Moody's assigns Ba3 rating with stable outlook to RP bonds

MANILA, Philippines - New York-based Moody’s Investors Service has assigned a foreign currency rating of Ba3 with a stable outlook to the re-opening of the Philippines’ global bond issuance program.

Tom Byrne, Moody’s Singapore-based senior vice president and regional credit officer, said the country’s sovereign rating was last upgraded to Ba3 from B1 last July due to its external payments position and resilient banking system amid the global financial turmoil.

A Ba3 rating is three notches below investment grade while a B1 rating is four notches below investment grade. The outlook on the ratings is stable.

“The authorities appear to have taken timely and appropriate steps to limit the damage to the economy from the global crisis,” Byrne stressed.

He pointed out that the drop in domestic output as measured by the gross domestic product (GDP) is not expected to derail the government’s fiscal consolidation program.

“Although revenues have come under more-than-expected pressure – against the backdrop of a notable slowdown in GDP growth – the medium-term prospects of the economy and the government’s fiscal framework are not expected to experience deep damage. This is provided that the authorities can reinstate a credible fiscal consolidation program,” Byrne said.

The country’s budget deficit swelled to P210 billion in the first eight months of this year or almost seven times the P31.7-billion shortfall incurred in the same period last year due to lower tax take and accelerated spending brought about by the implementation of the P330-billion stimulus package.

The Philippines is staring at a record P250 billion deficit equivalent to 3.2 percent of GDP this year eclipsing the previous record of P210.7 billion, or 5.3 percent of GDP registered in 2002.

After abandoning its commitment to balance the budget in 2008 and its original 2010 schedule, the government hopes to get back on the fiscal consolidation path by trimming the deficit to P233.4 billion or 2.8 percent of GDP next year.

The Bangko Sentral ng Pilipinas (BSP) expects inflation to average between 2.5 percent and 4.5 percent this year and 3.5 percent and 5.5 percent next year.

“Moreover, stable exchange rates and adequate onshore liquidity alongside low inflation – which is expected to remain well within BSP’s target range – also provide further support to the government’s reasonable debt dynamics and its strong debt management capabilities,” Byrne said.