The Philippine government's economic reform programme could be jeopardised by its failure to improve revenue collection and rein in a swelling fiscal deficit, Standard and Poor's (S&P) said yesterday as it revised its long-term outlook to negative from stable. The ratings agency's view is the latest expression of concern about the Manila administration's apparent inability to boost tax collection efforts and curb the deficit, which is expected to hit 4.5 per cent of gross domestic product this year, or 175 billion pesos (about HK$25.7 billion). S&P affirmed Manila's BB-plus long-term and B short-term foreign-currency ratings. 'The Arroyo administration's success in re-igniting the structural reform agenda, especially in the energy sector, and in bringing more coherence to economic management could be jeopardised by its inability to meet revenue collection targets on a consistent basis,' S&P said. Over the first nine months of the year, the deficit ballooned to 166.47 billion pesos, far ahead of the original full-year target of 130 billion pesos, or 3.3 per cent of GDP. Officials have blamed widespread tax evasion and a pressing need to strengthen the Bureau of Internal Revenue. S&P analyst Joydeep Mukherji said: 'The delay in strengthening the Bureau of Internal Revenue creates uncertainty about the government's ability to meet its long-term fiscal objectives, which are key to sustaining the current level of creditworthiness.' The agency warned that with half of the government's 2.65 trillion peso debt denominated in foreign currencies, poor state finances could undermine the exchange rate, raise debt repayment costs and, ultimately, put pressure on the Philippines' sovereign rating. 'Failure to adhere to a credible fiscal strategy could increase pressure on the Philippine peso and, with more than half the government's debt denominated in foreign currencies, a sharp depreciation of the peso would raise debt-servicing costs, worsen fiscal rigidity and damage the country's credit rating,' Mr Mukherji said. About one-third of national revenues are now devoted to debt servicing. The peso dipped to 53.07 against the US dollar yesterday on the S&P announcement, from 52.93. But analysts said the reaction was muted as the content of the release had been expected. Mr Mukherji, who estimated the full-year deficit 'may approach' 4.5 per cent of GDP, said better tax collection and continued reform could trigger a virtuous cycle of rising investor confidence, stronger growth and a restoration of the ratings outlook. Government officials condemned S&P's move. 'They are slow in upgrading but quick in downgrading,' Finance Secretary Jose Camacho said. 'They are reacting to a very short-term phenomenon. I think they are under-appreciating other gains outside of the deficit. 'We continue to have strong GDP growth, a strong external sector, a low interest and a low inflation rate.' Central bank governor Rafael Buenaventura was equally dismissive. 'Although the budget deficit [now] represents a larger percentage of GDP, nonetheless the economic performance of the country continues to be very positive.' Rival agency Fitch Ratings said last month that it, too, was concerned by the widening fiscal shortfall. It warned that if public finances continued to deteriorate next year and in 2004 - a presidential election year - the Phillippines' international credit standing could come under threat. The Asian Development Bank, which is headquartered in Manila, said improving tax collection was a must if Manila was to strengthen its budgetary position and reduce poverty. Forty per cent of Filipinos live on less than US$1 a day. Former chief of the Bureau of Internal Revenue Rene Banez resigned from his post in August and alleged that colleagues were trying to sabotage his efforts to make the body more efficient. President Gloria Macapagal-Arroyo came to power in February last year vowing to promote economic growth, stamp out corruption and reduce poverty.