September.

A successful sale of the government's 40 percent stake in oil refiner Petron Corp before the year ends would help ease the pressure on its fiscal position.

The government wants to raise about 25.7 billion pesos by selling its stake in Petron at 6.85 pesos per share, a 49 percent premium to the stock's closing price at 4.6 pesos on Tuesday.

Petron's current majority owner, a unit of UK investment manager Ashmore Group, has the right to first refusal over the government's stake. Ashmore has until December 5 to exercise its right.

The government said it will not renegotiate the selling price it set on Oct. 6 for its Petron stake.

"The 25 billion figure is the offering price, so they either take it or leave it," Crisanta Legaspi, a Finance undersecretary for privatisation, told a news conference.

The Southeast Asian nation, which relies heavily on domestic and foreign borrowings to fund its budget shortfall, said it may not push through with plans to raise as much as $750 million via a sovereign bond issue before the year ends due to volatile overseas debt markets.

"Most likely we will forego that unless the market improves remarkably," National Treasurer Roberto Tan told the same press conference. "The question is whether we can access the markets easily."

The Philippines expects its fiscal shortfall to rise to as much as 102 billion pesos next year on lower revenues as the economy slows to an expected 3.7-4.7 percent growth from 4.1-4.8 percent this year and a record 7.2 percent expansion in 2007.

The government has said it would be difficult to balance its budget by 2010 as planned because of the global financial crisis. Socioeconomic planning Secretary Ralph Recto said last week he expects Manila to incur a budget deficit of 0.5 percent of GDP in 2010.

The International Monetary Fund projects a higher budget deficit of 140 billion pesos, or 1.7 percent of GDP, for the Philippines in 2009.

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