The government is borrowing a total of P464 billion from the domestic market alone this year to contain a runaway budget deficit which is estimated to reach as much as P400 billion with the Bureau of Treasury (BTr) announcing last Friday its plan to issue P110.5 billion in debt papers for the third quarter alone.

National Treasurer Roberto Tan, in a memorandum to government securities eligible dealers (GSED), said P59.5 billion worth of treasury bills (T-bills) and P51 billion worth of treasury bonds (T-bonds) will be offered starting July.

President Arroyo signed an agreement in Japan for the issuance of so-called samurai bonds worth up to $1.5 billion but the Japan Bank for International Cooperation (JBIC) that will provide cover for it had yet to make a commitment on the extent of guarantee it will provide.

Last January, it borrowed $1.5 billion overseas through the issuance of sovereign bonds.

The budget deficit soared 556.2 percent in the first five months compared to a year ago which the government attributed to increased spending to stave off recession.

The government released figures showing the deficit reached P123.2 billion in the red by the end of last month, compared with an P18.8 billion deficit at the same point in 2008.

The five-month deficit is almost half of the full-year target deficit ceiling of P250 billion, although it is still below the government target of P155.1 billion pesos for the period.

Finance Secretary Margarito Teves said the higher deficit was largely due to the global economic slowdown, which led to less revenues while forcing the government to spend more to stimulate the economy.

Teves stressed the government would “continue with our spending on health care, services, infrastructure.”

The government is expecting economic growth of 0.8 percent for the whole of 2009 despite warnings of a contraction from both the International Monetary Fund and the World Bank.

The Treasury said of the T-bills it plans to offer in the third quarter, P14 billion will be for the 91-day benchmark; the 182-day, P21 billion; and the 364-day, P 24.5 billion.

For the fourth quarter, the government will still need P188.55 billion to cover its plans to raise P464 billion from the domestic market this year.

The BTr added five and 10-year T-bonds, to be offered at a total of P25.5 billion each, were programmed for July to September this year.

The government issues debt instruments as a revenue source to fund its expenditures program as revenue flows continue to lag behind targets.

This year, its budget deficit ceiling was raised recently to P250 billion or about 3.2 percent of gross domestic product (GDP) from P199.2 billion or 2.5 percent of GDP on account of higher impact of the global slowdown.

Aside from domestic sources, the government also sources fund abroad through among others the issuance of the Republic of the Philippines (ROP) or sovereign bonds.

Teves earlier said they plan to issue the first tranche of the yen-denominated debt paper by September or October this year.

Administration and opposition lawmakers, meanwhile, have crossed party lines in oppposing a proposal increasing the value added tax (VAT) saying it will only serve as an added burden to millions of Filipinos especially during this time of global economic crisis.

Antique Rep. Exequiel Javier, Chairman of the House Committee on Ways and Means, described as “anti-poor” the proposal of University of the Philippines economists Dante Canlas, Felipe Medalla and Benjamin Diokno to increase the current 12 percent VAT rate to 15 percent.

Diokno said implementing lower personal income tax and corporate tax rates could offset the increase in the VAT rate.

“No less than the Constitution requires that taxation should be equitable and progressive. Increasing the VAT which is an indirect tax will actually hit everyone including the poor,” Javier said.

Senior Deputy Minority Leader and Bayan Muna party-list Rep. Satur Ocampo also opposed the suggestion to increase the VAT it being an onerous tax that is a burden to the consumers.

The scrapping of the VAT must be among the tax reform agenda of candidates in the 2010 elections, Ocampo said.

He added that the proposal of the Consumer and Oil Price Watch of lowering income tax rates from 30 percent to 25 percent to help boost tax compliance is a welcome development.

“We support all proposals to lower taxes and advocate for the replacement of the regressive tax system of the country,” Ocampo said.

Ocampo said lowering taxes would provide the people with relief in the midst of the raging economic crisis.

Despite the gloomy fiscal prospects, the National Economic and Development Authority (Neda) said yesterday the economy is seen to move upwards toward the end of the year based on the conservative gross domestic product (GDP) growth forecast of 0.8 percent to 1.8 percent.

GDP is the total volume of goods and services produced in a country in a year.

In the first quarter, “we already saw a growth of positive 0.4 percent, which is expected to rise further until the end of the year,” NEDA deputy director general Rolando Tungpalan said.

“If you are talking about the first quarter performance which some quarters claimed there would be declining overseas remittances, official statistics do not confirm what these projections are saying. Nevertheless, the government will continue with its infrastructure investments,” Tungpalan said.

He said business and consumer surveys indicated a growing upbeat sentiment. “The precautionary savings that was felt in the first quarter was a very natural reaction of households because during uncertain times you don’t know to what extent people take those precautionary measures,” he said.

On the reported warning made by former Budget Secretary Benjamin Diokno of a 30 percent contraction in exports, or higher than the assumptions made by the International Monetary Fund in predicting the recession for the Philippines, Tungpalan said: “Based on the report of the exporters and the export captains, we are seeing a decline lower than what we expected. The numbers we are reading are about 13 and 15 percent, rather than the 18 percent (we projected) on the high side.

We will see how things will come in the May report. The import figure of April increased, the contraction was greater than the previous month of 37 percent versus 36 percent. Again, the export sector was surprised why the numbers were lower. The imports contracted whereas they were expecting it to grow over the exports. Orders have been made in April and May,” he said.

“We expect the economy to move upward. Even China has a very impressive first quarter growth at 6.1 GDP. In fact Asia itself is now a very strong market for the Philippines. President Gloria Macapagal Arroyo has been instructing the economic managers to look at the opportunity of relating more with China than with our usual dependence with the North,” he said.

Asia, widely considered as a very rich area, had prospects of expanding its economy. With a strong domestic economy, a strong export market, this means well for our sustainable growth, Tungpalan said.

On Moody’s rethinking its credit rating for the Philippines in view of the decline in GDP rates, Tungpalan said, that “most of these assessments are based on the first quarter modest growth and we keep stressing the fact that the first quarter does not reflect the rest of the year’s performance,” Tungpalan said.

Source: Charlie V. Manalo