Standard & Poor’s Rating Agency said yesterday it expects the government to finally put an end to its budget deficits this year supported by higher tax revenues.

Agost Benard, associate director for sovereign ratings of S&P, said the rating firm is optimistic the government can maintain the reforms in the fiscal sector.

"I am hopeful balancing the budget will be successful this year and the success last year will be replicated this year," Benard said, who is leading a three-man team for S&P’s annual review of the Philippines this week.

"The revenues are increasing. There’s an increasing contribution from tax revenues as distinct from privatization," the Singapore-based credit analyst said.

"I am hopeful the fiscal position will continue to improve," Benard said.

The government narrowed its deficit to just P9.4 billion last year, well below the P63-billion ceiling, on the back of a better-than-expected income from the sale of state assets, complementing the moderate growth in tax revenues.

Collections of the Bureau of Internal Revenue, in charge of two-thirds of total tax revenues, rose by nine percent despite falling short of the target for the year.

Revenues of the Bureau of Customs were also below program, although the agency managed to grow collections by more than six percent from a year earlier.

The government raised a total of P90.6 billion from the sale of state assets last year including shares in Philippine Long Distance Telephone Co., Philippine National Bank and PNOC-Energy Development Co.

Rating agencies have vilified the privatization efforts, saying the one-off revenues are unsustainable and that the government should rely more on taxes to generate revenues.

Nonetheless, S&P said there has been an improvement in tax revenues, with fiscal reforms, if not hampered by the current political turbulence, finally putting the government out of the deficit picture.

Benard said the government should have careful handling of the political situation, which, while not being a constraint to ratings, may affect policy implementation and derail the fiscal reforms.

Benard said political risks are "factored into the sovereign rating."

S&P currently rates Philippine debts at ‘BB-’, three notches below investment grade, with stable outlook.

He said he couldn’t "speculate" on whether the Philippines can hope for an upgrade, whether in the outlook or rating itself, as the review has just started.

S&P’s visit follows that of Moody’s Investors Service in January. The latter has since raised its credit rating outlook on the country to positive from stable, lifting hopes of a rating upgrade next year.