MANILA-The Philippine government and economists are now analyzing the impact to the economy of the recent upgrade of the Philippine sovereign credit rating by the prestigious Moody's Investors Service, the global debt watchdog, from "negative" to "stable".
A sovereign credit rating is an opinion on the ability and willingness of a government to meet its debt obligations in full and on time. The improved assessment, credited by Moody's to the government's progress in reining in the fiscal deficit this year and in easing dependence on external financing, is expected to result in lower foreign borrowing costs for the government and private companies.
It is also expected to further boost the
financial market’s confidence in Philippine stocks. Standard & Poor’s and
Fitch Ratings removed their negative outlook on the country much earlier this
year.
Moody’s, the last of the three most
influential major credit rating agencies to remove its negative outlook on the Philippines,
rates the sovereign risk four notches below investment grade.
S & P’s rating is three notches below
investment grade and Fitch Ratings’ is two notches below investment grade.
Policymakers and financial market experts
welcomed Moody’s revision of its ratings outlook, believed by many to be long
overdue.
“The outlook upgrade is a reaffirmation
of the positive view of the financial markets and investors on the economy,’
said Governor Amando Tetangco Jr. of the Bangko Sentral ng Pilipinas.
“Moody’s decision is definitely a vote of
confidence in the sustainability of the country’s economic reform initiatives,’
he said.
Tetangco said he was expecting an actual
credit rating upgrade from one of the three major global credit rating agencies
within the next six months.
Moody’s new outlook covered its B1
long-term government foreign and local currency ratings, B1 foreign currency
bank deposit ceiling, and Ba3 foreign currency country ceiling.
The removal of the negative outlook, in
place since the Hyatt 10 mass resignation from the Cabinet that threatened to
topple the Arroyo administration in July last year, eliminated risks of a
sovereign credit rating downgrade by Moody’s at least over the next 12 to 24
months.
‘We stated in February that a change in
the Philippines’ rating outlook to stable from negative would depend on the
achievement by the government of its 2006 fiscal targets coupled with prospects
of further deficit reduction in 2007 and beyond,’ said Moody’s vice president
Thomas Byrne.
‘Based on fiscal performance through the
first three quarters of 2006, it seems likely that the government will readily
meet its deficit reduction target for the year as a whole. Although the
full-year result for expanded value-added tax (VAT) receipts is not available,
total revenue collection from tax and non-tax sources seems likely to reach the annual target,’ Byrne said.
But while the government’s debt rating
has stabilized, Moody’s is not inclined to change the outlook to positive, a precursor
of a credit rating upgrade.
‘Looking forward, we believe the
government will continue to face formidable challenges in strengthening its
fiscal position, and deficit reduction may not be as readily achievable as in
the past several years,’ Byrne said.
He said political spending would increase
in the run-up to the congressional elections scheduled for May 2007.
The need to improve the country’s very
weak investment growth through public infrastructure spending will also place
additional pressure on the budget in 2007 and beyond, according to Moody’s vice
president.
