The budget deficit typically widens sharply in the first three months of the year. However, so far in 2011 it has been much smaller than expected. At the end of March the deficit stood at P26.2bn (US$ 610m), representing only 23.4% of the expected deficit for the three-month period of P112bn, according to the Department of Finance. Revenue was P3.8bn higher than forecast, at P323.1bn, representing a rise of 21.5% year on year, as the main tax agency, the Bureau of  Internal Revenue (BIR), registered stronger than expected growth in tax revenue: collections by the BIR rose by 14.8% year on year to P199.5bn, compared with a target of P197bn. The agency’s strong performance is thought to have been a result of ongoing efforts to improve tax compliance. The Bureau of Customs performed less well, missing its collection target by P770m, as revenue rose by only 3.4% year on year. A boost from higher oil import prices was partially offset by a stronger currency and tariff reductions.

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But the main reason for the narrowing of the fiscal deficit was significant underspending. At the end of March expenditure was P82bn less than planned, at P349.3bn, representing a fall of 12.7% year on year. Lower than expected expenditure on debt interest made a contribution, but the spending shortfall was mainly the result of a fall in expenditure in other areas, which was down by 11.2%. This was a fall that deepened in March, with non-debt interest expenditure down by 23.4% in that month. The main reason was that spending on infrastructure was well below programme, totalling only P24.5bn in the three-month period, compared with a target of P56.7bn. According to statements by the finance department, project reassessments and reviews of cost assumptions have held up spending by the Department of Public Works and Transport. So the fiscal performance in the first three months of the year, although encouraging in that the government looks to be on course to meet its deficit target for the year as a whole, has been achieved only at the expense of spending on infrastructure, one of the economy’s major areas of weaknesses.