Aquino government gets first rating upgrade from S&P

MANILA, Philippines - Standard & Poor’s Rating Services raised the Philippines’ debt rating yesterday, marking the first rating upgrade for the Aquino administration, as the global credit watcher cited the country’s strong external liquidity, growth prospects and improving debt ratios.

The smooth presidential and national elections in May set the scene for improved political stability, S&P also said.

As such, the global debt watcher raised its foreign currency sovereign credit rating on the Philippines to BB from BB-. The outlook on the ratings is stable.

The one-notch rating upgrade brings the Philippines to two levels below investment grade, the same as Indonesia and Vietnam.

“We have upgraded the Philippines based on its steadily improving external liquidity profile and the underlying strengths of its external accounts, which increasingly mitigate the vulnerabilities posed by still high public and external debt, and provide buffer against adverse shifts in terms of trade or investor sentiment,” said S&P credit analyst Agost Benard.

The upgrade also reflects the progress achieved in debt reduction and the underlying fiscal consolidation, which brought public debt ratios in line with many of its ‘BB’ rated peers. 

“Positive structural features of the current account and prudent exchange-rate management afford an enhanced ability to accumulate a reserve buffer, which has been an evolving credit strength for the Philippines. This and a manageable foreign debt amortization schedule combine for increasingly strong external liquidity, compared to similarly rated sovereigns,” Benard said. 

He also said the stable outlook balances expectation that the structural strengths of the current account will continue to improve the external accounts, against the prevailing high public and external debt burden and ongoing fiscal weaknesses, which will take time to resolve. 

At the same time, S&P said the narrow revenue base and high incidence of tax evasion have been the principal contributing factors to weak public finances.

This has resulted in still high public debt, and severely depressed public investment for an extended period, it said.

S&P said that the government has to improve its revenue measures for more long-term improvement.

It warned that it could lower the ratings if the government’s commitment to fiscal consolidation weakens, resulting in an upward debt trajectory or if the external liquidity position deteriorates.

At the same time, S&P said: “We could raise the ratings on evidence of sustainable structural revenue improvement, or further strengthening of the external balance sheet and reduced vulnerability to shocks.”

Economic managers welcomed the action on the country’s credit rating.

“The one notch upgrade is a testament to our economic and fiscal stability and more importantly to the new administration’s credibility and integrity. They recognize President Aquino’s resolve to reform long standing issues that have handicapped the Philippine economy in the past,” Finance Secretary Cesar Purisima said.

The Finance chief also expressed confidence that the government would meet its P325-billion deficit ceiling this year.

Budget Secretary Florencio Abad, for his part, said the government would continue with its fiscal discipline.

“We are optimistic of meeting our fiscal goals and aligning our fiscal performance with our rating peers out given our efforts to control government spending and use public resources in the most efficient manner,” Abad said.

Bangko Sentral Governor Amando Tetangco Jr., for his part, said: The BSP is committed to maintaining the soundness of our country’s financial system and further strengthening the external accounts while keeping to our mandate of price stability. Together with the other government agencies, the BSP will continue pursuing sound macroeconomic management and structural reforms that would create an environment that would support higher levels of economic growth.”