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Fitch cites PHL reforms, notes fiscal weaknesses

January 22, 2013 12:38pm
Debt-watcher Fitch Ratings on Tuesday took note of the efforts by the Aquino administration to pass key revenue generating laws and plug leaks in public spending and hinted on the possibility of upgrades should reforms continue to gain momentum. 
 
“The implementation of revenue-enhancing measures, such as the recently passed 'sin tax' bill, is potentially credit-positive, though execution risks remain high,” Fitch said in a report on the “Philippines Public Finances.”
 
Fitch rates the Philippines at “BB+” or one notch below investment grade with a “Stable Outlook.”
 
Government efforts to “improve fiscal management have brought many key fiscal metrics in line with or stronger than” peers rated below investment grade, Fitch said. 
 
“General government debt/GDP ratio, estimated to be 40.3 percent at end-2012, is on a par with 'BB' and 'BBB' medians' 40 percent,” it added. 
 
Lengthening the maturity profile of national government debt and borrowing more from the domestic market were also considered “supportive of sovereign creditworthiness,” according to the debt-watcher.  
 
“While implementation of these efforts created an initial drag on GDP growth, improved fiscal transparency and reduced corruption leakages could help deliver longer-term benefits to the economy and address weaknesses elsewhere in the sovereign credit profile,” it said.

'Key... weaknesses'
 
Fitch Ratings, however, noted it has kept the Philippines' credit rating outlook stable rather than positive as improvements in revenue generation are still needed. 
 
“Fiscal revenue base remains the key outstanding weakness in the public finances,”  Fitch said.
 
The debt-watcher noted the country's revenue base at 18.4 percent of gross domestic product (GDP), saying this was “well below” those of its peer's that are rated below investment grade and investment grade, which have revenue bases at 27 percent and 34 percent of GDP, respectively. 
 
“This impedes fiscal liquidity, reflected in a debt/revenue ratio of 220 percent, significantly above the 'BB' range median of 163 percent,” Fitch said. 
 
“It also potentially constrains fiscal resources for public investment in the infrastructure, health and education sectors of the economy,” it added. — Siegfrid Alegado/VS, GMA News



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