, 2010 (STAR) By Iris C. Gonzales - The Philippines may not be able to balance the budget by 2013 as programmed because of the need to spend more following the impact of the global financial turmoil, the Development Bank of Singapore (DBS) said in its latest report on the country.

“Following the crisis, gross domestic product (GDP) growth has fallen, government outlays have risen and the government isn’t likely to balance its budget by 2013,” DBS said.

The investment bank said the government is likely to spend more to pump prime the economy. It said economic growth is not enough to allow the government to cut back on spending sharply.

Originally, the government had planned to wipe out its budget deficit by 2010 but moved this to a later date of 2013.

In 2009, the economy grew by 0.9 percent from the 3.8 percent recorded the previous year.

It expects the government to continue looking for alternative funding sources to plug budget gaps given the importance of medium-term fiscal sustainability.

“To dig itself out of the budgetary hole, the government will not only try to achieve rapid economic growth but also do all it can to keep debt financing costs from rising materially,” DBS said.

In 2009, the government’s budget deficit already hit a record P298.5 billion or way above the revised ceiling of P250 billion.

This year, the budget gap is expected to reach P293 billion, above an earlier estimate of P233.4 billion.

Given this situation, DBS said the Philippines needs to pay closer attention to the cost of debt.

This means that whatever borrowings the Philippines embarks on, it should be at a lower cost.

The Philippines has been able to sell $1.5 billion in dollar bonds in January and $1.1 billion worth of Samurai bonds in February. This DBS said, has taken a lot of pressure off the domestic bond market.

Domestically, a total of only P15.37 billion in three-year, five-year and 10-year bonds were brought to the market in January and February.

DBS said that it is precisely these successful foreign bond issues that provided the government strong cash balances, giving it room to reject high bids from investors for its domestic issues.

“The (government) can continue to let auctions fail, as it last did on February 2 when it rejected all bids for seven year notes. There continues to be reluctance to pay higher yields on local currency debt and as long as that is the case, it is preventing 10-year benchmark yields from rising above the 8.35 percent weighted average fixed coupon on outstanding local currency government debt,” DBS said.

Chief News Editor: Sol Jose Vanzi

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