MANILA - The Philippines still expects the economy to expand this year albeit at a slower pace than the government's target of 3.1 to 4.1 percent, while the budget deficit could be wider than estimated, a senior economic official said on Tuesday.

The Southeast Asian country's economic managers are set to review and approve proposed changes to the 2009 macroeconomic targets on Wednesday. The Finance department has said it may increase its latest fiscal shortfall goal of P199.2 billion ($4.2 billion), or 2.5 percent of GDP.

"We would possibly downscale our growth targets, but it's still positive," Ralph Recto, economic planning chief told reporters.

When asked if the budget deficit goal this year may be raised to 3 percent of GDP or higher, Recto said: "It's possible, that's possible. That should be considered in our discussion tomorrow."

"Assuming that to be a worst-case scenario, then you have to plan your financing strategy just in case."

Recto declined to give details on the new estimates up for approval.

Bond yields have risen since last week on investors' worries that Manila may borrow more from the debt market to fund a larger budget deficit.

On Tuesday, yields in the secondary debt market climbed an average of 10 basis points and the Treasury rejected all bids at a regular auction of 5-year T-bonds after banks demanded a premium for the paper.

With debt yields on an uptrend, the Treasury said last week it has other funding options, including possibly another foreign debt sale and more concessional loans from multilateral lending agencies such as the World Bank.

In March, Recto said the Philippines' budget deficit could balloon to as much as P257 billion this year if tax collections fall short of target and Manila fails to sell assets to boost its revenues.

The economy shrank a seasonally adjusted 2.3 percent in the first quarter from the previous three-month period, the lowest in two decades, prompting the central bank to deliver last month its fifth rate cut in a row since December.