The Philippines can still meet its target of balancing the budget by the end of 2008, despite breaching a key fiscal limit, Margarito Teves, finance secretary, has said.
Drifting above a self-imposed ceiling for the budget deficit in the first quarter was “cause for worry, not alarm”, Teves said yesterday in an interview with Emerging Markets. “You could use the analogy that in a basketball game, when you are expecting to be ahead, you are falling behind and have to make some adjustments.”
Specifically, Teves said that the budget deficit programme – which until the first quarter had been a great success, reducing the deficit from P146.78 billion ($146.78 billion) in 2005 to P62.2 billion ($1.31 billion) in 2006, the lowest level since 1998 – can be brought back on track by improvements in revenue collection and by privatization.
The sale of government assets will include stakes in San Miguel and Meralco, as well as the long-mooted privatization of the power sector, he said.
“The combination of the realization of our efforts on privatization, plus hopefully arresting the difficulties we have faced during the first quarter, mean we hope to be able to meet our succeeding quarterly targets and even recover part of our shortfall. We will try to arrive at a balanced budget by the end of 2008.”
That achievement would have major consequences. Debt interest payments have been crippling the Philippines in recent years, and with debt reduced, the government plans to increase infrastructure spending from 2.5% of GDP to 4.5-5% by 2010. Teves was adamant that expenditure would not be sacrificed in order to support budget deficit reduction.
Getting revenues from power sector sales will require the government to succeed where it has for many years failed. In February, an attempt to sell a 25-year concession to run the Philippines’ power grids failed for the fourth time. But Teves said he was optimistic about selling two coal-fired plants – including Masinloc, which has also not been sold in previous attempts – and Transco, an electrical transmission company.
Why have these sales failed before, and why should this time be any different? “In the case of generation plants, the main challenge really is provision of a transition supply contract,” Teves said. “Investors would like to have some degree of assurance that they can sell their power.” But indications are that “there are more interesting qualified bidders” for both plants than in the past.
Teves also tried to reassure markets about the departure of Omar Cruz, the admired treasurer considered largely responsible for the increasing sophistication and efficiency of the Philippines’ borrowing programme.
“He was a valuable asset to the government,” Teves said. “But Omar and his team have put up the appropriate policies. The market understands the policies have been set and there will be a continuation of these policies with the installation of a new treasury.”