MANILA, Philippines – Moody’s Investors Service raised yesterday the Philippines’ sovereign credit rating to one notch below investment grade, citing the country’s strong economic prospects and stable financial system.
The international ratings service also said a recent breakthrough in peace talks, aimed at ending a decades-long Muslim separatist rebellion in the south of the country, had improved the country’s long-term economic potential.
Moody’s raised the Philippines to Ba1 from Ba2, while maintaining the ratings outlook at “stable”.
“Despite the headwinds from softening external demand, the Philippines has demonstrated considerable economic strength and fiscal resilience,” Moody’s said in a statement.
“In contrast to similarly rated countries, the country is poised to record a combination of faster growth, lower inflation, exchange rate appreciation and an increase in foreign exchange reserves, while maintaining trend debt consolidation,” Moody’s also said.
Moody’s upgrade put it in line with two other major credit rating agencies – Standard & Poor’s Ratings Services and Fitch Ratings – in terms of their evaluation of the Philippines.
The Aquino administration, which welcomed Moody’s action, said investment grade is now within reach. Such status is seen to further lower debt interest payments and attract more foreign investments. “This marks a milestone. It has been a decade since all three credit ratings agencies rated the Philippines one notch below investment grade status,” said Presidential Spokesperson Edwin Lacierda.
“This ninth positive ratings action is another affirmation of the President’s agenda and our underlying belief that good governance is good economics,”
Finance Secretary Cesar Purisima said in a statement.
At the same time, Speaker Feliciano Belmonte Jr. led leaders of the House of Representatives in hailing the latest upgrade from Moody’s.
Belmonte said the upgrade was yet another indication the economy was doing ‘’okay’’ under the Aquino administration.
Moody’s upgraded the Philippines’ credit rating to Ba2 in June last year.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco said he was “delighted” by the upgrade. “With the government’s concerted efforts and with the support of the private sector, the Philippines should achieve investment grade rating sooner rather than later,’’ he said.
“Our prudent approach to external financial management has yielded a more manageable and sustainable external debt position,” Tetangco said.
Overseas Filipino remittances, which amounted $13.733 billion as of August, have also been resilient, Moody’s said, “sustaining private consumption and maintaining a healthy current account surplus.”
Both the government and observers have repeatedly said that the Philippines is in a “sweet spot” characterized by strong growth reaching 5.9 percent in the first semester, slow 3.2 percent inflation as of September and a third quarter budget gap of P106.062 billion, which was well-below this year’s cap.
Moody’s said further upgrade would depend on “the passage and effective implementation of revenue reforms” such as “sin” tax and fiscal incentives rationalization bills, seen key to “rapid reduction” of government debt.
A negative action, on the other hand, could be made if “substantial deterioration” in government balance sheets occur, risking “the emergence of macroeconomic stability.”
The Philippine economy grew by 6.1 percent in the first half of this year and the government is hopeful of maintaining that expansion pace throughout 2012.
Inflation averaged 3.2 percent in the first nine months of the year, allowing the central bank to cut interest rates four times.
The benchmark overnight borrowing rate now stands at 3.50 percent, with the overnight lending rate at 5.50 percent. –Prinz P. Magtulis (The Philippine Star) with Paolo Romero
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