Fitch lauds Phl’s improved finances

MANILA, Philippines - Debt watcher Fitch Ratings has lauded the Philippines’ improving public finances, citing the significant progress that the Aquino Administration has taken to improve its fiscal management and the country’s economic fundamentals.

“The  Philippines’ public finances have become less of a drag on the sovereign credit profile. Sustained efforts under the Aquino and Arroyo administrations to improve fiscal management have brought many key fiscal metrics in line with or stronger than ‘BB’ and ‘BBB’ range peer medians,” Fitch said.

The country is rated BB+, with a stable outlook under Fitch’s metrics, putting it one notch below investment grade. The Aquino government is hoping to achieve investment grade status this year.   

“General government debt/GDP ratio, estimated to be 40.3 percent at end-2012, is on a par with ‘BB and ‘BBB’ medians’ 40 percent. Lengthening the maturity profile of National Government debt to 10.7 years, compared with a ‘BB’ range median

of 3.5 years, is also supportive of sovereign creditworthiness,” Fitch  noted.

Fitch, however, pointed out that the fiscal revenue base remains to be the government’s weakness, which could potentially constrain fiscal resources for public investment in the infrastructure, health and education sectors.

Nevertheless, Fitch credited the government’s implementation of revenue-enhancing measures such as the recently-passed sin tax bill.  It also commended the government’s efforts to weed out corruption.

“The Aquino administration’s efforts to improve the quality and effectiveness of public expenditures are seen as supportive. While implementation of these efforts created an initial drag on GDP growth, improved fiscal transparency and reduced corruption leakages could help deliver longer-term benefits to the economy and address weaknesses elsewhere in the sovereign credit profile,” Fitch said.

“The authorities’ efforts to improve fiscal management on a more technical level, such as lengthening the maturity profile and increasing the reliance on domestic issuance, also support the sustainability of the public finances and have complemented ongoing improvements in the institutional framework,” Fitch added.

The Philippines is looking forward to an investment grade rating, which would reduce borrowing costs for its active borrowers on offshore markets and attract more investment funds.