Moody's gives RP stable outlook

MANILA, Philippines - International credit rating agency Moody’s Investors Service has given the Philippines a stable outlook on its Ba3 rating, saying that the prospects for the economy remain good.

At the same time, however, Moody’s said there are still a number of challenges that the country is facing, particularly on the fiscal side.

In a statement issued yesterday, Moody’s assistant vice president and analyst Christian De Guzman noted that the economy was one of the few countries in the Southeast Asian region to avoid year-on-year contractions during the global economic recession.

The Ba3 sovereign credit rating — which is three notches below investment grade — is also supported by the country’s “fortified external payments position,” De Guzman said.

The Philippine economy, as measured by gross domestic product (GDP), grew by 0.9 percent last year, slower than the 3.8-percent growth in 2008. This year, the government expects the economy to grow anywhere from 2.6 percent to 3.6 percent although analysts said actual growth could be higher because of election spending.

De Guzman also said the country’s high level of gross international reserves has helped insulate the Philippines from external shocks.

”The country’s historically high level of official foreign exchange reserves has been bolstered by the resilience evident in remittances from the large numbers of Filipino workers overseas; this situation has helped buffer the economy and government finances from external shocks and has greatly supported its exchange rate stability,” de Guzman said.

The country’s gross international reserves hit $46 billion in February from $45.5 billion in January, latest data from the Bangko Sentral ng Pilipinas (BSP) showed.

Furthermore, de Guzman said continued remittance inflows from overseas Filipinos and receipts from business-process outsourcing companies would continue to support the country’s current account and this would also fuel private consumption.

However, he also said the government needs to focus on fixing the country’s fragile fiscal position.

”There remains a dearth of investment spending relative to its rating and regional peers, thereby underpinning the importance of fiscal reform to generate higher revenues. That would enable adequate public investments and ultimately higher rates of potential growth,” Moody’s said.

The government’s budget deficit is expected to hit P293 billion this year from P298.5 billion last year. In February, the budget gap hit P33.2 billion, slightly higher than the P29- billion deficit recorded during the same month last year, according to the latest data from the Department of Finance (DOF).

Moody’s last rating action on the Philippines was taken in July last year when it upgraded the sovereign bond rating to Ba3, from B1, marking the first upgrade since  the 1997 Asian financial crisis.

Finance Undersecretary Gil Beltran welcomed the action of Moody’s.

“We welcome the favorable rating given by Moody’s. We look forward to better ratings by improving on certain things that they notice in their assessment,” Beltran said.

Higher credit ratings cut the government’s cost of borrowing, making it easier for the government to borrow from commercial and local lenders. In January, the government sold $1.5 billion in dollar debt and another $1.1 billion worth of Samurai bonds in February.