MANILA - The government could exceed this year’s programmed budget deficit as a sluggish recovery continues to weigh on state revenues, global debt watcher Standard & Poor’s (S&P) said.

But with the shortfall expected to drop in succeeding years, a slight fiscal blowout this year and the next would have little, if any, negative impact on the country’s sovereign ratings.

"The pace of the growth of deficits seems to be somewhat higher than originally planned. As such the size of fiscal deficits might be slightly higher this year," S&P senior analyst Takahira Ogawa told BusinessWorld.

"However, unless...[the] unlikely scenario of a significant over shoot [occurs]...the sovereign credit ratings would stay as it is," he said in an e-mail.

The government, under pressure to prop up the economy via increased spending amid a global recession that has reduced revenues, decided to raise this year’s deficit cap to P250 billion from P119.5 billion previously.

The shortfall, roughly equivalent to 3.2% of gross domestic product (GDP), is to be funded by additional borrowings. The government plans to trim the ratio to 2.8% next year.

"There is a possibility of high level of fiscal deficits two years in a row, depending on the global and domestic macroeconomic environment," Mr.Ogawa said.

Other international finance institutions have forecast a much higher budget shortfall for this year: both the International Monetary Fund and Fitch Ratings see it at around 3.5% while Moody’s Economy.com says it could top 4%. All projected levels, however, were considered as manageable.

Mr. Ogawa said "Depending on the size of deficits, we might have to pay attention more to any negative implications ... including the domestic interest rates and peso’s value in the foreign exchange markets, among others."

"However, we think such increase in fiscal deficits would cyclical in nature and ... as the Philippines economy recovers, the level of deficits will be gradually reduced," he pointed out.

The government expects the economy to grow by 0.8-1.8% this year. The preliminary forecast for 2010 is growth of 2.6-3.6% as demand from major trading partners like the US returns.

S&P’ outlook is growth of 1.0-1.5% this year.

The firm currently has a ‘BB’ rating for the country’s long-term foreign currency-denominated issuances, ‘BB+’ for its peso-denominated long-term debt papers, ‘B’ short-term issuer default rating, and ‘BB+’ country ceiling, with a "stable" outlook for all grades.