Philippines’ 10-Month Budget Deficit Climbs to Record

By Karl Lester M. Yap and Max Estayo

Nov. 18 (Bloomberg) -- The Philippines’ budget deficit climbed to a record in the ten months through October as the government increased spending and revenue faltered, pushing the shortfall beyond the official full-year target.

A monthly shortfall of 28.5 billion pesos ($610 million) in October widened the 10-month deficit to 266.1 billion pesos, the government said in Manila today, exceeding the 250 billion-peso full-year estimate. Spending increased 12.3 percent in October from a year earlier and revenue dropped 7.6 percent.

Faltering tax revenue amid the global slowdown has prompted President Gloria Arroyo to sell dollar-denominated bonds overseas three times this year. The Philippines is looking at a worst-case deficit of 300 billion pesos for 2009, Finance Secretary Gary Teves said today, adding that the “likely” budget shortfall is 280 billion pesos.

“A widening deficit will keep positive markets in check,” said Rico Gomez, who helps manage $1 billion at Rizal Commercial Banking Corp. in Manila. “A 280 billion-peso deficit will still be acceptable; 300 billion pesos will be hard for the market.”

The yield on the 6.25 percent January 2014 bond rose earlier today before falling two basis points to 6.055 percent at 4:21 p.m., according to Tradition Financial Services Inc.

Dave Estacio, a fixed-income trader at First Metro Investment Corp., said investors “have started to price in” a 300 billion-peso deficit since Teves first raised it as a “worst-case scenario” on Oct. 14.

Asset Sales

The Philippines won’t need to borrow to fund the wider- than-expected shortfall this year, Treasurer Roberto Tan said today. The government is trying to sell its 50 billion-peso stake in San Miguel Corp., the nation’s largest food-and-drinks company, to prevent a 300 billion-peso shortfall, Teves said.

Teves said the government has yet to decide whether to privatize PNOC Exploration Corp. The plan to sell a 13 billion- peso Food Terminal Inc. property and a piece of government-owned land in Japan remains, Finance Undersecretary Crisanta Legaspi said today.

The Bureau of Internal Revenue, responsible for more than 60 percent of state profit, collected 54.9 billion pesos in October, 3.6 percent lower than a year earlier, according to the budget report today.

The bureau is likely to miss its revenue goals this month and next, agency head Joel Tan-Torres said late yesterday. Last month’s drop was due to “revenue erosion” from tax exemptions to individuals, lower corporate taxes and slower economic activity that may have worsened after recent storms, he said.

‘Shot in the Dark’

The agency is almost sure it will fail in delivering the 2009 goal and hitting it is “a shot in the dark,” Tan-Torres said. “What we’re doing now is directed towards preparing the framework of coming up with an enhanced tax collection effort that will hopefully bear fruit in 2010.”

Collection at the Bureau of Customs, responsible for a fifth of state revenue, fell 25.8 percent in October.

The Philippines’ $167 billion economy grew 1.5 percent in the second quarter from a year earlier, accelerating from a decade-low 0.6 percent in the previous three months.

To contact the reporters on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net; Max Estayo in Manila at mestayo@bloomberg.net