Philippines gets credit rating upgrade from Moody’s

Moody’s Investors Service on Wednesday upgraded the Philippines’ sovereign rating to Ba2 from Ba3.  The Philippines previously had a Ba3 rating, two notches below investment grade, granted in July 2009. It was Moody’s first rating upgrade for the country in 12 years. Before that it had a B1 credit rating from 2005 to 2009, its lowest Moody’s score at four notches below investment grade.

Citing progress in fiscal consolidation and sustained economic stability, placing the Southeast Asian nation just two notches below investment grade, the agency said that continued strength in the country’s balance of payments and health in its financial system, along with sustained progress toward fiscal consolidation and debt reduction, would be required to achieve any further upgrade.

“All these achievements will likely require policy prudence and additional fiscal reform, especially on the revenue side. Moreover, improvement in the investment environment will be required to place the economy on a path of strong, sustainable growth,” it said.

Wednesday’s upgrade puts the Philippines only one notch below neighbor Indonesia, the region’s largest economy.

Moody’s said the Philippines had logged a small fiscal surplus during the first four months of the year, largely due to restraint in spending, but also thanks to stronger revenue generation.

It highlighted the fact that the country’s interest payments had fallen despite its larger stock of debt in peso terms, thanks to the central bank’s “continued success” in anchoring inflation expectations and as a result debt-servicing costs.

While government expenditure is likely to increase significantly in the second half of the year, that rise is unlikely to derail the fiscal-consolidation trend, the ratings agency said.

“By demonstrating firm fiscal restraint, the government has bolstered its policy credibility and has improved prospects for reform,” Moody’s said.

However, it said uncertainty over the implementation of structural measures to improve revenue generation justified a stable outlook on the rating for now, and the government’s budgetary interest burden and its debt overhang are high when compared to peers in its rating bracket.

“Moody’s further notes that owing to continued prudence in macroeconomic management, solid growth momentum in the Philippines has not produced substantial overheating pressures–either through inflation or a large deterioration in the current account,” it said.

“However, headwinds stemming from softening growth prospects in the region have emerged, although these should be offset by a sustained improvement in domestic demand conditions,” it said.

It added the Philippines’ external payments position was strong relative to its rating peers, and that risks related to a possible sudden halt in capital inflows were lessened by its growing stock of foreign exchange reserves.

http://online.wsj.com/article/SB10001424052702303714704576386601531416870.html

Comments

  1. About time they did! These credit rating companies make money by under reporting and overly conservative estimates!!
    http://www.echotrimmer.org/
    http://www.echotrimmer.org/

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