MANILA — Moody's Investors Service on Monday upgraded the Philippines' credit
rating to a notch below investment grade, aligning its assessment of the
country's debt quality with those of Fitch Ratings and Standard & Poor's
Ratings Services for the first time since April 2003.
Moody's cited the country's
improved economic and fiscal performance, better growth prospects and stable
financial system as keys to the upgrade to Ba1 with a stable outlook from Ba2
with a positive outlook. Moody's had changed the rating outlook to positive in
May, signaling an upgrade was likely.
Philippine officials welcomed
Moody's action, which came 16 months after Fitch and four months after S&P
lifted their ratings to just one step below investment grade. Fitch and S&P
have stable outlooks on their assessments.
The government is looking forward
to an investment-grade rating, which would reduce borrowing costs for one of
Southeast Asia's most active borrowers on international capital markets, and
attract more investment funds—particularly those that may invest only in
high-grade government bonds.
Since S&P, Moody's and Fitch
started rating the Philippines in 1993, 1995 and 1999, respectively, the
country hasn't moved out of junk level. Earlier this month, S&P said that
historically it takes around 2½ years before a BB+ rated country cracks
investment grade, which for the Philippines could mean late in 2014 or early
2015.
Jeffrey Ng, an economist with
Standard Chartered Bank, said that the Philippines could win an
investment-grade rating if it pursues further fiscal reforms, including passing
pending tax measures in Congress.
"We have been calling for
investment grade around 2014. The country's strengths are in its economic
fundamentals and stable political environment; the government is still working
on investment and fiscal consolidation," he said.
Aninda Mitra, an economist with
ANZ, said a demonstrable record of sustained economic growth, especially if it
is investment-driven, would help the Philippines graduate from the junk-level
rating.
"Moreover, the passage of
the sin tax bill, which broadens the fiscal base for heightened spending on
infrastructure and health, would also set the structural basis for further upgrades
to the investment-grade space," Mr. Mitra said.
The Senate is now reviewing its
version of the so-called sin tax bill—a measure that would increase excise
taxes on cigarettes, liquor and beer—that as currently proposed will generate
additional revenue of around 15 billion Philippine pesos ($363 million), just a
quarter of what the government was seeking and half that of the revenue
expected from the version of the House of Representatives.
"Lastly, [the central
bank's] ability to maintain price and financial stability would underscore
improvements in the Philippines' prospects for long-term noninflationary
growth," Mr. Mitra said.
The local financial markets
largely ignored Moody's rating upgrade, with the Philippine stock market's main
performance barometer closing 0.1% lower, while the U.S. dollar was a tad
higher against the peso.
Finance Secretary Cesar Purisima,
who had consistently argued that credit rating companies are trailing capital
markets in rating Philippine debt, said that Moody's action is a recognition of
"the significant progress that the Aquino administration has undertaken to
improve the country's economic fundamentals."
He said that with the
government's commitment to macroeconomic stability, enhanced fiscal stability
and investment growth, "investment grade will definitely come sooner
rather than later."
Bangko Sentral ng Pilipinas Gov.
Amando Tetangco, who also thinks an upgrade will come "sooner," said
the central bank continues to craft monetary, external and banking policies
that will help the country win the long-coveted investment-grade status.
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