Fitch raises Manila’s credit rating

FITCH Ratings Inc. lifted the Philippines’ credit score to a notch below investment grade on the back of the country’s strong external finances and the government’s efforts to trim its fiscal deficit.

In a statement on Thursday, Fitch said it upgraded the sovereign’s long-term foreign currency rating to “BB+” from “BB.” The long-term local currency rating received an investment grade of “BBB-” from “BB+.” The outlook was stable.

“The upgrade reflects progress on fiscal consolidation against a track record of macro stability, broadly favorable economic prospects and strengthening external finances,” Andrew Colquhoun, head of Fitch’s Asia-Pacific Sovereigns team, said.

According to Fitch, a run of current account surpluses since 2003 gave steady support to Manila’s strengthening external finances.

The debt watcher said the Philippines became a net external creditor in 2009 while its net foreign asset position of 11 percent of gross domestic product last year was a source of strength, compared with a “BB” median net debt position of about 3 percent.

Colquhoun likewise credited Manila when it escaped a recession when most Asian economies succumbed to the credit crunch.

The Philippines grew by 1.1 percent in 2009 and accelerated to 7.3 percent in 2010.

“Lower volatility in the country’s 10-year GDP growth rate and inflation than rated peers points to broad macroeconomic stability as strengths for the Philippines,” Colquhoun said.

Fitch credited the Bangko Sentral ng Pilipinas for its “track record of delivering effective monetary policy management” when it anchored inflation well within the 3 to 5 percent target despite the global run-up in commodity prices.

“The Philippines’ strengthening credit profile continues to be internationally recognized by both markets and the rating agencies.

[Thursday’s] upgrade from Fitch Ratings brings the Philippines one notch closer to investment grade status and is a clear acknowledgement of the country’s improving macroeconomic fundamentals,” BSP Governor Amando Tetangco Jr. said in a statement.

He said the BSP will continue to adopt appropriate monetary policy that will keep prices stable while remaining supportive of the country’s growth targets.

“The BSP will also remain resolute in effectively managing the country’s external position, which has been providing the economy a healthy buffer against external shocks, to ensure continuing macroeconomic stability,” Tetangco said.

Fitch likewise credited the Aquino administration for its “broadly disciplined fiscal management” since it took office at end-June 2010.

“Sustained strengthening in the revenue/GDP ratio, combined with structural reforms to boost investment and growth, including effective implementation of the authorities’ ambitious program of infrastructure improvement using public-private partnerships, would boost prospects for further upgrades,” Colquhoun said.

“Conversely, fiscal slippage—for example, if the authorities seek to meet expenditure goals without first realizing revenue gains—could lead to negative pressure on the ratings, although this is not Fitch’s expectation,” he added.

Department of Finance Secretary Cesar Purisima said the Aquino administration is aiming for a return to investment grade status in the first half of its term.
“It is encouraging to see the rating agencies acknowledge the improvements we have initiated to strengthen our fiscal position. The Aquino administration will continue to push for more reforms that promote fiscal sustainability and translate this to inclusive growth toward the fulfillment of President Aquino’s ‘social contract to the Filipino people,’” Purisima said in a separate statement.

He assured local and foreign investors of their “unwavering commitment to work hard to make this country the investment site of choice.”

“We thank our friends from the credit rating agencies for this unprecedented support for the Aquino administration’s efforts toward fiscal consolidation. There will be no let up in our campaign to prosecute, convict and jail tax evaders and smugglers. We will not rest until we launch several of our PPP projects in infrastructure. We will work doubly hard to ensure that the investment grade rating comes sooner rather than later,” he added. –Lailany P. Gomez Reporter with report from Katrina Mennen A. Valdez, Manila Times