R&I: RP gets BBB rating, needs to undertake more infra projects

Tokyo-based Rating and Investment Information Inc. (R&I) affirmed on Friday its stable credit rating outlook on the Philippines, noting that the government should further “revitalize" the industry and undertake needed infrastructure projects to sustain its strong economic environment. R&I said it has affirmed its BBB rating as foreign currency issuer for the Philippines with stable outlook after it economic growth rose 7.9 percent in the first half of the year. A rating of BBB means creditworthiness is sufficient, though some factors require attention in times of major environmental changes. “In order to support stronger sustainable growth, the Philippines must revitalize industry and raise the investment rate to create an economy propelled by two drivers, investment and consumption," the rating agency said in a statement. The country's economy has relied heavily on consumption, helping it survived the sharp drop in external demand due to the worldwide economic meltdown, it said. “The Philippine economy is relatively solid, with growth — supported by private consumption — positive even in 2009 when the effects of the global financial crisis were being felt. The country, however, has been slow in establishing a production base, and this has caused the country’s economic growth to pale in comparison to other [Association of Southeast Asian Nations] members," R&I said. “Though consumption is strong, infrastructure conditions are not necessarily adequate, and an industrial base has been slow in forming, particularly for manufacturing. Investment has been weak for this reason," R&I said. The rating agency lauded the country’s stronger-than-expected growth of 7.9 percent in the first half of the year from 1.2 percent in the same period last year. R&I pointed out that more than 10 percent of the country’s gross domestic product growth came from remittances from overseas Filipino workers (OFWs) that increased to $17.348 billion in 2009 from $16.426 billion in 2008. R&I said the country’s GDP is projected to grow between 5 and 6 percent this year as private spending did not decline in 2009 on the back of strong OFW remittances. The rating agency pointed out that the Philippines barely escaped recession last year after posting a GDP growth of 1.1 percent or lower than the GDP growth of 3.8 percent booked in 2008 as the Arroyo administration implemented a P330-billion Economic Resiliency Plan to cushion the impact of the global economic meltdown. The stimulus package resulted in the expansion of the country’s budget deficit that swelled to a record P298.5 billion or 3.9 percent of GDP last year from P68.4 billion or 1.1 percent of GDP in 2008, said R&I. This eclipsed the previous all-time high of P210.7 billion or 5.3 percent of GDP booked in 2002. Steady efforts at fiscal management helped the Philippines trim the debt-to-GDP ratio to 57 percent of GDP in 2008 from 78 percent of GDP in 2004, said R&I. The ratio slightly increased last year to 57.3 percent of GDP as the government booked a record budget deficit forcing it to borrow more from foreign and domestic creditors, it added. “Though the ratio of outstanding debt to GDP has improved from its peak by more than 20 percentage points, interest costs accounted for nearly 20 percent of total expenditures in 2009. Maintaining fiscal health over the medium- to long-term will remain important in order to ensure flexibility in spending," R&I said. -- JE/OMG, GMANews.TV