Macroeconomic Forecast Philippines

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In view of the better-than-expected outturn in the Philippine economy, we have revised our fiscal projections upwards. We now forecast the 2010 and 2011 fiscal deficits to hit 3.9% of GDP and 4.3% of GDP, respectively, from 4.2% and 4.7%. We still maintain our view that the budget shortfall will worsen next year, driven by a sharper rise in government expenditure - a substantial portion will be used to fund salary hikes in the public service. Moreover, we expect the rise in tax revenues to trail behind expenditure growth, especially since the new government has promised not to introduce new taxes.