Japan rating firm raises Philippine outlook
JAPAN-BASED debt watcher Rating and Investment Information, Inc. (R&I) has raised the Philippines’ credit outlook to “positive” from “stable”, citing improvements in the country’s fundamentals.
In a statement on Friday, R&I affirmed the country’s foreign currency issuer rating of BBB-. It also affirmed the foreign currency short-term debt rating of a-2.
A BBB- issuer rating, according to the debt watcher’s website, means the country’s creditworthiness is sufficient “though some factors require attention in times of major environmental changes”. An a-2 rating on short-term debt, meanwhile, denotes that the certainty of fulfillment of a short-term obligation is high.
R&I’s last rating action on the country’s debt was in June last year, when it affirmed both BBB- and a-2 ratings and its “stable” outlook. The debt watcher had assigned the ratings and outlook in 2009.
In raising the issuer outlook, R&I cited major improvements in the country’s economic, fiscal, and external position.
“The economy of Republic of the Philippines has started to show strong growth thanks to continued robust consumption driven by remittances from Overseas Filipino Workers (OFW), coupled with expansions in public investment and exports,” it said.
“At the same time, the inflation rate has been stable. As a result of the sustained current account surplus, the level of foreign reserves is rising. This has diminished concern about external liquidity,” it added.
Financial management has also improved, it noted, and “steady” progress towards fiscal consolidation has allowed the government to spend more on infrastructure and education.
R&I likewise cited the country’s stable political environment, which it said had helped attract investments.
“The government significantly restored the peace of western Mindanao, a part of the island which used to ruin the country’s image. As improvement of the investment climate will accelerate direct investment by foreign investors, expectations for sustainable expansion of investment are growing,” it said.
“If fundamentals for economic growth are solidified and steady increases in per-capita income become more promising, R&I will consider a rating upgrade.”
The Philippine economy expanded by 6.8% in 2012, substantially higher than the 3.6% recorded in the previous year and above the government’s 5-6% target. In the first quarter, growth was a better-than-expected 7.8% — faster than the government’s 6-7% goal for this year.
R&I said the economy’s growth would likely “stay robust” this year and the next.
Inflation — 2.93% as of end-June, at the low end of the central bank’s 3-5% target — is likewise expected to settle within target.
“Furthermore, public- private partnerships … are expected to gain the momentum … Whether such trend will be translated into a steady rise in investment ratio, and in turn, investment will serve as a growth driver, along with consumption, will be the key to future economic growth,” it said.
R&I, however, noted that the country’s per-capita gross domestic product was still low relative to its peers in the region.
“The Philippines is the only country which has yet to reach per-capita GDP of US$3,000 among the five founding members of ASEAN; at long last, the country sees a clearer opportunity for catching up,” it noted.
Public investment, while up, could also still be improved.
“The fiscal position serves as a major constraint. The 2012 figures show that tax revenues are only 12-13% of GDP. R&I positively views the government’s leadership in raising the ’sin’ tax levied on tobacco and alcohol beverages. Still, reform on the tax code and system aimed at a stronger tax collection capacity and better spending efficiency remains an important issue to be addressed,” it noted.
The government also still needs “to address the issues ranging from lack of infrastructure to the perception of widespread corruption in order to improve the investment climate.”
“A focus will be placed on whether the Aquino administration will be able to make the best use of positive factors, such as the strong economic growth and political stability, in efforts to break a stalemate in investment, a structural problem that has haunted the Philippine economy,” R&I said.
“In consideration of the execution and progress of specific plans, along with economic trends, R&I will incorporate developments into the rating.”
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