RP less vulnerable to financial crisis – Fitch

The Philippines is vulnerable to the global financial crisis, but less so than other countries in the region as its banks and external financial position are sound, Fitch Ratings said yesterday.

Speaking to Reuters before the government launched an offer for an international bond, James McCormack, managing director of Asia-Pacific sovereign ratings at Fitch, said he saw no reason to change the country’s BB rating and stable outlook.

“We are comfortable with the rating where it is,” he told Reuters in an interview.

He said the country’s healthy fundamentals should help keep its ratings outlook from being downgraded, but added that slow growth in government revenues posed a risk.

“It looks to us that when we cast our eyes around the region, at economies that are vulnerable to what is going on internationally, the Philippines is certainly included but it is not one of the countries that we are most concerned about,” he said.

“The banking sector is reasonably isolated from what’s been going on internationally, that includes both exposure to sub-prime and other assets with questionable values.”

The Philippines, one of Asia’s largest sovereign debt issuers, launched yesterday a 10-year dollar bond offer, which one banker said could be for as much as $1.5 billion.

The fund raising is to help finance a budget deficit of P102 billion this year from an estimated P75 billion in 2008.

The government relies heavily on foreign and local borrowings to finance its capital and social spending program because revenues growth has not kept pace with the state’s funding needs.

It imposed a higher and broader sales tax law in 2005 to rein in a ballooning budget deficit but it has had little success in curbing widespread tax evasion, smuggling, and corruption.

The government has resorted to selling state assets to offset perennially weak revenues.

“The fiscal correction that has taken place over the past few years has been very impressive, it’s been quite notable. Deficit has come down, debt levels have come down, very disciplined approach on the fiscal side,” McCormack said.

“But we don’t think it’s necessarily sustainable because the way that the fiscal deficit has been brought down in the Philippines is mostly by curtailing expenditure,” he said.

“The problem in our view is on the revenue side and the revenue numbers for the Philippines are just too low and they are among the lowest of any country that we look at globally,” he added.

President Arroyo made ending a decade of government deficits the centerpiece of her economic reform. But she abandoned the goal to allow more spending in support of an economy expected to slow down sharply.

The government hopes more spending will ensure the economy expands by 3.7 percent-4.7 percent in 2009.

McCormack said the government forecast was “too optimistic” and he expected slower growth of about 2.5 percent.

“It is quite weaker than the government’s estimate but again, when we compare that to other countries in the region, that is not a bad growth rate,” he pointed out.

Heartening outlook

Malacañang said yesterday Fitch Ratings’ stable outlook would boost the country’s efforts to protect itself from the global economic crisis as well as improve the country’s global image.

“Given that everybody is reeling from the effects of the (global) recession, it (stable outlook by Fitch Ratings) is a welcome development,” Executive Secretary Eduardo Ermita said.

“Can you imagine a reputable financial institution coming up with favorable rating of the financial situation in the Philippines?” he said.

He said the outlook only showed the economic reforms put in place by the Arroyo administration are working “to mitigate the effects of the economic crisis.”

Fitch Ratings has maintained its stable outlook for the Philippines, saying the country is “reasonably healthy” despite the global economic crisis.

“The Philippines is still reasonably healthy. Public finance is well-managed in the last couple of years,” McCormack said on Tuesday.

Last month, economic managers unveiled what they dubbed the P300-billion Economic Sustainability Plan to protect the country’s growth from the effects of global recession.

President Arroyo, in her message at the Cabinet meeting on Tuesday, noted that 2009 is the year that an overwhelming majority of Filipinos “have greeted with hope in their hearts – despite the perils of a global economy in crisis and the importuning of the usual critics and fault-finders.”

“We who are privileged to lead our country, especially through times of global crisis like this, are blessed by the spiritual strength of our millions of countrymen for whom and to whom we are accountable,” Mrs. Arroyo said.

“Let us not squander this blessing. Let us put this blessing to good account and multiply it into the daily good works of our office, the uncounted fruits of our political leadership that our people have a right to demand from us,” she said. – Paolo Romero, Philippine Star