By Eileen A. Mencias

Citibank sees the Philippines’ budget deficit widening this year to P197 billion and the peso weakening to 49 to 50 against the US dollar due to the poor macroeconomic environment potential business failures and reduced corporate income tax.

Citibank analyst Jun Trinidad said in a study dated Feb. 26 that the lackluster revenue collection last year compelled the bank to lower its tax-to-gross domestic product assumption for 2009 to 14 percent, in line with the actual ratio reported in 2008.

“The poor macro backdrop, rising layoffs and potential business failures, lack of tax reform legislation as near the May 2010 elections and one-off dilutive effects of the corporate income tax reduction to 30 percent, do not support a tax base and collection efficiency that can facilitate incremental gains in the tax to GDP ratio,” Trinidad said.

Citibank also warned that the peso could be vulnerable to risk aversion because of weaker fundamentals this year.

Trinidad said “the revenue shortfall recorded in December and for full-year 2008 offers a strong premonition of lackluster revenues, particularly in 2009 when the business environment could be more stifling.”

The peso weakened yesterday to 48.80 against the greenback from Thursday’s close of 48.39.

Citibank is assuming privatization revenues of only P10 billion this year but said it “may again surprise on the upside.” The government could raise at least P50 billion if it decided to sell its 27-percent stake in San Miguel Corp. this year.

The government posted a budget deficit of P68.1 billion in 2008, lower than the program of P75 billion.

The lower-than-programmed deficit offset a huge revenue shortfall of P22.3 billion last year.