Moody’s lifts PHL outlook to positive from stable

Moody’s Investors Service on Tuesday upgraded the Philippine credit rating outlook to positive from stable, which paves the way for a rating upgrade within the next six months to 18 months.

 

The credit rating outlook of the Philippines was upgraded because of the country’s continued move toward fiscal, debt consolidation, and the enhanced finance-ability of government debt, said Moody’s assistant vice president Christian de Guzman.

 

“The government of the Philippines has continued to demonstrate prudence in its fiscal management, as characterized by low budget deficits relative to its rating peers and a steadily declining level of debt relative to GDP,” De Guzman noted.

 

“Such outcomes are the result of expenditure restraint and improved revenue performance,” he added.

 

Tuesday’s shift in outlook to positive is the sixth upgrade credit rating agencies gave the Philippines since President Benigno Aquino III assumed office in June 2010. 

 

London-based Fitch Ratings rates the country's sovereign credit at one notch below investment grade while Moody's and Standard & Poor’s rate the country at two notches below investment grade.

 

Despite the absence of legislative reforms, De Guzman noted that more effective tax administration measures have resulted in revenue growth outpacing nominal gross domestic product (GDP) growth over the past five quarters.

 

While spending disbursements have risen since late 2011, the Moody’s official said the higher revenues led to faster-than-expected consolidation of the country's deficits and debt burden.

 

De Guzman said Moody’s expects the revenue growth to improve further upon the passage of legislation aimed at restructuring excise taxes on alcohol and tobacco products.

 

“Nevertheless, deeper structural reforms may be necessary for revenue mobilization to catch up to levels similar to those of Philippines' rating peers,” he added.

 

Active debt management, coupled with the increasingly solid record of accomplishment of inflation management by the Bangko Sentral ng Pilipinas (BSP), has improved the country's debt structure, lowered average borrowing costs and foreign currency exposure, as well as longer average maturities, De Guzman noted.

 

He cited the country’s external payments position, with the Philippine gross international reserves expected to hit a new record level of $79 billion this year. Structural improvements

 

“The sovereign's vulnerability to global financial market shocks has been reduced by the build-up of foreign exchange reserves, resulting in turn from robust current account surpluses and healthy capital inflows in recent years,” he said.

 

To earn a credit rating upgrade, the Philippines should pursue structural improvements in revenue mobilization, continued reductions in the government debt burden, and accelerate investment spending that places the economy on a path of stronger growth, said De Guzman.

 

“These developments should also be accompanied by the continued health of the country's balance of payments and stability of the financial system,” according to him.

 

Factors that could lead to a downgrade–in rating or outlook–include a destabilization of macroeconomic conditions that could lead to unmooring of inflation expectations and adverse impact on financing condition and shift from the focus on good governance.

 

These, the Moody’s official said, would lead to deterioration of investment climate and, ultimately, revenue performance.

 

The Moody’s upgrade was based on the country's continued fiscal consolidation and good debt management, sustained robust external position and solid record of accomplishment of inflation management, BSP Governor Amando Tetangco Jr. said. 

 

“This positive rating action is therefore welcome and is a sign that Moody's is seeing the fruits of good governance on all fronts–fiscal, monetary, and external,” Tetangco noted.

 

“The message we have been trying to send to investors in general and credit rating agencies in particular is that fiscal performance can improve with good governance,” he added.

 

Finance secretary Cesar Purisima said the upgrade brings the country closer to the much coveted investment grade credit rating.

 

“This is one more step in our march towards investment grade, towards reducing the gap between the market rating and the credit rating, and more importantly towards a more sustainable growth path,” according to the Finance chief.

 

The Aquino administration would continue to focus on good governance–as the basis for good economics–on fiscal sustainability, on macroeconomic stability and on opening up the country to business and tourism, Purisima added. —VS, GMA News