Moody’s to maintain RP credit rating, for now

International rating agency Moody's Investors Service expressed concern yesterday over the poor performance of the Bureau of Internal Revenue (BIR) and it’s effects on the Arroyo administration’s fiscal consolidation.

However, Moody’s said that there was no "immediate threat" to the country’s sovereign rating, but the government needed to address the BIR’s deteriorating performance.

This conclusion was contained in a paper entitled "Fiscal slippage in the Philippines heightens medium term concerns" written by Moody’s sovereign analyst for the Philippines, Tom Byrne.

According to Byrne, Moody’s would maintain its "stable" sovereign rating for the Philippines, but it would keep a close watch on how the Arroyo administration would handle its economic program, especially the deterioration of its revenue collection.

Earlier, investment bank Morgan Stanley sounded the alarm that the country’s revenue collection would dip below 10 percent of the gross national product for the first time in history, despite the country’s high tax rate of 33 percent on corporations and 33 percent on top-tier individual taxpayers.

With the dismal performance of the BIR, Moody‚s said the Arroyo administration would overshoot its programmed ratio by at least 0.5 to 1-percentage point.

Originally, the Department of Finance said the deficit would be maintained at three percent of the gross domestic product but Moody‚s estimate placed this ratio at 4 percent of GDP.

Admitting that it would be virtually impossible to meet its P130-billion deficit target, the DOF had shifted its targeting strategy by pegging the deficit-to-GDP ratio instead of paring the absolute amount to a specific level.

Moody’s noted that the government would have to "seriously address" the relapse in the BIR‚s performance in view of its implications on fiscal consolidation and sustainability in the medium term.

Finance Secretary Jose Isidro Camacho brushed aside these concerns, saying only that the deficit issue had been "blown out of proportions in recent weeks."

"We appreciate Moody‚s recognition of our current macro-economic environment being supportive of our fiscal program," he said.

Moody’s, however noted "reassuring factors" such as the historically low levels of interest rates which has kept down the cost of the government’s domestic borrowing.

Moody’s said it was assuming a wait-and-see stance depending on how the Arroyo administration would handle its economic program.

International rating agency London-based Fitch Ratings had issue a similar warning earlier, saying that the Philippines’ international credit standing and sovereign ratings would be under threat if the deterioration in public finances persists through the next two years up to the presidential elections in 2004.