MANILA, Philippines (UPDATE) - The Philippines is set for higher growth this year with the government bent on accelerating spending to pump prime the economy and counter the impact of a weak global environment, the budget secretary said on Friday.

The Southeast Asian country, criticized for weak spending that pulled down overall economic growth in 2011, committed to frontload spending of its P1.8 trillion ($42 billion) budget early this year to ensure growth will top that of 2011.

"I don't think 5% and 6% (growth target) is ambitious," Florencio Abad, Budget Secretary and a former congressman told Reuters in an interview at his Manila office.

"Remittances will continue to grow, BPOs (business process outsourcing) will continue to grow. We have a bigger budget now and the execution will be much better and it will happen in the first semester," Abad said.

Weak government spending and sluggish exports to developed economies hurt overall growth in 2011, which came in at 3.7%, way below a government target of 4.5% to 5.5%, but in line with market forecasts.

Last year's slower-than-targeted growth occurred even as the government had committed to spend an extra 85 billion pesos in the last three months of last year, mostly on infrastructure projects that can could be built quickly.

Higher infra spending

Abad admitted he was disappointed with the growth performance last year, but the economy should gather steam in 2012 as the government started spending for roads, bridges, airports, classrooms, flood control systems as early as last month.
The economy, Abad said should also benefit from the impact of the previous quarter's extra spending, with government agencies yet to fully utilize the P85 billion, and Manila's much-awaited public-private partnership (PPPs) initiative.

"We have carry over stimulus programme that will further impact on growth and then PPPs are also going to start creating some impact on the economy," Abad said.

The budget department has released funding for infrastructure projects worth P150 billion in January, after President Aquino signed the 2012 budget into law in December, the earliest in many years, Abad said.

Total infrastructure spending this year was set at P182.2 billion, up 25.6% from last year.

Manila has also allocated P22 billion to pay for right of way and clearing of development sites to fastrack its PPP projects under its 2012 budget.

"Last year, we had a very low budget deficit, so the challenge for us this year is how to stay within the (2012) cap," Abad said.

The Southeast Asian economy set a budget deficit target of P279 billion, or 2.6% of GDP this year, higher than last year's estimated shortfall of P192 billion, or 2% of GDP.

Credit rating upgrade

With the economy expected to gain momentum this year, Abad said the government was confident it could secure a credit rating upgrade as early as in the first half of 2012.

Manila has been hoping for an upgrade after its neighbor Indonesia returned to investment-grade status. An upgrade would lower the country's borrowing cost and widen its base of potential investors, as some funds have restrictions on holding sub-investment grade debt.

It would also aid the Philippines in securing cheap long-term financing for major upgrades of its road, airport, and rail systems, a move aimed at helping spur economic growth.

"We expect a credit rating upgrade in the first half," Abad said.

Standard & Poor's revised its rating outlook for the Philippines to positive from stable in December. A revision in ratings outlook is almost always followed by a ratings upgrade.

In June, Fitch Ratings had raised Philippines' credit rating to one notch below investment grade citing improving fiscal position and budget management.