RP less vulnerable to euro crisis - S&P

MANILA, Philippines - Standard & Poor’s (S&P) said the Philippines is less vulnerable to shifts in external sentiment brought about by the debt crisis in Europe on the back of its strong external liquidity supported by robust overseas Filipino workers’ remittances and international reserves of the Bangko Sentral ng Pilipinas (BSP).

In a report, S&P said the Philippines is less exposed to external investor sentiment as domestic investors hold a large share of foreign-currency-denominated government bonds and the share of non-residents in local bonds is very small.

“This makes the Philippines somewhat less vulnerable to shifts in external sentiment,” the international credit rating agency stressed.

S&P also cited the strong external liquidity of the Philippines on the back of robust OFW remittances and soaring gross international reserves (GIR).

The BSP expects the country’s GIR to hit between $48 billion and $49 billion instead of $47 billion to $48 billion this year from $45.03 billion last year. Latest data showed that the country’s GIR reached a new record level of $47.65 billion in May from the revised $46.94 billion in April on the back of strong exchange inflows from the loan proceeds from the government of France as well as higher income from the central bank’s foreign exchange operations, investments abroad and gold holdings.

The BSP also now projects an eight percent rise in the amount of money sent home by OFWs instead of six percent this year from a record $17.348 billion last year. OFW remittances went up by seven percent to $4.339 billion in the first quarter of the year from $4.057 billion registered in the same period last year. 

S&P added that Indonesia is more exposed to external investor sentiment than the Philippines because corporations in Jakarta still have a high level of external indebtedness and because non-residents hold more than 20 percent of Indonesian government local currency bonds.

According to S&P, both the Philippines and Indonesia have nearly completed their external funding for the year but private corporations would be vulnerable to the debt crisis in Europe.

“That said, both governments have nearly completed their

external funding requirements for the year. So, unless market interest rates for Asian borrowers rise and remain at elevated levels over many months, we believe that these two sovereigns shouldn’t be affected much. Private sector borrowers reliant on external funding are somewhat more vulnerable,” S&P added.