The country's worsening fiscal condition and the slowdown in remittance inflows are expected to pull the peso down in the coming months, according to DBS Bank Ltd.

The Singapore-based investment bank has forecast the local currency to weaken to 50 per US dollar by the second quarter and further to 51.50 by the end of the first quarter next year.

"Historically, the peso does not perform well when fiscal worries increase," DBS said.

"The peso is also not helped by slowing overseas worker remittances, which will no longer help the current account offset the persistent trade deficits," it added.

The government expects remittances to be flat this year from $16.4 billion in 2008. The country's budget deficit ceiling, on the other hand, was raised to P199.2 billion or 2.5 percent of gross domestic product (GDP), from the revised target of P177.2 billion or 2.2 percent of GDP.

In the first quarter, the budget shortfall hit P119.7 billion, more than double the P51.6 billion in the same quarter last year and already nearly two-thirds of the full-year target. The government incurred a record monthly deficit of P52.6 billion in March.

DBS warned that the government may breach its revised budget deficit ceiling as well as the P257 billion or 3 percent of GDP that socio-economic planning chief Ralph Recto earlier projected as "worst-case scenario."

"Risks to the government budget deficit remain tilted to the upside. The deficit is under widening pressure from both falling government revenues and rising expenditures and it is well possible that the budget deficit will not only surpass the official estimate of P199 billion for the full year, but also Secretary Recto’s current worst-case estimate of P257 billion," DBS said.

Moreover, the investment bank noted, "The market will also not like the government needing to return to the international debt market to raise funds, not when its latest balance of payments registered a deficit from debt repayments."

The higher deficit ceiling prompted the government to hike its programmed borrowings from P589.4 billion to P613.9 billion this year.

It also increased the amount of money it would source from foreign creditors and reduced the amount to be obtained from domestic creditors.

The government now plans to borrow P174.9 billion from foreign creditors, or P27.5 billion more than the P147.4 billion that was earlier programmed; and P439 billion from local creditors, or P3 billion less than the P442 billion planned domestic borrowings through the sale of government securities.

The country's economic managers also decided to revise their forecast for the peso to a range of 46-49 per $1 from the previous assumption of 45-48.