Barely a day after Philippine President Gloria Arroyo announced plans to spend 1.7 trillion pesos (38 billion dollars) on development, the international credit rating agency Fitch Ratings warned she didn't have the money.
While government planners make assurances that Fitch's fears are unfounded, there is widespread agreement that the deficit threatens to derail Arroyo's economic achievements.
"We have been investing hundreds of billions in human and physical infrastructure. The next three years will see record levels of well-thought-out and generous funding, for government projects," Arroyo told Congress in her annual state of the nation address on July 23.
She outlined a wish list of projects ranging from roads, airports, land redistribution, water and sewerage and power as well as education and research, which she wanted to start before stepping down in 2010.
But the Fitch Ratings report, issued just after Arroyo's speech, said poor revenue collections in the first half of 2007 made it unlikely that the country will keep its budget deficit within a 63 billion-peso ceiling.
Based on first-half fiscal data, Fitch expects the deficit to near double to 125 billion pesos, equivalent to 1.9 percent of gross domestic product (GDP), not including possible sales of government assets in the second half.
"The positive momentum behind Philippine fiscal performance in recent years faltered badly in early 2007, particularly with respect to tax collection," Fitch said in a statement.
"With real economic growth expected to have averaged about 6.5 percent in the first half of the year, the 3.4 percent increase in tax receipts was rather poor," said James McCormack, head of Asia Sovereigns at Fitch.
The rating led the Manila Times newspaper to warn that "without improvements in tax collections, something has to give."
This likely means cuts in expenditure or more government borrowing.
The Philippine political opposition, which controls the Senate, is determined to block any new revenue measures.
The budget problems come just before a visit by International Monetary Fund (IMF) managing director Rodrigo de Rato, starting July 30.
Although the Philippines cleared the last of its IMF debt last year the fund continues to watch the country's finances.
But Philippine officials dismiss Fitch's criticism and insist they can keep the deficit within target, mainly through privatization deals.
"Fitch did not really say anything new except that what was rather unclear in their forecast," said Finance Secretary Margarito Teves, adding both customs and internal revenue bureaus would be increasing their collections and that privatization earnings would make up the shortfall.
But critics say selling government assets will merely be a short-term measure that cannot be repeated annually.
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