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Fiscal Sustainability Analysis for the Philippines
- 1. Fiscal Sustainability 9 September 2011 Undersecretary GIL S. BELTRAN DEPARTMENT OF FINANCE 1 Lecture Presentation to the University of the Philippines Manila
- 2. I. Theoretical Considerations II. Sustainability Analysis for the Philippines III. Fiscal Program, 2011-2016 IV. Measures in Supporting Programs Outline of Presentation 2
- 8. Primary Balance Primary balance describes the condition where expenditures (excluding interest payment and debt redemption) are covered by revenues excluding bond revenues (deficits). In this condition, general expenditures for the year and the tax or revenue collections for the same year are balanced. 8
- 9. Seigniorage In its original sense, Seigniorage refers to the difference between what it costs to produce currency and what that currency’s value is, or its net revenue. If a government is able to produce new money at a lower cost than what the money is valued at, the net revenue is positive and the government has made a profit. If the cost of producing money is greater than the money's worth, the government takes a loss. 9
- 11. Lifetime budget constraint where : b t-1 = debt stock of the initial period x = real value of primary surplus in future year x = seigniorage revenue in future year B t-1 = (I + r ) – (j+1) (X t+i + O t+i ) 11
- 15. II. Sustainability Analysis for the Philippines 15
- 16. Basic Fiscal Sustainability Analysis 2006 16 FIXED ASSUMPTIONS % of GDP Initial debt 79.0 Steady state inflation 4.5 Monetary base 14.0 Real Growth Rate (%) Implied Seigniorage (% of GDP) 3 1.0 4 1.1 5 1.2
- 17. Implied Sustainable Primary Surplus/(Deficit) with no Seigniorage (% of GDP) 17 Variable assumptions Real interest rate (%) 0.4 1.4 2.4 3.3 4.3 5.3 6.2 Nominal interest rate (%) 5 6 7 8 9 10 11 Real growth rate (%) 3 -1.9 -1.2 -0.5 0.3 1.0 1.7 2.5 4 -2.6 -1.9 -1.2 -0.5 0.2 1.0 1.7 5 -4.1 -3.4 -2.7 -2.0 -1.3 -0.5 0.2
- 18. III. Fiscal Program, 2011-2016 18
- 19. Medium-Term Fiscal Program (% of GDP) EXPENDITURES DEFICIT REVENUE Tax Effort Actual 19 PRIMARY SURPLUS - 0.2 0.2 0.5 0.8 0.6 0.5 0.3
- 20. IV. Measures to Support Programs 20
- 21. NG Outstanding Debt P Billion % of GDP … will decrease to 37% of GDP in 2006 Sovereign Credit Ratings: MOODY’S: Upgraded to Ba2 (June 15, 2011) FITCH: Upgraded to BB+ (June 23, 2011) S&P: Upgraded to BB (November 12, 2010) 21 Actual Actual
- 27. Thank you…
Notas do Editor
- In the medium term, we will maintain a manageable deficit of 2% of GDP starting 2013. We will push expenditures to 17.6% of GDP from 16.9% last year. At the same time, we will raise revenues to 15.6% of GDP thru tax administration measures. Tax administration will raise 0.3% of GDP from BIR annually and 0.1% for BOC. By 2016, our tax effort will reach 14.7%, the average in ASEAN. Governance reform will also increase the contributions of GOCCs in enhancing government coffers. As a result of these positive developments, we expect to attain 7-8% growth by 2016, investment grade status before that and revise investments to the level of our Asian peers.
- The drop in the country’s debt ratios, among other positive indicators, have earned credit ratings upgrades for us three times during the previous year. The unprecedented support we have received from the credit rating agencies have only strengthened our resolve toward fiscal consolidation to attain investment grade status as soon as possible.
- In line with our goal of attaining investment grade credit rating, we will continue to focus on improving administrative efficiency at the BIR and BOC. We have institutionalized our programs against tax evaders and smugglers and rest assured that the Department of Finance will continue to coordinate with the Justice department in the swift resolution of these cases.
- We will tap every opportunity to enhance collection, particularly expanded third party information, more productive tax audits, intensified anti-smuggling campaign and improved taxpayer services. We will enhance training for our tax collectors , improve their capability to track tax evasion, set up benchmarks and collection strategies and develop tax cases.
- Administrative reforms will boost non-tax revenues. We will intensify collection of dividends and payables from GOCCs. We will adjust user fees and charges to reflect costs of providing services. We will continue with the privatization program, looking into appropriate modes of privatization that generate optimum revenues. These include auctioning out the use of government resources including air frequencies , and right to tap renewable energy.