Moody’s lifts RPcredit rating

But new score still below investment-grade

MOODY’S Investors Service said it has raised the Philippines’ credit ratings one notch, citing the country’s healthy financial system and its ample dollar surplus despite the global economic crisis.

In a statement, Thomas Byrne, Moody’s senior vice president, said the agency upgraded the Philippines’ foreign and local currency ratings from B1 to Ba3.

The outlook on the ratings is stable, which means no rating action will be taken in the next 12 to 18 months.

The country had the B1 rating since February 2005.

Thursday’s action was Moody’s first upgrade on the country’s rating since 1997, when the agency lifted the Philippines’ credit score from Ba2 to Ba1. Since then, the Philippines had incurred successive downgrades, which translated to higher borrowing costs for the government.

The new credit score however is three notches below investment grade, which means the government still has to pay a premium whenever it taps the debt market.

The Philippines recently returned to the overseas bond market, raising an additional $750 million to plug a budget deficit that has widened on account of falling revenues and the government’s pump priming efforts.

Before the additional bond issuance, the government had completed this year’s foreign commercial borrowing by selling $1.5 billion in IOUs in January.

A disappointing 0.4 percent growth in the first quarter, however, led economic managers to cut this year’s target to between 0.8 percent and 1.8 percent, and raise the deficit ceiling to P250 billion from the earlier program of P199 billion.

Alongside the rating upgrade, Moody’s on Thursday also raised the ceilings for the country’s foreign currency bank deposits and foreign currency bonds.

“The upgrade was prompted by 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,” Byrne said.

He said the rating improvement was supported by the country’s record high gross international reserves (GIR) and a resilient banking industry.

Government officials welcomed Moody’s latest rating action.

“The upgrade by Moody’s of our sovereign rating to Ba3 and the recent affirmation of Standard&Poor’s and Fitch Ratings are recognition of the resiliency of the Philippine economy in withstanding the effects of the global crisis,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said.

“This positive development should inspire us to work harder to further improve our credit outlook by returning to the path of fiscal consolidation through sustained revenues from administrative measures and legislation of revenue enhance measures,” Finance Secretary Margarito Teves said.

New tax measures

Moody’s said the government’s plan to complete its fiscal consolidation by 2013 would be crucial to another upgrade, as doing so would address the country’s debt overhang, which is considered high vis-à-vis other countries with the same credit score.

“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 the introduction of new tax measures, several of which are pending before Congress,” Byrne said, adding that expenditure control and “skilful” Treasury debt management are not enough to sustain the country’s fiscal gains.

The agency said a stable peso is crucial for containing debt service payments, especially since half of public-sector debt is denominated in foreign currencies. Lower debt payments would divert budgetary resources to infrastructure and fiscal stimulus measures, it added.

Moreover, continued improvement in the investment environment will be required to sustain economic growth.

“In the current environment, a key concern will be the resiliency of exports of both manufactures and services, as well as inflows of overseas worker remittances,” Byrne said. –Maricel E. Burgonio, Senior Reporter, Manila Times