|
Congress returns 2004 budget bill to
executive
The government has suffered a severe setback with its 2004 budget
proposal. On 14 August, Congress returned the 2004 budget bill to the
finance ministry, lamenting the unrealistic assumptions underlying the
government’s plan. The budget proposal presented to Congress makes
optimistic revenue assumptions for state enterprises and includes savings
that would only materialize if new anti-tax evasion legislation is
approved. Moreover, the budget assumes that the constitutional referendum
on 25 October will be approved. The referendum is considered a key item,
since its approval would mean significant savings for the government over
the next two years. The 15-point referendum would set limits on public
service pension payments and freeze the government’s operational, regional
and social security spending for the next two years. However, Congress is
demanding a government explanation of how the budget will be financed if
reforms are not forthcoming and how social and government investment
spending would be affected. On 29 August, the government resubmitted the
budget to Congress for approval. The total 2004 budget spending plan will
remain at 77.6 trillion pesos (US$ 24.8 billion), which will generate a
consolidated fiscal deficit of 2.5% of GDP. The 2004 fiscal deficit figure
is above the 2.1% of GDP target agreed to with the International Monetary
Fund (IMF) under the terms of the US$ 2.1 billion stand-by agreement
approved on 15 January. The government’s new proposal is divided into two
parts: one basic budget of 76.6 trillion pesos (US$ 24.5 billion) and a
complimentary budget of 1 trillion pesos (US$ 320 million) subject to
approval of the anti-tax evasion bill. The president’s current high
approval ratings provide a strong backbone for congressional approval but
fiscal concerns will remain present, particularly if the referendum fails
to pass or macroeconomic assumptions (see August 2003 edition) does not
materialize. The government has announced that it will exceed this year’s
fiscal figure of 2.5% of GDP agreed to with the IMF, due to higher debt
and defence outlays, which will bring the fiscal deficit to 2.8% of GDP
instead. Participants are on the mark with the government’s figure for
this year but a lack of fiscal discipline is also maintaining concerns
about next year, when the deficit is seen at 2.8% of GDP.
Consumer price increase remains
moderate
In August, consumer prices rose 0.31%, contrasting with the 0.15% decline
in prices observed in July but were in line with market expectations. The
strongest monthly price increase was observed in transportation, where
prices rose 1.1% over the previous month. The increase is principally
attributable to the government’s efforts to gradually reduce subsidies on
gasoline prices, which were again hiked on 29 August – by 16%. As a result
of the August consumer price reading, the annual inflation rate rose to
7.3% - the first increase since May. At its current levels, inflation
remains well above the Central Bank target of 5% to 6% for this year and
participants expect monetary authorities to overshoot their target with
inflation reaching 6.8% by year-end – up 0.2 percentage points from last
month. Similarly, Consensus participants remain sceptical about inflation
prospects next year, as the annual inflation rate of 5.8% is still above
the Central Bank’s 3.5% to 5.5% target range.
|
