’11 budget gap seen at half of what gov’t expects

The government’s 2011 budget deficit may actually reach P145 billion—less than half of the P300 billion that the state earlier thought it would incur for the whole year, according to DBS Group.

In line with this projection, the Singapore-based group now expects the budget gap for December to hit P49 billion.

Also, the deteriorating global growth outlook may compel the Philippine regulators to keep key rates low throughout 2012, DBS said in a new research paper, adding that next year’s monetary policy rate may even average less than that of 2011.

“The full-year budget deficit is likely to be no larger than P145 billion, or 1.4 percent of gross domestic product (GDP), [and] this was achieved amid improving revenue and reduction in spending,” the financial services firm said.

The 2011 deficit level is a major improvement from that of 2010, but may not be repeated in 2012, DBS explained.

“With a P72-billion stimulus package already announced, the deficit will likely widen to near P300 billion in 2012,” the financial group said. “That would be as large as the deficits [seen] in 2009 and 2010, but still very manageable at 2.6 percent of GDP.

In 2009, the budget deficit came in at P298.5 billion, which further ballooned to P314.4 billion in 2010.

For 2012, DBS said that the Philippines would likely keep its key interest rates low in view of the worsening global growth outlook.

The Singapore firm said that the yield of 10-year government

securities would probably settle at around 5.75 percent—way below the Bangko Sentral ng Pilipinas’ current overnight lending rate of 6.5 percent.

“If so, interest rates will on average be lower in 2012 than in 2011,” the group said.

DBS said that for government bond yields to remain low, it would be essential for liquidity conditions in the banking system to remain good.

“That should not be difficult to achieve, as the outlook for portfolio flows to Asia in 2012 will turn positive once the sovereign debt crisis in Europe is under control,” the group said.—Ronnel W. Domingo