RP can cope with higher deficit: central bank

Agence France-Presse

Posted at Feb 11 2009 08:44 PM | Updated as of Feb 12 2009 04:44 AM

A budget deficit exceeding two percent of the Philippines' gross domestic product this year is acceptable amid the global financial crisis, central bank governor Amando Tetangco said Wednesday.

"There is an openness to allow a higher deficit to GDP ratio. Two percent or higher is not a bad number," he told a bankers' forum here.

Finance Secretary Margarito Teves has said the 2009 deficit would rise to 102 billion pesos (2.07 billion dollars) or 1.2 percent of GDP.

Tetangco said that the Philippines could withstand a higher budget deficit since inflation and interest rates remained low, the peso was stable and the banking system remained strong despite the crisis rocking the world's financial system.

"As external markets decline, there will be a greater reliance on internal aggregate demand," he said, adding that reforms undertaken after the 1997 Asian crisis would also help.

The government expects GDP growth of between 3.7 and 4.7 percent this year with inflation continuing to decline.

President Arroyo wants to stimulate growth through increased public spending on infrastructure and targeted handouts to the poor.

Speaking at the same forum, former finance secretary Jose Isidro Camacho, now a vice-chairman of Credit Suisse Asia-Pacific, expects Philippine GDP growth at 3.5 percent this year while Luz Lorenzo, economist of ATR-Kim Eng Securities said it could reach as high as 4.9 percent.