Higher government spending and weak tax collections could widen the country's budget deficit to 2.6 percent of gross domestic product (GDP) this year, according to Swiss investment bank UBS.

The forecast is wider than last year's budget shortfall of P68.1 billion or 0.9 percent of GDP and the government's deficit ceiling of P177.2 billion or 2.2 percent of GDP for 2009.

UBS economist Edward Teather said, however, that the budget gap estimate remains sustainable as private sector savings could be used to finance the deficit.

"In our view this is sustainable both in terms of the implications for the debt to GDP ratio and in terms of financing. We anticipate lower private investment will mean excess private sector savings that can be directed towards funding a wider government deficit," he noted.
 
In the first two months of the year, the country's budget deficit swelled to P67 billion from P32.9 billion in the same period in 2008 as government revenues declined and spending accelerated in light of the economic slump.

Socioeconomic Planning Secretary Ralph Recto earlier warned the deficit could widen to as much as P257 billion or 3 percent of GDP if tax collections fall short of target and the state fails to sell assets.

But Finance Secretary Margarito Teves maintained the government is keeping its P177.2 billion budget deficit ceiling this year.

GDP at 1.8%

Teather said the Philippine economy may grind to a near halt, with growth at 1.8 percent this year from 4.6 percent last year due to dim prospects for fixed investment and employment of Filipinos abroad. Teather's forecast is not far from the World Bank's recent 1.9 percent estimate.
 
"Our view that real GDP growth will slip below 2 percent in 2009 remains in place, with a point forecast of 1.8 percent. There is no question that the trade and financial market shock of recent quarters is impacting the Philippines; the outlook for fixed investment and OFW employment prospects are not bright," he said.
 
Thus, the economist expressed support for President Arroyo's P330-billion Economic Resiliency Plan aimed at spurring the economy and creating jobs.

"Indeed, fiscal stimulus through lower taxation and higher spending is an important part of supporting a recovery in economic activity (and future growth expectations on the part of the financial market) from the weakness we still anticipate in the Philippine economy in coming quarters," he said.