The Philippines cannot sustain wider budget deficits for an extended period especially with the ongoing economic crisis, the Asian Development Bank (ADB) said.

In a two-page letter to Finance Secretary Margarito Teves dated March 6, Director General Arjun Thapan of the ADB Southeast Asia Department said that while the country's wider budget deficit this year is still manageable, the Philippines has "relatively limited fiscal space to run larger deficits for a sustained period."

The government has raised its budget deficit ceiling this year at P177.2 billion or 2.2 percent of the country's gross domestic product (GDP) due to an expected increase in tax take-up, higher than its previous target of P102 billion or 1.2 percent of GDP.

For next year, the country is expected to incur a budget deficit of P132.1 billion, or 1.5 percent of GDP as the continuing shrinking of the rich countries' economies will continue to impact developing ones such as the Philippines.

To raise more revenues, Thapan has supported legislative measures pushed by the Finance Department which includes the rationalization of fiscal incentives, the simplification of the net income tax scheme for individuals, the restructure of excise tax on alcohol, cigarettes, and other sin products.

In addition, the ADB has also backed the Finance department's efforts to remove staff of the Bureau of Internal Revenue and the Bureau of Customs from the Salary Standardization Law.

Meanwhile, Thapan lauded the government's sound management of the economy as it successfully met its budget deficit target last year of P68.1 million or 0.9 percent of GDP in line with the macroeconomic framework of the ADB's Development Policy Support Program where it provided $250 million in budgetary support.

The multilateral lender has committed to provide $1.2 billion in loans and technical assistance to the country for the next two years.

This year, the loan portfolio includes $200 million for the Development Policy Support Subprogram III, $200 million for the Financial Market Regulation and Intermediation Program Subprogram II, $100 million for the Integrated Natural Resources and Environmental Management, and $44 million for the Philippine Basic Urban Services Sector.