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Monday, September 20, 2004
Ratings agency warns possible RP rating downgrade (10:55 a.m.)
MANILA -- Failure to pass fresh revenue measures within the next few months could lead to a credit downgrade for the Philippines, international ratings agency Fitch Ratings warned Monday.
President Arroyo has asked Congress to pass a package of tax measures to raise annual government revenues by 80 billion pesos (1.42 billion dollars), warning the country risks a calamitous debt default otherwise.
If Manila fail to pass any of these proposed measures, "I think there would be material implications to the ratings outlook," Brian Coulton, Fitch Ratings' senior director for sovereign ratings said.
He said the Philippines' sovereign BB rating, two notches below investment grade, was "predicated on expectations that this package is put in place."
A ratings downgrade would raise borrowing costs for the government, which relies on debt to plug a national budget deficit expected to reach 198 billion pesos or 4.2 percent of gross domestic product (GDP) this year.
House of Representatives Speaker Jose de Venecia warned last week Congress would at most be able to pass only four revenue measures this year, two of them tax amnesty laws.
He estimated the new laws, including adjustments on excise taxes on cigarettes and liquor, and a franchise tax on telecommunications companies, would raise annual revenue by only between 20 and 35 billion pesos.
Coulton said "there would be a major shock to market expectations" if Congress were unable to enact new revenue measures because the budget deficit would surely exceed the government target.
He expressed concern over President Arroyo's announced plan to absorb the debts of loss-making state utility National Power Corp., which exceeds 500 billion pesos.
"In terms of credit fundamentals we would be looking at the deficit exceeding the target which (the government) set out," he said.
Coulton said this year was the "best window of opportunity" for Arroyo to raise revenues after winning a fresh six-year term in May presidential polls.
"If they're not able to make progress in the relatively short term right now, then we'll really become quite pessimistic. I think that's the way to see it. There's a strong element of urgency here."
Coulton said Fitch Ratings expects Congress to pass the tax increases on liquor and cigarettes as well as on petroleum products, as well as for regulators to raise by 40 percent electricity rates charged by National Power.
"We need to see a good number of these taxes put in place and actually passed within the next couple of months," he said. (AFP)
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