Monday, August 08, 2005

Philippines: Next year's borrowing

According to Business World, based on DBCC recommendations, next year's deficit is targeted at 110 billion, down from the projected 180 (or is it 150?) billion this year. Spending is going to slightly shrink in terms of share of GDP; but revenues are projected to rise by 23%. This requires approximately 16.4% tax effort, a dramatic jump from this year's project < 10%, and still much higher than the tax effort of previous years. This is a bit risky, despite the possible implementation of the expanded VAT law, particularly if growth is less than the government expects (our high end forecast for real GDP growth in 2005 is the low end forecast for the government!) But our back is to the wall: there is hardly any scope for cutting spending further, and, while privatizing government corporations now would be nice, realistically these things take time. I know; it sucks. It always sucks for a government whose narrow range of options is getting further squeezed by the day. Two items on my wishlist: tax effort does go up; economic growth jumps to NIC standard (7% and up). So folks, if you've got a chance to make 7% more next year than this year, go do your country a favor.

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