S&P upbeat on RP’s fiscal condition

Standard & Poors (S&P) has expressed optimism that the Philippines’ fiscal consolidation will continue as its evaluation team arrived in the country for its annual credit ratings review.

Team leader Agost Bernard, S&P associate director for sovereign ratings, said yesterday that there is cause for optimism especially since the political instability that momentarily distracted the Arroyo administration had cleared up.

Bernard and his team are scheduled to meet with officials from the Bangko Sentral ng Pilipinas (BSP) to start off the week-long evaluation that Philippine officials are hoping could lead to an upgrade in the country’s credit outlook rating from "stable" to "positive".

Bernard declined to speculate on the outcome of the review but he indicated S&P’s meetings with Philippine officials were starting off on a positive note.

"There is optimism that the fiscal consolidation will continue," he told reporters. "There is a good economic team in place so there is reason to believe that there will be further fiscal consolidation."

More significantly, Bernard said there had been significant improvements in the country’s political situation following the declaration of the state of emergency in February.

"The political situation has improved considerably," Bernard said, adding that it augured well for the Arroyo administration’s efforts to further consolidate its fiscal position.

An earlier analysis by S&P indicated that the credit rating agency was less certain about the country’s political situation, saying that there was "no credible unified opposition to the incumbent, and no credible alternative government."

"Nevertheless, the disruption of any future impeachment effort and general politicking are likely to distract from economic reform. And without more proactive policies and fiscal flexibility to address longer term economic issues, credit improvements are likely to be limited," S&P said in the paper.

In February this year, S&P had upgraded its credit outlook from "negative" to "stable", expressing confidence that ongoing reforms would be sustained.

S&P also affirmed the country’s ‘BB-/B’ foreign currency and ‘BB+/B’ local currency ratings. A stable outlook meant that the country is no longer at risk of downgrade, at least for the time being.

"The stable outlook reflects revised expectations concerning the prospects of policy continuity and adherence to fiscal consolidation, which foreshadows improved chances for overall deficit reduction, and stabilization of the country’s debt dynamics," Bernard said at the time.

Despite the stemming of fiscal deterioration, however, Bernard said the Philippines’ debt service ratio was still one of the highest among rated sovereigns at about 36 percent of revenues.

"The administration’s challenge is to turn the recent fiscal advances into a sustained and expanded trend," Bernard said. "This will require ongoing political commitment, effective implementation and administration of the VAT, and continued reduction of tax evasion."