MANILA - New York-based Goldman Sachs said the damages wrought by the twin typhoons on the Philippine economy could result in a budget deficit for 2009 to reach P311.8 billion, way above the full-year ceiling of P250 billion.

In a report on the Philippines on Tuesday, the investment firm said government's expenditures are likely to "tick higher" with the need to spend more due to the damage brought about by typhoons Pepeng and Ondoy (international code names Ketsana and Parma).

The investment bank said the government's current rough estimate of damage caused by the storms to agriculture and infrastructure is P22.8 billion, which is equivalent to 0.3% of gross domestic product (GDP).

This, it said, is likely to put pressure on the full-year budget deficit.

"Our baseline expectation of the fiscal deficit was 3.5% of GDP with an upper limit of 4% of GDP. We now think that the 4% of GDP deficit estimate is likely to be more realistic," Goldman Sachs said.

Goldman’s revised deficit projection of P311.8 billion is equivalent to 4% of GDP, while the current government’s target of P250 billion is 3.2% of GDP.

In the first 9 months of the year, the deficit has already reached P237.5 billion, only P12.5 billion shy of the full-year ceiling. The finance department attributed this to weak revenues and higher expenditures.

"Over the next few months, we expect expenditure to tick higher, following the devastation caused by the twin storms," Goldman Sachs wrote.

Zero deficit by 2013

The investment bank, however, stressed that it is confident the Philippine government would still balance the budget by 2013. It cited the government's "track record" in fiscal consolidation.

"We remain confident in the government's medium-term consolidation plan to balance the budget by 2013, given our positive view on the growth outlook. In the recent past, it has successfully consolidated the fiscal deficit (in 2002-2007) and this track record as well as our expectation of higher domestic growth gives us confidence that this may be possible again once the elections are over in May 2010," Goldman Sachs said.

At the same time, the investment bank warned that the government would have to implement greater "fiscal discipline" to broaden the tax base and cut expenditure over the next few years.