Citi said Philippine bonds were worth investing in, given projections that the government’s tax effort, a major indicator of credit worthiness, would continue to improve this year.
In a paper on the Philippine economy, Citi said the government’s tax effort—the ratio between tax collection and the country’s gross domestic product (GDP)—was expected to improve to 12.8 percent this year, revising its original forecast of 12.5 percent.
The tax effort last year was estimated at 12.3 percent.
Citi said the projection for this year was backed by recent improvements in the collection efficiency of the Bureau of Internal Revenue. Tax collection grew by nearly 14 percent to P16.4 billion in the first quarter from a year ago. It said the growth was brought about by increased administrative efforts to shore up revenue, rather than inflation.
“Persistent collection efficiency and its fiscal lift offer a strong reason for local bonds to be a fundamental buy,” Citi said in the report authored by analyst Jun Trinidad.
With improved collection efficiency, Citi said, bonds issued by Philippine entities, led by sovereign bonds, became worthy of investments.
“Efficiency gains displaced inflation as a major revenue (growth) contributor in the first quarter,” Citi added.
Aided by improving tax-collection efficiency, it said, the Philippine government was likely to hit a lower-than-ceiling budget deficit of P255 billion. The government has set the deficit ceiling for this year at P279 billion.
At P255 billion, the deficit will be equivalent to just 2.4 percent of the country’s estimated GDP for this year. This deficit-to-GDP ratio, another key indicator of fiscal health and credit worthiness, is better than the 2.7-percent official target of the government.—Michelle V. Remo