The Philippines said on Monday it had a budget deficit of P67 billion ($1.38 billion) in the first two months of the year on lower revenues as the economy slowed and with higher spending to boost the domestic economy.

Finance Secretary Margarito Teves said the deficit in February alone amounted to P29 billion.

He told reporters revenues in the first two months of the year amounted to about P159.4 billion while expenditures totalled around P226.5 billion.

Some local debt traders said a budget deficit above P60 billion in the first two months could put pressure on debt yields.

The government aims to keep the budget shortfall below P110 billion in the first three months of the year, a government source said earlier on Monday, based on the revised budget deficit target of P177.2 billion, or 2.2 percent of GDP, for the full year.

The deficit in 2008 was P68.1 billion, or 0.9 percent of GDP.

The government has raised its 2009 domestic borrowing programme by P55.5 billion to P442.04 billion against an original plan of P386.55 billion to finance a wider budget gap.

Earlier this month, socio-economic planning secretary Ralph Recto that the 2009 budget deficit could widen to as much as P257 billion if tax collections fall short of target and the government fails to sell assets. The government had earlier planned to balance its budget by 2010, but has now pushed that goal back.

The government, which spends about 24 percent of its budget on interest payments on about $87 billion in foreign and domestic debt, relies heavily on local and foreign borrowings to fund its deficit and redeem maturing debt.

Slipping

Vishnu Varathan, economist at Forecastweb in Singapore, commented that, the numbers"will reinforce concerns about fiscal slippage...Markets are bound to play it cautious as the downside risks to revenue cannot be ignored."

He also noted that almost 38 percent of the deficit has been chalked up in the first two months. "This means that something has to give in the following quarters, and the risk is that tax revenues undershooting and asset sales failing to meet targets could see the government coming back to the debt market; a risk that bond investors will remain wary of."

On the back of the budget deficit announcement, the peso was quoted at P48.44 per dollar at midday against its close at P48.19 on Friday. On the other hand, the stock market closed down 0.84 percent at 2,023.11 points.

Wider gap

Government revenues retreated by 5.5 percent to P159.4 billion in the first two months of the year from P168.8 billion in the same period last year.

The tax take of the Bureau of Internal Revenue fell 4.6 percent to P102.6 billion from P107.6 billion while that of the Bureau of Customs dropped 7.0 percent to P28.3 billion from P30.4 billion. The treasury likewise earned P16.8 billion or 28.2 percent higher than last year’s P13.1 billion from the sale of more government securities.

On the other hand, government spending surged 12.3 percent to P226.4 billion in the first two months of the year from P201.7 billion in the same period last year mainly due to the P330 billion Economic Resiliency Plan unveiled by the administration of President Arroyo for this year.

“Despite the P67 billion budget deficit for the first two months, we are on track to meeting our preliminary programmed deficit of P110.1 billion for the first quarter,” finance secretary Margarito told reporters Monday.

The government also expects to incur a budget deficit of P33.7 billion in the second quarter of the year and a shortfall of P33.5 billion in the third quarter before posting a modest surplus of P182 million in the fourth quarter.

“We expect a better performance in the succeeding quarters and hopefully things will work for the better in the third and fourth quarters,” the finance chief stressed.

Proceeds from privatization of government assets--such as interests in PNOC – Exploration Corp. and the 120-hectare Food Terminal Inc. property in Taguig City--in the second and third quarters of the year are expected to cover for the revenue shortfall.

Teves said the economic managers and the inter-agency Development Budget Coordination Committee would convene on Thursday to discuss possible changes on the government’s macroeconomic assumptions and fiscal targets.