RP creditworthiness 4 notches below investment grade - Moodys

BY Ma. ELOISA I. CALDERON, Reporter/BusinessWorld United States-based ratings agency Moodys Investor Service Friday maintained its stable outlook of four notches below investment grade for Philippine sovereign debt, citing the need for the government to further widen its revenue base and address infrastructure bottlenecks to spur investments. Moody’s grade of "B1" is the lowest among ratings peers: one notch below Standard & Poor’s "BB-" rating and two notches below Fitch Ratings "BB." The ratings are barometers on the creditworthiness of a country or organization. In November last year, the Philippines secured from Moodys an improved outlook of stable from negative after the government showed progress in controlling overspending and lesser dependence on external financing. In its latest assessment, however, the global debt watcher noted Philippine debt continues to hurt prospects of sustained economic growth, as revenues are mostly spent on debt servicing than building infrastructure to attract investments. Although debt management has lengthened the average maturities and helped to narrow spreads, effective tax administration and prudent expenditure policies are needed for long-run stability of finances, Moodys vice-president Thomas J. Byrne said in the company’s latest report on Philippine sovereign ratings. The government’s revenue base cannot as yet support spending to meet major needs in public infrastructure, in part due to large interest payments on debt, he added. The B1 government foreign and local currency ratings reflect the Philippines’ relatively high government and public sector debt, which leaves finances and external accounts vulnerable to shocks, Mr. Byrne said. He noted that growth is not broad-based such that the economy continues to depend on private and public consumption as well as exports and services as main drivers. In contrast, investment remained weak, he said, noting that at 14.8% of nominal gross domestic product in 2006, gross investment in the Philippines continued to subside and is among the lowest of rated emerging market countries. Moodys pointed out that while the public sector debt ratios have receded from their historic peak, the ratios remain relatively high compared to the rating peers. The Philippines ratio of external debt to GDP (gross domestic product, or the country’s growth in a year as measured in terms of goods and services) stood at 51% in 2006, higher than the 36% median for B- and C-rated countries but equal to the median for Ba-rated countries, read the report. Philippine economic policy has yet to translate its initial successes in fiscal consolidation to improved underlying performance in the economy, Mr. Byrne said.