Quezon City (26 October) -- The Philippines will likely wipe out its chronic budget deficit by 2008, two years earlier than the original 2010 target under the Medium-Term Philippine Development Plan, due to improved revenue collection, President Gloria Macapagal Arroyo said Thursday.

"There is this target for a balanced budget by 2010. But if such improvements continued, we can achieve a balanced budget by 2008," Arroyo said in an interview with radio station dzRH.

Arroyo said the government has channeled some free cash to a medium-term public investment program to finance social and infrastructure projects, as promised in her State of the Nation Address in July.

"Now, I can freely talk about this. Previous to the tax reforms, out of a P900 million budget, P700 million came from taxes which went to debt payments, salaries of state workers, and internal revenue allocations. Nothing is left for infrastructure and social services," she said.

"We needed to borrow for infrastructure and social reforms. Now, we don't need to borrow as much as we are getting an extra P80 billion from the revised VAT and we have administrative reforms where get P100 billion."

The Philippines swung to a budget deficit of P16.2 billion in September, after recording four monthly surpluses, but Asia's most active bonds issuer ex-Japan remained on track to post a lower-than-target 2006 shortfall.

From January to September, the national government had a budget deficit of P50.4 billion, lower than the programmed nine-month deficit of P122 billion.

The Philippines had surpluses in April, May, June, and August, bolstering hopes that the Philippines may record a deficit lower than the full-year target of P125 billion, which is equivalent to 2.1 percent of projected gross domestic product (GDP).

It had a fiscal gap of P146.5 billion in 2006, which was 2.7 percent of GDP.