- Published on Monday, 29 October 2012 21:46
- Written by Jun Vallecera | Reporter
All the major
credit-rating agencies now rate the country’s credit standing the same
way after Moody’s Investor Service on Monday announced a one-notch
upgrade for the Philippines to “Ba1” from “Ba2” with a stable outlook.
Rivals Fitch Ratings
and Standard & Poor’s previously raised the country’s credit stature
a notch lower than the triple B (“BBB”) category, the minimum debt
rating for countries whose global IOUs are considered investment grade.
The upgrade was in
recognition of the country’s improved economic performance and continued
fiscal revenue buoyancy in the face of deteriorating global demand, its
enhanced prospects for growth over the medium term and its stable
financial system that helps limit contingent risks while providing the
government with a stable financing source.
Moody’s also upgraded
the country’s long-term foreign currency (FC) bond ceiling to “Baa2”
from “Baa3” and upgraded the long-term FC deposit ceiling to “Ba1” from
“Ba2”.
The short-term FC bond
ceiling of P-3 and the short-term FC deposit ceiling of “Not Prime” are
unchanged. The outlook for these ceilings is stable.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. welcomed Moody’s rating action, saying
it had the effect of aligning all three major sovereign ratings at a single point just a notch below the long-sought investment grade category.
it had the effect of aligning all three major sovereign ratings at a single point just a notch below the long-sought investment grade category.
In explaining the
upgrade, Moody’s said the Philippines demonstrated considerable economic
strength and fiscal resilience despite headwinds from softening
external demand.
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, the agency said in a statement.
“In addition, cyclical
features support improved prospects for growth in the medium term.
Despite the lack of progress in its Public-Private Partnership Program,
the government’s spending on infrastructure has picked up, but its
fiscal impact has been mitigated by the continued gains from enhanced
revenue administration. Also, remittance inflows continue to increase
despite the global economic slowdown, which further underscores their
role in sustaining private consumption and maintaining a healthy
current-account surplus.
“Over the longer term,
the landmark peace agreement signed between the government and the Moro
Islamic Liberation Front [MILF] may have wider beneficial effects on
investment and economic growth in Mindanao—the country’s second-largest
group of islands—which has untapped agricultural and mining potential.
The local banking system was cited as an additional source of credit strength for the economy.
Also cited was macroeconomic stability best displayed by the success in the BSP’s inflation targeting regime.
The country’s healthy
external payments position is exemplified by more than $80 billion worth
of foreign-currency reserves and the surplus state of the balance of
payments for several years now.
“Taken together, these
strengths have contributed to the appreciation of the peso and lower
interest rate costs for the government. These have, in turn, helped
accelerate the process of debt consolidation, thus addressing the
relatively high stock of debt, a constraint on the Philippine rating,”
Moody’s said in a statement.
It noted that the long-term FC deposit ceilings have been maintained at the same level as the government bond ratings.
The likelihood of a
bank default on an FC deposit or other FC short-term liabilities is
mitigated by the presence of ample liquidity in the Philippines’s
foreign-currency deposit units (FCDUs), Moody’s said.
Tetangco said the BSP
will continue to craft monetary, external and bank policies “ensuring
that the gains reaped thus far will lead to the sustained improvement in
the country’s real gross domestic product [GDP], financial sector
responsiveness and external debt manageability in a non-inflationary
environment.”
“With the government’s
concerted efforts and with the support of the private sector, the
Philippines should achieve an investment grade credit rating sooner
rather than later,” he added.
Malacañang also welcomed the Moody’s upgrade.
It said also on Monday
that the country’s latest credit rating reflected “sustained
international confidence in the Philippines under the Aquino
administration, especially striking given a weakened global economy.”
“Indeed, this upgrade
acknowledges our resilience and commends our robust responses to an
increasingly challenging milieu,” according to Palace Spokesman Edwin
Lacierda.
Lacierda, in a
statement, said Moody’s also recognized the country’s strong
macroeconomic fundamentals and “government efforts to enhance its fiscal
space, as it continues to strive for inclusive growth.”
He added that this
pursuit of inclusive growth includes the recently signed Bangsamoro
Framework Agreement, “which may harness the long-untapped potential of
Mindanao, as well as secure equitable progress for its people.” The
agreement provides, among other concessions, for a political territory
for the country’s Muslim minority, majority of whom are found in
Mindanao.
Lacierda said Standard
& Poor’s and Fitch Ratings had previously rated the Philippines one
notch away from investment grade status, making the Moody’s rating a
“milestone” since “it has been a decade since all three credit-ratings
agencies rated the Philippines one notch below investment grade status.”
“Good governance is good economics,” he added.
The Moody’s credit-rating upgrade is the ninth positive ratings action since President Aquino assumed power in 2010.
(Mia M. Gonzalez)