Standard & Poor’s upgraded the Philippines credit rating by a notch to “BB+” from “BB,” citing improving external liquidity and the national government’s fiscal position.

 

S&P’s latest action marked the eighth Philippine credit rating upgrade under the two-year-old Aquino administration, and is seen as a credible reflection of the government's fiscal management. It has placed the country a step below its coveted investment grade status.

Standard & Poor’s is considered one of the three most important credit-rating agencies in the world, and its pronouncements and assessments are watched closely by governments, banks and investors around the world.

"Gradually easing fiscal vulnerability"

 

"The foreign currency rating upgrade reflects our assessment of gradually easing fiscal vulnerability, as the government's fiscal consolidation improves its debt profile and lowers its interest burden," S&P credit analyst Benard Agost noted in a statement.

 

The Philippines was assigned a "BB+" rating with stable outlook from "BB" with positive outlook, Agost said.

 

The stable outlook indicated the latest ratings upgrade would likely remain for a year.

 

"The rating action also reflects the country's strengthening external position, with remittances and an expanding service export sector continuing to drive current account surpluses," Agost said.

Debt service and revenues

 

The Philippine government’s debt burden has declined over the years with the implementation of reforms in revenue collection. Outstanding debt of the national government is currently equivalent to about 50 percent of gross domestic product.

 

The debt-to-GDP ratio stood as high as 84 percent in 2004.

 

Government debt payments – mostly owed to domestic creditors – fell P48 billion to P337 billion in January to May this year, the Bureau of Treasury said Wednesday.

 

The debt service was down 14 percent from P385 billion a year earlier and the relative size of debt payments compared to GDP fell to a 13-year low of 50.9 percent, the bureau noted.

 

The bureau said the national government spent P262.777 billion to settle obligations to domestic creditors – nearly all of which are banks and financial institutions like insurance firms.

 

Foreign debt payments were smaller at P24.999 billion for principal components and P49.416 billion for interest, it added.

 

The total debt stock as of April 30 stood at P5.075 trillion and consisted mostly of medium- and long-term loans.

 

The Philippines gross international reserves earlier this year hit a historic high of about $77 billion, S&P noted, saying this makes the country very much able to service its maturing obligations to foreign creditors.

 

The government expects its foreign reserves to reach $77.5 billion to $78 before the year ends.

A step closer to investment grade

Government agencies are elated over the latest upgrade.
 

“We welcome the upgrade from S&P. The action of the market in the couple of days [the demand for peso-denominated portfolio assets that led to the appreciation of the peso] was a forth-telling,” Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said in a statement.

 

President Benigno Aquino's strategic communications secretary Ricky Carandang hailed the upgrade, saying it put the government one step closer to investment grade status.

 

"This is an affirmation of the fiscal management of the Aquino administration," Carandang said in a statement.

 

For his part, Finance Secretary Cesar Purisima said the upgrade gave the government confidence it was following the right economic policies.

 

"We can now clearly make our case for an investment grade status," he said in a separate statement. — with Agence France-Presse/VS/ELR/HS, GMA News