S&P says GMA gov”t fails to address fiscal woes

International ratings agency Standard & Poor’s Ratings Services (S&P) noted the government’s failure to adopt measures to address the worsening fiscal situation after officials recently announced that the budget deficit for next year is expected to match this year’s P300 billion.

It warned credit rating “could be lowered if indications emerge that the deterioration currently experienced in fiscal outcomes is not a transitory phenomenon.”

S&P noted ongoing risks which it said was centered around an inadequate revenue base, slow progress in addressing this, as well as questions over collection efficiency and policy response in the current economic downturn.

“Although the sharp fall in fiscal revenues in 2009 was mainly attributable to cyclical factors, offsetting measures that could have moderated the fiscal slippage were not forthcoming,” it said.

The S&P made the assessment in affirming its debt ratings on the country over the government’s plan to reopen global bonds maturing in 2020 and 2034 to raise $1.5 billion in new debts.

“The sovereign credit ratings on the Philippines derive support from the country’s resilient external accounts, whereby an improving liquidity position continues to lower external liquidity risk,” it said.

The government has given formal price guidance of around 106 cents on the dollar for the re-issue of its 2020 bonds and about 96.25 cents on the dollar for the 2034 bonds.

S&P, nevertheless, said resilient remittance inflows, which rose 4.5 percent in the first 10 months of last year, growing surpluses in service exports, and a resurgence of net positive portfolio inflows and foreign direct investments have seen continued rise in foreign reserves.

“Net international reserves are at an all-time high of close to $45 billion, providing more than eight months of import cover and 4.2 times short-term external debt cover by residual maturity,” it noted. Compared with its peers in the rating category, short-term external liquidity risk for the Philippines is moderate, and remains on an improving trend, it added.

It said the country has a low likelihood of realization of contingent liabilities posed by the banking system, given the absence of features that necessitated government bailouts in numerous other countries.

System-wide asset quality and capitalization are not expected to change materially from 4.2 percent non-performing loans and capital adequacy ratio of 14.6 percent, which prevailed prior to the onset of the global financial and economic crisis, he said.

The sovereign credit ratings could be raised on evidence of renewed focus on fiscal consolidation and revenue improvement as the exigencies created by the global slowdown dissipate, and that such efforts are carried forward by the new administration set to take office in June this year, it added.