MOODY’S UPGRADE NOT A SIGN OF FISCAL HEALTH FOR RP

Rating to result in more debts, says think-tank

The Philippines’ fiscal crisis remains and could come to a head in 2008 despite the upgrade given by international ratings agency Moody’s Investors Service, according to independent think-tank IBON Foundation. The likelihood of this will increase the more adverse impact of the US economy’s troubles on Philippine exports, remittances and financial markets.

Moody’s upgraded the Philippines ’ credit ratings outlook from stable to positive, saying that government had reduced its dependence on foreign loans. But this does not mean that the Arroyo administration has reduced its dependence on debt, merely that it has shifted borrowing from foreign to domestic sources. In 2008, government will still borrow some P346 billion, 64% of which will come from local sources. As a result of added borrowings this year, outstanding government debt is seen to hit P3.8 trillion by end-2008.

Tax collections continue to be moribund and the Arroyo administration is relying on privatization revenues to paint a false picture of fiscal health. Tax revenues from January to November 2007 increased by just 8.3%, in line with the annual average revenue increase of 8.2% recorded from 2000-2004 before government implemented the reformed value-added tax. The increase in tax revenues did not even keep pace with nominal economic growth of 9.6% in the first three quarters of 2007. Meanwhile, privatization revenues reached a record P90.6 billion last year, or nearly as much as was generated over the previous fifteen years.

Without the privatization revenues there would actually have been a deficit of P78 billion deficit from January to November last year instead of the P12.6 billion that the government actually reported. The administration cannot continue to rely on privatization for revenues and may have to implement new and higher taxes this year to meet its goal of a balanced budget.

Rather than being a sign of an improving fiscal situation, the ratings upgrade actually even paves the way for more government borrowings, with the Arroyo administration already offering US$500 million in sovereign bonds following the improved outlook. Much less does the ratings upgrade reflect improvements in the conditions of millions of Filipinos who suffer record joblessness, falling real incomes and deepening poverty.

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