Fitch Ratings has further cut its economic growth forecast for the Philippines to only 0.1 percent this year from an earlier estimate of 0.5 percent as exports contract and consumption slows due to falling remittances.

The London-based credit rating agency announced the downgrade in growth outlook a day after the government said the Philippine economy may still expand by 4 percent this year, at the higher end of its target range of 3.1-4.1 percent.

"While the Philippines has not been directly exposed to some of the most serious aspects of the international financial crisis, including, for example, severe stresses affecting the domestic banking system, it is not impervious to the deterioration in global economic growth prospects," said James McCormack, head of Asia Sovereigns at Fitch.

McCormack said their flat growth forecast was based on a sharp 20-percent reduction in exports, and a 6.8 percent decline in remittances, the main engine of consumer spending in the country.

He said remittances were still climbing year-on-year, with the latest data showing a 4.9 percent growth in February, but they already peaked in June 2008 and will likely trend lower, consistent with the state of the global economy.

Meanwhile, without privatization proceeds, McCormack said the country's budget deficit may balloon to P271 billion or 3.5 percent of gross domestic product (GDP), given the government's ambitious spending program and dwindling tax collections.

"The fall in tax revenue in the first quarter will be very difficult to make up in the remainder of the year as the economy slows," noted McCormack.

Fitch said it has long considered the Philippines' revenue base, which is among the lowest of all rated sovereigns, to be a fundamental rating weakness.

It said the country likewise compares unfavorably with its rating peers in terms of government debt.

Fitch has affirmed the Philippines' long-term foreign and local currency issuer default ratings at 'BB' nad 'BB+', respectively, with a stable outlook. But it warned that the country's deteriorating finances may trigger a credit rating downgrade.

"If forecast increases in spending are not reversed once the economy begins to recover, or revenue collection is not stepped up considerably, there is a risk that the Philippine government debt ratios may deviate further from the 'BB' medians, with possible negative rating implications," it said.

The government is staring at a budget deficit of P199.2 billion or 2.5 percent of GDP this year, much wider than the revised target of P177.2 billion or 2.2 percent of GDP.