Philippine 2006 budget deficit may drop to P80B - Merrill

US-based investment bank Merrill Lynch expects the Philippines's fiscal position to continue improving and wind up with a budget deficit of only P80 billion this year, lower than government's target of P125 billion. "We expect the authorities to beat their fiscal target by a large margin this year. The authorities have engineered a stronger-than expected fiscal adjustment this year, but in an unconventional way," Merrill Lynch said in its latest report titled "Philippines: Unconventional Fiscal Adjustment". Given the optimistic country assessment, Merrill Lynch has urged its clients to buy Republic of the Philippine bonds (ROPs) due 2019 and 2025. "With the strong macroeconomic story continuing to unfold throughout this year, we think that there is more upside for the Philippine debt." For the first six months of the year, the national government was able to cut its budget deficit by more than half or by 53.3 percent to P31.5 billion from P67.5 billion in the same period in 2005 due to improved revenues and controlled spending. According to the US-based firm, the much-improved fiscal adjustment could be traced to lower government expenditures as Congress failed to formally adopt the national budget for 2006. Merrill Lynch, however, cautioned the government that spending squeeze as a result of the re-enacted budget was not consistent with best fiscal management practices as under-spending on infrastructure projects would have an adverse impact on medium-term growth prospects. The report noted that the government would be able to meet its revenue target for the year with the full implementation of Republic Act 9337 (Expanded Value Added Tax Act of 2005). "The implementation of the enhanced VAT, the cornerstone of this year's fiscal program, has been satisfactory and the VAT revenues have been in line with expectations," it said. "The government’s fiscal program for next year looks good on paper, but we are still awaiting the full details of the government's fiscal strategy," it said. - GMANews.TV