MANILA, Philippines--THE Bangko Sentral ng Pilipinas said the government should go back to the deficit-reduction path in 2010 to help the country attract investments as the world economy recovers from the global economic turmoil.

?A clear fiscal consolidation program would be a major confidence-building factor,? BSP Governor Amando Tetangco Jr. said.

There is a consensus among economists that the global economy, after suffering from the current global economic crisis dubbed as the worst since the US Great Depression of the 1930s, would start to recover next year. The pace of recovery, however, will be modest.

As a consequence of improvements in the global economy, investors are expected to increase their exposure especially in emerging markets, which performed better than the industrialized nations in the course of the crisis.

However, Tetangco said the Philippines would have better chances at cornering a bigger share of rising foreign direct and portfolio investments if the government would start reducing its budget deficit again.

?If the government can keep itself on track [of deficit reduction], then it would be positive for the market,? Tetangco said.

The government was earlier targeting to balance its budget by 2008. However, finance officials decided to defer the plan given the ill-effects of the global economic turmoil on the Philippines. They said the government needed to spend more on infrastructure and social services to ensure the country did not slip into a recession.

The government incurred a budget deficit of P68.1 billion last year.

The deficit swelled this year, hitting P272.5 billion in the first 11 months of the year and is expected to touch P300 billion for the whole year.

Tetangco said that since the global and domestic economies are expected to perform better in 2010 than this year, the government could already go back to its deficit-reduction mode.

The Department of Finance earlier said the government would actually go back to deficit reduction next year as it targets the budget gap to narrow to P233 billion.

BSP Deputy Governor Diwa Guinigundo said it was vital for the government to actually achieve the fiscal target for 2010 to gain more credibility and thus attract more investments.

The BSP has projected that foreign direct investments to the Philippines would increase next year amid improved risk appetite of investors. The BSP has projected FDI net inflows of at least $1.8 billion for next year, up from the projected $1.5 billion for this year.