Lower state revenues from a slowing economy would jack up the national government?s budget deficit this year to about 0.9 per cent of gross domestic product (GDP), and to 1.7 per cent of GDP next year or about 150 billion pesos (S$4.7 billion), it said.
An IMF mission held talks with President Gloria Arroyo's economic managers here to review the government's plans to navigate through the crisis, mission chief Lee Il Houng told a news conference.
Lee expressed concern that 'domestic taxes have performed weakly through the year' and have remained at around 14 per cent of GDP despite revenue gains from high oil prices.
He warned that tax revenues could fall close to levels seen before the government raised a value-added tax by two percentage points to 12 per cent in 2005 - owing to increased income tax exemptions and a planned corporate income tax cut.
'This could re-kindle investor concerns, especially in the context of expected tight external financing conditions for emerging markets next year,' he added.
The mission backed a bigger budget deficit next year 'to soften the reduction in growth while containing any adverse market reaction' but said Manila needed to reform excise taxes on tobacco and alcohol products, trim fiscal incentives given to investors and step up tax administration reform.
It said with inflation expected to average 9.8 per cent this year and six per cent next year amid an economic slowdown, 'monetary policy could be eased in the period ahead'.
The IMF mission urged Manila to keep its foreign exchange reserves 'at a sufficiently high level' to sustain confidence in the peso.
Mr Dennis Arroyo, a senior official of the economic planning ministry and no relation to the president, told reporters the IMF's economic growth as well as budget deficit projections were broadly in line with the government's own figures.
The lower end of the government's GDP growth targets has been pared to 4.2 per cent this year and 3.7 per cent for 2009, the Filipino official said.
He gave the government's expected budget deficit next year at about 165 billion pesos, up from about 75 billion pesos this year. -- AFP