Malacañang on Thursday welcomed the improved credit-rating outlook of Standard & Poor’s (S&P) for the Philippines as a “recognition” of the Aquino administration’s thrust of economic development through good government.
“We welcome this acknowledgment of the positive strides the Philippines has taken under the Aquino administration and a recognition of our thrust that indeed, good governance, results in good economics,” Palace Spokes-man Edwin Lacierda said in a statement.
Lacierda said S&P’s improved credit-rating outlook for the Philippine economy from “Bb+ Stable” to “Bb+ Positive” fuels expectations of “an actual credit- rating upgrade in the coming months…barring any unforeseen circumstances.”
“The improved outlook comes at the heels of the signing of the landmark bill reforming ”sin” taxes which will further strengthen the government’s fiscal position.”
Internal Revenue Commissioner Kim Henares told Palace reporters in an interview that credit-rating agencies have acknowledged the improvement in tax administration in the country but “they want to see the political will [of the government to do things that will broaden this tax base.”
“So the message basically of the Sin-Tax Reform Act is that we have the will to do what reforms are needed and it will also increase the tax base by 33 and a half billion [pesos] for 2013,” Henares said, adding that the passage of the measure is “at least that’s one hurdle that we have already overcome.”
In a statement, S&P said it affirmed the country’s “BB+” long-term and “B” short-term sovereign ratings, which means the Philippines’s bonds are just a notch below investment grade.
In relation to this, the agency said it also affirmed its Asean regional scale rating of “axBBB+/axA-2” on the Philippines and the transfer and convertibility assessment at “BBB-” and the ratings on the Philippines’s senior unsecured debt.
Agost Benard of S&P said the outlook revision is based on its reappraisal of the “institutional factors underlying the ratings.”
“In our view, the current administration possesses a level of legitimacy, support, and stability that reduces political uncertainty and allows for improved legislative efficiency. This conducive political setting enables the administration to focus on its key policy objectives of fiscal consolidation, increased infrastructure provision and poverty reduction,” Benard said.
The Philippines has relatively low income, a weak fiscal profile and high but already improving public debt and interest burden. However, this is balanced by the robust external profile, as shown in a net external creditor position and strong liquidity ratios.
On top of these, the Philippines has a consistent track record of moderately strong growth. So the positive outlook on the country reflects S&P’s “more favorable assessment” of the prevailing political conditions and “of the administration’s improved capacity to pursue its reform agenda.”
The debt watcher may raise the Philippines’s credit ratings next year to investment grade if the government improves its revenue structure, continues to rely less on foreign currency-denominated debt, or lowers its debt.
S&P may also raise the ratings if institutional and structural reforms lead to an improved investment environment, which translates to better growth potential.
On the other hand, S&P may revise its outlook on the Philippines back to stable if the country’s fiscal consolidation weakens or if its external liquidity position deteriorates significantly.
Finance Secretary Cesar V. Purisima said this outlook upgrade is a testament of “good governance is good economics” and is a half-step to formally securing investment grade.
He said financial markets already gave the Philippines an upgrade of at least two notches above investment grade.
“With a President committed to transformational change, the unprecedented events of 2012—Sin-tax Reform, Responsible Parenthood and Reproductive Health, Bangsamoro Framework Agreement for Peace, FTI Privatization, successive PPP launches, record GDP growth, a stable environment of high growth, low inflation and low interest rates—serve only to reinforce our message that the Philippines is truly gaining legitimacy to offer lasting structural change and that the Philippines is open for business under new management,” Purisima said.
(With InterAksyon.com)
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