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Moody’s upgrades rating on PHL to investment grade

Posted on October 3, 2013

By Joann Santiago

MANILA, (PNA) — The Philippines’ finally got an investment grade rating from Moody’s Investors Service Thursday as the debt watcher sees sustainability of the country’s strong economic performance, on-going fiscal and debt consolidation, and political stability.

Moody’s current rating on the Philippines is Baaa3 with positive outlook from Ba1.

This is the third investment grade rating of the domestic economy after receiving its first-ever last March from Fitch Ratings and from Standard and Poor’s (S&P) last May.

In a statement, the credit rating agency also attributed the one notch upgrade on the country’s credit rating to the stability of the country’s funding conditions.

“During the recent bout of market volatility in emerging markets – points to the country’s relative lack of vulnerability to external financial shocks, such as those arising from anticipated tapering by the US Federal Reserve of its quantitative easing policy,” it said.

Aside from upgrading the country’s credit rating, Moody’s also made similar move on the government’s foreign currency shelf rating to (P)Baa3 and the ratings for the liabilities of the country’s central bank, Bangko Sentral ng Pilipinas (BSP), to Baa3. All these were given a positive outlook.

In the first half this year, the domestic economy, along with the world’s second largest economy – China, posted the highest growth in Asia with a 7.6 percent growth, as measured by gross domestic product (GDP).

Moody’s also cited that the low inflation environment bode well with the strong growth.

In the first eight months this year, rate of price increases averaged at 2.8 percent, below the government’s three to five percent target for this and next year.

The debt watcher also pointed out that the domestic economy’s growth path “is being reinforced in part by improved fiscal management.”

“Revenue growth has accommodated sizeable increases in infrastructure and social spending,” it said but noted also that “ revenue generation remains weak when compared with investment-grade countries overall.”

“Nevertheless, since 2008, the Philippine government has regularly recorded fiscal deficits that are narrower than the Baa3-rated median,” it said.

As of end-July this year, the government’s budget gap reached P53.22 bllion, 35.6 percent higher year-on-year but within the P144.45 billion programmed for the first three quarters this year.

The government targets deficit to account to two percent of GDP this year or about P238 billion.

Last year, the government registered a P242.83 billion deficit, 22.8 percent higher than the previous year’s P197.75 billion but below the ceiling of P279.1 billion.

Relatively, Moody’s expects impact on the country of the looming cut in the Federal Reserve’s stimulus program to be “muted.”

“An underlying shift in the government’s funding profile has contributed to the country’sresilience to such external financial shocks. Although the Philippine government is the largest sovereign issuer of US dollar-denominated securities in the Asia-Pacific based on total debt outstanding, it isnow much more reliant on domestic sources of financing,” it said.

It noted that “the government’s improved ability to fund itself onshore reflects both the country’s healthy external payments position and the ample liquidity in its bankingsystem, which is also the only system worldwide deemed by Moody’s to have a positive outlook.”

Also, the debt watcher said “the Aquino administration has maintained its popularity among voters, which in turn supports the further institutionalization of reforms for good governance.”

“This situation has in turn been reflected in improving third-party assessments of institutional quality and international competitiveness,” it said.

Similarly, Moody’s expects the country’s current account to remain in surplus buoyed by the strong inflows from overseas Filipinos, exports and the business process outsourcing (BPO) sector.

It projects these flows “to remain strong, if not strengthen, over the outlook horizon.”

“The Philippines’ external strengths are reflected in the falling external debt to GDP ratio and the ample stock of gross international reserves, which now exceeds the country’s total external debt,” it added.

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