Philippines on track to limiting budget gap to 3.1% of GDP

Concerns about Philippine fiscal sustainability is “no longer warranted” as government spending is now under control and the budget deficit is on a downtrend, according to the International Institute of International Finance (IIF).

The fiscal performance so far this year, according to the Washington DC-based global association of financial institutions, bodes well for the government to achieve its target of reducing the budget deficit to 3.1 percent of gross domestic product this year from 3.5 percent previously.

This means limiting overspending by P290 billion this year, down from P314.4 billion in 2010.

“In contrast to many governments around the world struggling to contain excessive budget deficits, the Aquino administration has kept its pledge to withdraw the fiscal stimulus injected in response to the global financial crisis,” the IIF said.

“While there are no major tax initiatives in the current budget, the government expects to build on recent efforts to bolster administration and collection,” the group added.

The IIF said further that given the weak revenue performance so far this year, the plan for total expenditures to grow by about 12 percent for 2011 as a whole “suggests that the government has room to bump up spending and meet its deficit-reduction target.”

IIF also said that a further reduction in the deficit was likely to be forthcoming in the 2012 budget, which Malacanang is supposed to present to Congress in July.

“Fiscal sustainability should be bolstered in 2013 when the government follows through with its intention to enhance the chronically deficient tax regime,” the group said.

Latest data from the Bureau of the Treasury show that the government spent P26.258 billion less than planned in April, showing a budget surplus that is more than 10 times the P2.6 billion posted in the same month of 2010 and the highest in 25 years.

Malacañang’s fiscal performance in April resulted in a surplus of P61 million for the first four months of 2011, a reversal of the P131.8-billion budget deficit recorded in the same period last year.