Moody's raises PH ratings anew

Kim Arveen Patria
Kim Arveen Patria
Yahoo! Southeast Asia Newsroom
A customer holds Philippine peso notes during a bank transaction in Manila. The Philippine central bank has trimmed its key interest rates by a further 25 basis points, saying the domestic economy needs a further boost to override weak global demand

Affirming the Philippine economy's strong performance and stable financial system, debt watcher Moody's Investors Service has raised the country's local and foreign currency long-term bond ratings to Ba1 from Ba2.

This is seen to result in lower costs for the Philippines when it taps debt markets to bridge gaps between budget and spending.

Moody's follows two other major credit rating agencies that have earlier put the Philippines just one level shy of investment grade.

"It's been a decade since all three major ratings agencies rated the Philippines a notch below investment grade," Finance Secretary Cesar Purisima said via his Twitter account.

"This is the 9th positive ratings action since President Aquino took office and has brought us on the cusp of investment grade rating," he added.

Key drivers for the upgrade include the country's improved economic performance despite weak global demand; enhanced prospects for growth over the medium-term; and stable financial system.

"Despite the headwinds from softening external demand, the Philippines has demonstrated considerable economic strength and fiscal resilience," Moody's said in a statement.

"In contrast to similarly rated countries, the country is poised to record a combination of faster growth, lower inflation, exchange rate appreciation, and an increase in foreign exchange reserves, while maintaining trend debt consolidation," it added.

Cyclical features also support improved prospects for growth in the medium-term, Moody's said.

"Despite the lack of progress in its public-private partnership program, the government's spending on infrastructure has picked up, but its fiscal impact has been mitigated by the continued gains from enhanced revenue administration," it added.

Consumption will meanwhile continue to be spurred by remittances which maintain an upward trend despite the slowdown in the global economy, Moody's noted.

The decision was also influenced by optimism over the framework peace agreement signd between the government and the Moro Islamic Liberation Front which Moody's said "may have wider beneficial effects on investment and economic growth in Mindanao..."

A renewed focus on the mining sector could also provide an additional stream of revenue to the government, Moody's said, even as it noted that "such intentions have faltered in the past."

"The Philippines' rating continues to be anchored by important strengths: 1) macroeconomic stability as reflected in the success of the central bank's inflation targeting regime; and 2) a healthy external payments position comprised of a structural current account surplus and, recently, increased FDI and portfolio inflows," Moody's said.

"Taken together, these strengths have contributed to the appreciation of the peso and lower interest rate costs for the government. These have in turn helped accelerate the process of debt consolidation, thus addressing the relatively high stock of debt, a constraint on the Philippine rating," it added.

The Philippines may reach investment grade, Moody's said, by addressing "key weakness" through "the passage and effective implementation of structural revenue reforms; a more rapid reduction in the general government debt stock; and an acceleration of investment spending that ensures a higher economic growth trajectory."

Risks remain, however, in "the emergence of macroeconomic instability that leads to a substantial deterioration in fiscal and government debt metrics, an increase in debt servicing costs, and/or an erosion of the country's external payments position," Moody's stressed.

Purisima, however, said the government "will continue to focus on the fundamentals of fiscal sustainability, macroeconomic stability & business environment enhancement.

"This is the only way to growth that is inclusive and sustainable," he added.