The Philippines posted record budget deficits in March and in the first quarter on increased spending, boosting bond yields as traders and analysts feared more government borrowing. Manila said Tuesday its first-quarter fiscal gap stood at 134.2 billion pesos ($3 billion), 21 percent higher than its goal for the period and nearly half of the full-year target. Analysts say the worse-than-expected shortfall could push the country, already Asia's largest issuer of foreign currency bonds, to borrow more to finance a deficit which could at least match last year's record level. The benchmark four-year bond yield, which has been creeping higher on concerns of a deficit blowout, inched up one basis point to 5.88 percent following the data and ended up 3 bps on the day. “This raises the chance of more borrowing in the second half of the year, but we will have to wait until after the elections to get a clearer picture,” a bond trader in Manila said, referring to May 10 national elections. Ruzette Mariano, an economist at Royal Bank of Scotland, said the government could sell more of the retail, multi-currency bonds from which it raised $500 million in the past week. The government has given authority to sell up to $1 billion of such bonds to small investors and institutional buyers. After overshooting the January-March target, this year's deficit may reach as much as 3.9 percent of gross domestic product (GDP) if Manila cannot rein in spending and fails to boost revenue, Mariano said. That would bring the full-year deficit to about 315.9 billion pesos, based on Reuters calculations, topping the record 298.5 billion pesos in 2009. “If the overrun continues, then it will force the government to borrow more, and will force up government bond yields. However, we believe that it is too early to conclude that the government will be forced to borrow more,” said Ashira Perera, an economist at Capital Economics in London. Manila earlier said it had completed its planned $2.5 billion of foreign debt issues this year after a $1.5 billion global bond sale in January and a yen bond sale worth around $1 billion in February. Perera added that there was a chance the first-quarter budget slippage may be corrected later in the year given that the two leading candidates in next month's elections have pledged to be fiscally prudent.
