GMANews.tv - July 23, 2009

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Moody's hikes RP rating due to resilient economy

MANILA, Philippines - Moody’s Investors Service upgraded the Philippines’ sovereign ratings, indicating its optimism that the country’s economy would remain resilient despite the global slowdown.

The upgrade was due to the “relatively high degree of resiliency exhibited by both the country's financial system and external payments position in face of the global financial and economic crises."

The ratings agency raised the Philippines’ foreign and local currency government ratings to Ba3 from B1 despite a fiscal gap that surged to more than eight times during the first six months of the year.

The country ceiling for foreign currency bonds was also promoted to Ba1 from Ba3 after its assessment indicated a lower risk of an external payments moratorium.

Improvement in the country's long-term fiscal outlook is expected to be brought about by “more progress in shoring up government revenues, both through tightened administration and the introduction of new tax measures, several of which are pending before Congress," Moody's senior vice president Tom Byrne said.

The last rating action on Philippines was taken last February when Moody's affirmed the positive outlook on the government of the Philippines' B1 rating.

Although it recognized the widening budget deficit, Moody’s believed this can be financed from domestic and foreign funding sources.

The Philippines was able to “exploit the re-opening of global credit markets this year in its effort to minimize both a crowding-out of the domestic markets and a rise in government bond yields," the ratings agency said.

"At the same time, Moody's notes that pressures have risen on the budget and are more severe than had been originally expected this year by the government," Byrne said.

However, Moody’s warned downward pressure on the rating would come from the country’s inability to improve government finances as the global economy recovers or from a structural weakening in the balance of payments.

It cites exports of manufactures and services along with inflows of remittances as key concerns.

For his part, Finance Secretary Margarito B. Teves said the upgrade “affirms our sound response to the global financial crisis."

“The credit rating action becomes more significant as this was done after more than four years with the Philippines rated at B1 since February 2005 and at a time when the world economy is experiencing probably its worst crisis in global history," he said in a text message.

“The credit ratings upgrade clearly shows confidence in the resiliency of the Philippine economy which was earned through formulation and implementation of economic and fiscal reforms early on," he added.

The government already incurred half of its P250 billion target during the first semester at P153.4 billion even if it spent below the P736.5 billion-target at P699.1 billion as it failed to meet the P581.4-billion revenue goals.

“The Philippines' larger budget deficit is mainly a result of the collapse in economic activity, a pattern that is evident in other regional and global economies," Moody’s said in a statement.

The ratings agency added that it expects “economic growth will be gradually restored and, along with that, some pick-up in the government's fiscal revenue performance will help contain the abnormally large deficit."

Moody's cited a stable peso is “crucial" for keeping in check budgetary debt service payments and reflecting the “resiliency of the balance-of-payments to the global crisis."

Lower inflation – which has been kept within the Bangko Sentral ng Pilipinas’ 2.5 t 4.5 percent estimate – “should help ease pressure on the exchange rate this year," Byrne said.

The low inflation environment would be able to provide “the central bank with scope to maintain an accommodative monetary policy to cushion the effects of the global recession," Byrne said.

Byrne emphasized policy prudence and additional fiscal reform along with continued improvement in the investment environment “to place the economy on a path of a strong, sustainable growth."

"For the Philippines' rating to move upwards, Moody's will assess prospects for the continued resiliency of the country's balance of payments, the health of the financial system, and progress towards the achievement of the new, fiscal consolidation goal by 2013," he said.