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Banking

Philippines: Oil and rice undo hard work

It was all going so well. In the past three years the Philippines has been the poster child of emerging markets fiscal policy, turning a crippling deficit into an almost balanced budget. But having done all the hard work, its achievements might all be derailed, thanks to the soaring oil price and rising food prices.

Margarito Teves, finance secretary for the Philippines

"The issue of balancing the budget is not a sacrosanct goal at this point in time. Some of these things are really beyond our control"
Margarito Teves

It’s worth recalling just how bad things once were in the Philippines. In 2004, government debt was equivalent to 79% of GDP, and interest payments on that debt were consuming 37.3% of all revenues. That meant that more than one-third of all incoming money, in a poor country battling a host of challenges from El Niño to the oil price, was going straight to banks, rather than to roads or education. Fixing the situation involved a lot of pain: broadening the tax base, completely reforming tax collection mechanisms, pushing through privatizations that had been deadlocked for years, shifting funding policy from G3 currencies to the local debt markets, and dedicating money that could have been spent on social services to bringing down the debt load.

But by the end of 2007 the job was done: a budget deficit of just Ps12.4 billion ($290 million), or 0.2%

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