THE International Monetary Fund has expressed concern over the country’s worsening fiscal condition, suggesting that the government should implement a program that will reflect its serious resolve to go back to deficit-reduction mode.

Representatives of the IMF came to Manila last week for the annual review of the economic conditions of the Philippines. IMF representatives met with officials from the Department of Finance, the Bangko Sentral ng Pilipinas and other economic agencies.

According to a source who attended the meetings, one of the primary issues raised by the IMF was the breaching of the government’s budget deficit ceiling for the year.

The DOF earlier announced that the deficit reached P266 billion in the first 10 months, exceeding the P250-billion limit for the entire 2009. Finance officials, however, have already admitted earlier that the ceiling might actually be breached because of rising expenditure requirements.

The devastation caused by Tropical Storm “Ondoy” and Typhoon “Pepeng” required the government to spend more than expected to fund rehabilitation and reconstruction efforts.

Analysts, however, said that even without the calamities, the government was already unlikely to keep its budget gap within ceiling because of anemic tax collection.

The budget deficit for the 10 months to October was a result of the P925.4 billion in revenue collection and P1.19 trillion in expenditures.

Of the revenues, P612 billion was contributed by the Bureau of Internal Revenue, although this was a decline from the P645 billion in the same period last year.

The BIR said laws that granted tax perks were the culprit for the falling tax collection. It cited the exemption of minimum wage earners from income tax, the cut in the corporate income tax to 30 percent from 35 percent and laws that grant various tax privileges to businesses.

“The IMF asked what the government intended to do to go back to the fiscal consolidation track. It cited poor tax collection and the drop in the country’s tax effort,” the source said. He declined to be named because he was not the designated spokesperson for the IMF meetings.

Under the original fiscal program of the government, the budget should have been balanced in 2008. However, officials said the global economic turmoil, whose ill effects on the Philippine economy became more pronounced earlier this year, prompted them to defer the goal of a balanced budget to 2013.

Finance Secretary Margarito Teves admitted that the deficit for this year could be much higher than the ceiling of P250 billion, but he said the government remained committed to erase the deficit by 2013.

Meanwhile, the IMF said the monetary policy in the Philippines was appropriate. IMF officials agreed with the current stance of the BSP to keep a low interest rates environment until the global economy shows more signs of recovery.

The BSP implemented a series of policy rate cuts from December 2008 to July 2009, bringing the total reduction to 200 basis points.

The overnight borrowing and lending rates of the BSP now stand at historic lows of 4 and 6 percent, respectively.