MANILA, Philippines – Moody’s Investors Service affirmed yesterday its positive outlook on the Philippines’ credit ratings, retaining the country on its path towards a possible upgrade in the actual ratings.
Following its review mission in January this year, Moody’s said the Philippines has so far demonstrated what it called “a remarkable degree of resiliency” to the global financial and economic crises.
For the country’s actual credit rating to go up, however, Moody’s said it would watch whether this resilience holds, especially with the anticipated decline in remittances from overseas Filipinos.
Moody’s said its outlook remained positive on the country’s B1 foreign and local currency government ratings, the Ba3 country ceiling for foreign currency bonds and B1 country ceiling for foreign currency bank deposits.
The Philippines has been on Moody’s “stable” outlook basket for several years until the credit rating agency upgraded its outlook to “positive” in late January 2008.
Aside from its resiliency, Moody’s said the Philippines has largely preserved the gains that it achieved in improving the country’s economic, external payments and fiscal fundamentals.
“The Philippines’ balance of payments and banking system have held up well to the global inflationary and credit market shocks of 2008,” said Tom Byrne, Moody’s senior vice president.
According to Byrne, this placed the country’s external payments in a “strengthened position” that would enable it to cope with the stresses that would likely hit in 2009.
Byrne said the improving trend in the country’s external debt service capacity would “pause” but not deteriorate. This would help ease the pressure on the exchange rate this year, especially with the slowdown in inflation that would bring the 2009 average rate within the government’s official target of 2.5 to 4.5 percent.
“This would provide the central bank with additional scope to relax policy to cushion the effects of the global recession,” said Byrne.
According to Byrne, the stable peso is considered critical for containing the budgetary debt service payments since over 50 percent of the public sector’s debt burden is denominated in foreign currency.
With less pressure coming from foreign debt servicing, Byrne said there would be more room in the national budget for spending on infrastructure programs and the fiscal stimulus package intended to soften the impact of the global economic depression.
The positive outlook was also a reward of sorts for the government’s decision to accommodate a higher deficit rather than balancing the budget based on the political commitment made by the Arroyo administration early in its term of office.
“Moody’s considers that the government’s intention to increase the National Government deficit only moderately in 2009 would not necessarily permanently reverse the improving trend in the government’s debt metrics,” Byrne said.
The credit rating agency added that the Philippine’s public sector debt overhang remained greater than most its rating peers.
“Moody’s believes that the country’s long-term fiscal outlook would improve with more progress in shoring up government revenues, both through tightened administration and new tax measures, several of which are now pending before Congress,” Byrne said.
However, Moody’s said that while expenditure control has improved in recent years and Treasury debt management has been skilled, these alone would not ensure fiscal sustainability.
“For the rating to move up, Moody’s will assess the prospects for the continued resiliency of the country’s balance of payments and the government’s ability to limit revenue slippage,” Byrne said.
“In this context, a key concern will be how overseas workers remittances hold up,” he added.–Des Feriols, Philippine Star