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Tax collections top-of-mind for Noynoy Aquino
24-06-2010
May 2010 ATI Online Magazine
THE APPARENT unambiguous victory of Benigno "Noynoy" Aquino in the Philippine Presidential elections sets a favourable tone for the country's credit fundamentals, according to Moody's Investors Service. Moody's assistant vice president and analyst, Christian de Guzman, says a clear-cut triumph would remove the undercurrents of political illegitimacy that accompanied the incumbent Administration of Gloria Arroyo, and hamstrung its policy agenda.
But, given that Aquino’s election platform of "transformational leadership" was heavy on rhetoric and light on substance, his Administration will need to quickly remove any ambiguity over its economic and fiscal policies, to shore up the Government's credit fundamentals.
The Philippines is a regular issuer of commercial paper to raise funds from the international capital market to fund its budget deficit. The Manila-based Asian Development Bank warned early this year that the country’s debt to gross domestic product ratio might rise by 15 per cent by 2015. Currently, its debt to GDP ratio stands at 56.5 per cent, the highest among ASEAN countries.
Moody’s notes that Manila still has a relatively large amount of debt. The agency considers that the affordability of Government debt remains vulnerable to interest rate, exchange rate and confidence shocks.
Moody's currently has a stable outlook on the Philippines' sovereign rating, and said in March that prospects for the economy remain good. But there were a number of crucial challenges, such as a dearth of investment spending.
Last year's upgrade of the sovereign rating was prompted by the Philippines’ strong external payments position and stability in the banking sector, says the agency. These factors are expected to continue to provide support to rating this year and next year. The sovereign rating was raised in July 2009 to Ba3 from B1, with a stable outlook.
de Guzman said that, looking ahead, Moody’s remains concerned whether the Aquino Administration can reverse slippage in revenue collection. Aquino's choice of Finance Secretary, and the calibre of his Cabinet and economic policy team, will be important pointers to the direction of his Government.
During electioneering, Aquino said tax collection would be a priority, and that he already had a list of people who will be investigated for tax avoidance. Moody’s will be looking for signals that he is willing to reign in deficit. The Philippine is projected to have a budget deficit of 3.9 per cent of GDP this year.
Aquino, a 51-year-old bachelor, is the son of Corazon Aquino, who came into office on a wave of people's power after her husband, Benigno, was assassinated in 1983 at Manila International Airport when he returned from exile in the United States to challenge then-President Marcos.
n More tax wanted — Philippines, China move, page 7. |
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