PHL credit rating goes up a notch

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.

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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.

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)