The Philippines will likely exceed a budget deficit of 3 percent of gross domestic product (GDP) after the first two months' shortfall more than doubled from a year ago due to accelerated spending and weak tax collections, DBS Bank Ltd. said Wednesday.

As the Arroyo administration boosts spending to cushion the impact of the global downturn, the Singapore-based lender said the deficit will not only surpass the revised official target of P177 billion or 2.2 percent of GDP but also the worst-case estimate of P257 billion or 3 percent of GDP made by socioeconomic planning secretary Ralph Recto.

On Monday, Finance secretary Margarito Teves announced that the budget gap widened to P67 billion in January to February, almost as big as last year's deficit of P68.1 billion or 0.9 percent of GDP and more than five times the shortfall of P12.4 billion or 0.2 percent of GDP in 2007.

Teves attributed the wider deficit to lower government revenues and higher spending in line with President Arroyo's P330-billion stimulus package.

The tax take of the Bureau of Internal Revenue, the government's main revenue-generating agency, fell 4.6 percent to P102.6 billion while that of the Bureau of Customs dropped 7 percent to P28.3 billion.

On the other hand, government expenditures surged 12.3 percent to P226.4 billion.

Despite the recent figures, the government remains optimistic it will be able to keep its budget deficit within targets: P110.1 billion for the first quarter, P33.7 billion for the second quarter, and P33.5 billion for the third. It also expects to post a modest surplus of P182 million in the last quarter.

"Official forecasts look optimistic," DBS said.

The investment bank noted that the wider budget deficit would result to higher borrowing costs for the Philippine government.

"With risks to the government budget deficit tilted to the upside this year and possibly next, 10-year yields should remain under upward pressure in the coming months even if there is good demand for short-dated debt out of the banking system," it added.

DBS expects the central bank's to trim overnight borrowing and lending rates this year due to easing inflation.