Philippines Faces Slowing Growth and a Widening Budget Deficit

By Clarissa Batino and Max Estayo

Nov. 12 (Bloomberg) -- Philippine economic growth will slow next year as a worsening global slump erodes exports and weaker tax revenue widens the budget deficit, government officials said.

Growth in the Southeast Asian economy will probably ease to a range of 3.7 percent to 4.7 percent in 2009, Economic Planning Secretary Ralph Recto said in a presentation of new targets before the Senate in Manila today. The budget shortfall may increase to 102 billion pesos ($2.1 billion) from a previous forecast of 60 billion pesos, Finance Secretary Gary Teves said.

The worst financial crisis since the Great Depression is cooling overseas demand for Philippine goods and workers, which together account for about half of the $144 billion economy. Global growth will slow to 1 percent in 2009 from 2.6 percent this year, the World Bank said yesterday.

``Slower growth is due to weaker exports and investments,'' Recto told lawmakers. ``We will probably see some displacement of overseas Filipino workers due to the financial turmoil.''

The government had previously forecast economic expansion of 4.1 percent to 5.1 percent in 2009 and no increase in exports next year. This year's growth target was lowered a fifth time to between 4.1 percent and 4.8 percent, Recto said. That compares with an October forecast for 2008 of 4.4 percent to 4.9 percent.

Dimming growth prospects tend to weaken tax collection and will likely widen the 2009 budget deficit by 42 billion pesos from the previous estimate, Teves said. He maintained this year's target of 75 billion pesos.

Tax Collection

The Bureau of Internal Revenue, responsible for 70 percent of government income, may collect only 810 billion pesos this year, missing its 845 billion peso goal, the finance chief said. Next year's collection may reach 911 billion pesos, from the 968 billion pesos the government had earlier proposed to Congress.

Faltering tax collections will force the government to raise its borrowing next year from the domestic market to 386.5 billion pesos against an earlier forecast of 321.5 billion pesos, Teves said. The overseas debt plan for 2009 is unchanged at 123.4 billion pesos, he said.

The 15.8 percent drop in the peso this year also prompted government economic managers to revise the average exchange-rate forecast for 2009 to between 45 pesos and 48 pesos a dollar from this year's projected range of 42 pesos to 45 pesos, central bank Deputy Governor Armando Suratos said.

Exports may grow only 1 percent in 2009 from a projected 2 to 4 percent this year, Suratos said. Still, remittances may continue to grow at 10 percent.

The Philippine economy expanded 7.2 percent last year, the fastest pace in three decades.

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net; Max Estayo in Manila at mestayo@bloomberg.net