REFILE-Ireland's Anglo Irish Bank bailout 'manageable' -Honohan

HONG KONG, Aug 16 (Reuters) - Ireland's bailout of Anglo Irish Bank, which is partly behind the country's soaring budget deficits, is 'costly but manageable', Ireland's Central Bank Governor Patrick Honohan said on Monday.

Honohan, who is also the European Central Bank's rate setter, reiterated the country's budget deficit would be around 20 percent of its annual GDP this year despite continuing troubles at the bank, which is receiving extra state aid.

'It's a terrible shock to the system. It's costly but it's manageable.' Honohan said during a speech in Hong Kong.

The European Union last week approved plans for up to 10 billion euros ($12.75 billion) of state aid for Anglo Irish, and Honohan said on Sunday that plans to recapitalise the bank were well on track and had little impact on the government's overall deficit plans.

Honohan had said Ireland remained committed to its target of reducing its budget deficit to 3 percent of gross domestic product by 2014.

But this year its budget deficit is not going down but up.

'It's a very high deficit measured this year because we're taking the hit, we're acknowledging the losses in the banking system and those losses which are being paid for by the government have to be included in the deficit,' he said.

($1=.7841 Euro)

(Reporting by James Pomfret, writing by Alison Leung; Editing by Chris Lewis)

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