GMA reacts to RP credit rating downgrade

BACOLOD CITY – President Arroyo said yesterday the downgrade in the country’s credit rating by the Japan Credit Rating Agency (JCRA) by one notch is an indication that the fiscal reforms that the government is currently initiating are not moving fast enough.

The President expressed hopes that the bicameral conference committee will consider coming up with a structure that has a higher range and wider scope that will bring in the P60 billion of the P80 billion needed for fiscal reforms.

Finance Secretary Cesar Purisima earlier said that the government wants a version of a bill that will give it a chance to raise P60 billion or more to enable it to consolidate its fiscal situation.

The JCRA the other day downgraded its rating on the Philippines, expressing pessimism on the outcome of ongoing debates in Congress over the Arroyo administration’s proposed tax reform package.

While the Philippines remains in investment-grade according to JCRA’s appraisal, the rating has been brought down from BBB with a negative outlook to BBB-minus with a stable outlook.

JCRA has maintained a more optimistic outlook on Philippine economic prospects but its appraisal has since dimmed following Congress’ failure to reform the excise taxes on alcohol and tobacco.

In a statement, Arroyo administration would need additional measures to increase tax revenues in order to address its fiscal problems and balance the budget over the medium to long term.

"The fiscal reform has been delayed as a whole," JCRA said. "While JCRA does not think the country has fallen into a fiscal crisis, it understands that the country faces an urgent necessity to push the fiscal reforms."

JCRA said it dropped its rating because of the government’s failure to carry out the promised reforms that could have improved investor confidence immediately while addressing fiscal problems over the long-term.

On the other hand, JCRA said it viewed the country’s prospects as stable given its comparatively stable macro-economic performance.

But JCRA cautioned that the uptrend in the country’s inflation rate needs to be watched closely in view of the developments in the global market for oil.

JCRA said the country’s economy had maintained stable growth based on strong private consumption supported by overseas contract workers who remit their income to their families.

"In addition, the current account balance has continued in surplus due mainly to the strong growth in exports and increases in remittances together with tourism revenues," JCRA said.

However, JCRA chief analyst Kazuo Mai said in the report that in order for growth to be sustainable, the fiscal problem needs to be resolved once and for all.

Mai said the government would have to repay some of the debts of the National Power Corp. if only to pare down the consolidated public sector debt.

"Whether Napocor will succeed in its plan to sell 70 percent of its power generation assets by the end of this year needs to be watched," Mai said.

Mai noted that although the government had initially planned to absorb P500 billion of Napocor’s total debts, it has been forced to take on the minimum P200 billion mandated by law.

Mai said Napocor’s chronic losses led to the surge in government debts and plugging this leak should be the first order of business.

"Once again, however, the government has been faced with difficulty in the parliamentary debate on a bill to increase the value-added tax," Mai pointed out.