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July 17, 2008

Philippines: Deficit eases to $396m in H1
The Philippines reported a lower-than-forecast first-half budget deficit of 18 billion pesos ($396 million) as it benefited from higher revenues, the finance department said Wednesday.

The surplus in June was 800 million pesos - about the same as that reported for the same period last year.

First-half revenues grew 11.7 percent to 570 billion pesos, 1.5 percent above target, while spending rose 6.7 percent to 588 billion pesos, or 2.4 percent below the ceiling set by the government.

The government earlier abandoned its target of balancing the budget this year, saying it would likely incur a 45 billion-peso deficit due to increased subsidies for the poor amid rising food and fuel prices.

Officials told Dow Jones Newswires the goal was likely to be met if the second half performance matched that of the first six months.

"Balancing the budget this year would have been a nice target for our fiscal turnaround," President Gloria Arroyo said.

However, amid the "pressing global environment," Manila is willing to spend "as much as 75 billion pesos or necessary on social welfare. But if things improve next year, we will return to our target," she hinted.

Finance Secretary Margarito Teves told reporters balancing the budget by calendar 2009 would require raising revenue collections to 15.5 percent of gross domestic product (GDP).

This would mean the primary tax collection agencies would have to raise collections by "close to 20 percent per annum, and basically that will be the tax revenues because we're not expecting too much from non-tax revenues or privatisation."

An improved world economy and a stabilisation of fuel prices would also help, he added.

"There are so many things to consider there -- not only the revenue side but there are many factors that would influence the fiscal operations. So we will look into that but actually in our last discussion we are looking at 2010," Teves added.

Meanwhile, Arroyo Wednesday again rejected calls to scrap a 12 percent sales tax on oil products and electricity, saying the removal of the levy will deny the government subsidy funds.

"If the VAT (value-added tax) on oil and power is lifted, how do we replace more than 70 billion pesos in revenues mostly used to fund projects for the poor?" she said at an event to distribute energy-saving light bulbs to cut down electricity consumption.

The sales tax, imposed on the energy sector in 2005, had improved the government's fiscal performance, a key concern among investors and credit rating agencies. However a number of legislators are looking at amending the law.

"The VAT has boosted investor confidence in recent years," Arroyo said. "The removal of the VAT would erode confidence, weaken the peso against the dollar, lead to higher interest rates and costs, and in turn slow down the economy."

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