UPDATE 1-Philippines sees smaller budget deficit in 2009

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MANILA, July 9 (Reuters) - The Philippines said on Wednesday it expects a budget deficit of 0.5 percent of gross domestic product in 2009, smaller than a forecast shortfall of 1 percent this year, as it aims to narrow the gap with higher revenue.

But a balanced budget could still be attainable in 2009 if global conditions improve and food and oil prices decelerate, Economic Planning chief Augusto Santos told reporters.

"Next year, we are looking at a budget deficit of 0.5 percent of GDP, or roughly 40 billion to 45 billion (pesos)," Santos said.

The Philippines has abandoned plans to balance its budget this year for the first time in more than a decade as it spends to protect the economy from spillover effects from high food and oil prices.

It will also spend more on social services and in rehabilitating the country's creaking infrastructure as a cushion to the economy faced with weak export demand and high inflation. It expects to continue heavy expenditures next year.

The government now expects a budget deficit of as much as 75 billion pesos this year after a shortfall of 12.4 billion pesos in 2007.

It has pushed back its balanced budget goal to 2010, the original forecast under the government's medium-term development plan.

President Gloria Macapagal Arroyo started releasing electricity subsidies to the poor last month and is now planning to give cheap loans to public transport drivers to convert taxis and jeepneys - the most popular mode of transport in the country - to LPG-run engines and save on fuel costs.