Philippines gets credit upgrade from Moody’s

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An international agency has raised the credit rating of the Philippines from two notches to just one notch below investment grade, a positive development for the country amid global economic woes.

With a new rating from Moody’s Investors Service, the Philippines expects to make the last step toward investment grade soon.

An investment rating is expected to allow the country to attract more job-generating foreign direct investments.

As a result of Moody’s decision, the country’s credit ratings from all three major international credit watchdogs are now all at one notch below investment grade.

Fitch Ratings and Standard & Poor’s earlier raised their own ratings for the Philippines to just a notch below investment grade, citing encouraging economic developments.

In a decision announced yesterday, Moody’s said the improved assessment of the creditworthiness of the Philippines was based on its healthy pace of growth, improving fiscal performance of the national government, stable banking sector and projected ability to keep a robust pace of economic expansion over the medium term.

“Despite the head winds from softening external demand, the Philippines has demonstrated considerable economic strength and fiscal resilience,” Moody’s said in a statement.

Good governance

Finance Secretary Cesar Purisima said the upgrade in the credit rating by Moody’s was proof that “good governance is good economics.”

Purisima noted that Moody’s decision was the ninth positive action that the Philippines got from various credit rating agencies since President Aquino took office in 2010.

“This is another affirmation of the economic agenda of President Aquino. Good governance is indeed good economics. This is the ninth positive ratings action since [the President] took office and has brought us on the cusp of investment grade rating,” Purisima said.

Tetangco delighted

Gov. Amando Tetangco Jr. of the Bangko Sentral ng Pilipinas said Moody’s favorable decision would fuel hopes that an investment rating may come “sooner rather than later.”

“We are delighted with Moody’s recognition of the Philippines’ strengthened macroeconomic fundamentals and growth prospects,” Tetangco told reporters.

He said the country’s banking system became strong with the implementation of various regulatory reforms over the years.

“Investment grade is certainly within sight,” said Eugene Leow, an economist at DBS Bank in Singapore.

“This does not come as a surprise given the structural improvement in GDP (gross domestic product) growth and debt management dynamics over the last few years,” he added.

He said a broadening of the revenue base, such as reforms on taxes on alcohol and cigarettes, would probably be needed before the major rating agencies upgraded Philippine debt again.

Stable outlook

Moody’s said the latest credit rating of the Philippines, which applies to debts denominated in local and foreign currencies, was assigned a “stable” outlook.

Such an outlook indicates that a credit rating is likely to remain the same within the short term unless unexpected developments dampen existing favorable economic trends.

In the first half of the year, the Philippine economy grew by 6.1 percent from a year ago, one of the fastest growth rates in the region.

The encouraging growth rate of the Philippines came even as the euro zone suffers a recession and as the United States faces slow growth and high unemployment levels.

“In addition, cyclical features support improved prospects for growth in the medium term,” Moody’s said.

Infrastructure, remittance

The agency said the factors supporting prospects of a healthy pace of growth in the next few years included rising government spending on infrastructure and the still strong remittances from overseas Filipino workers.

Because of remittances, consumption by Filipino households is expected to remain robust.

The fact that banks in the country are profitable and strong indicate that they are capable of providing credit support to businesses and to the government, according to Moody’s.

$82-B forex reserve

Rising foreign exchange reserves, now at a historic high of about $82 billion, was also cited for the country’s improved credit rating.

With the reserves, higher than the combined foreign debts of private firms and government entities, the Philippines can pay debts to foreign creditors as they come due.

The reserves are boosted mainly by remittances, foreign portfolio investments and inflows in the country’s business process outsourcing sector.

Peso, interest rates

“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,” Moody’s said.

The national government’s debt stock—the proportion of its outstanding debts to the country’s gross domestic product—has fallen over the years to just about 50 percent from a high of over 70 percent in the middle of the last decade.

The rise of the peso and the decline in interest rates, both of which are credited for improved investor sentiment, helped cause the decline in the government’s debt stock over the years, according to finance officials.

Efforts to improve revenue collection and measures to discourage tax evasion were also helpful in improving government’s fiscal condition, the officials added.

Peace deal

Moody’s also said that the latest peace agreement between the government and Moro rebels would further boost the country’s economy.

“Over the longer term, the landmark peace agreement signed between the government and the Moro Islamic Liberation Front may have wider beneficial effects on investment and economic growth in Mindanao… which has untapped agricultural and mining potential,” Moody’s said.

The upgrade in credit rating came following the 10-notch jump in ranking—from 76th to 66th out of 144 countries—by the Philippines in the global competitiveness report that the World Economic Forum released last month.

 Originally posted: 1:24 pm | Monday, October 29th, 2012

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  • Guest

    Moody’s, Fitch and the ilks are really the right institutions to rate countries, banks and so on. They were the ones who rated certain banks with top notches till the dawn of the financial crisis. That is what can be said. I’d rather believe in the Bangko Sentral then.

  • what_is_going_on

    From the Wall Street Journal…what the Philippines needs to do in order to go further: 

    New Hopes but Old Pitfalls in the PhilippinesAquino has brought peace and prosperity. But only constitutional change will defeat entrenched cronyism.By PHILIP BOWRINGMoody’s this week upgraded the Philippines’ credit up a notch to just shy of investment grade, and the general rise in the international rating of the Philippines since President Benigno Aquino III took office in 2010 is well-deserved. Recent news, including the signing of a peace pact with the Moro Islamic Liberation Front and an upward trend in growth, has encouraged positive sentiment. Investors are rushing in.Mr. Aquino has taken bold steps to root out corruption and improve standards of governance, which had fallen to new lows under Presidents Gloria Macapagal Arroyo and Joseph Estrada. He has surprised many by pushing for the impeachment of an allegedly corrupt chief justice and by standing up to the Roman Catholic Church over family planning at home. Abroad, he’s faced off with China over the Scarborough Shoal. Meanwhile, he’s brought the fiscal deficit under control, and begun to improve infrastructure and education.But before foreigners get carried away extolling the nation’s prospects, it is worth recalling some past false dawns and the governance problems that doomed them. President Ferdinand Marcos declared martial law 40 years ago, a move which was initially greeted by many Filipinos and foreigners as leading to improved law and order, less corruption and more efficient decision-making.Those benefits proved illusory as Marcos simply substituted his favored oligarchs for long-established ones and nationalized some industries to centralize power. Oppressive policies sparked Muslim and Communist insurgencies.Next came revived democracy in 1986 and the administration of President Corazon Aquino. But her lack of administrative ability, a poorly drafted, nationalistic new constitution, and the weight of Marcos-era debts all contributed to another false dawn.Hopes were modestly raised again under the more decisive and pragmatic President Fidel Ramos, but he left no lasting legacy. Governance deteriorated rapidly under the indolent Mr. Estrada. Further hopes for improvement under Ms. Arroyo proved short-lived, ending with allegations of election rigging and corruption.The problem with Manila is that its institutions are weak, and are susceptible to manipulation by the president and other powerful politicians. To judge the sustainability of current reforms in the Philippines, then, one must look at what is happening in the wider political arena, and at whether Mr. Aquino has a vision for improving the democratic system. The evidence to date is not encouraging.Take the most important of the legislative chambers, the Senate. Nominations recently closed for next year’s polls, when half of the 24-member body is up for election. The dynastic tendencies which have long stifled politics and protected vested economic interests are increasing. Two relatives of Mr. Aquino, two of Ms. Arroyo, and an Estrada are aiming to join a Marcos and another Estrada in the chamber. Other candidates are close relatives of recent or sitting senators.These dynasties are the result of two main factors. First, the non-existence of organized, nationwide political parties: Today’s so-called parties and coalitions are simply alliances of convenience.Second, and linked, is that senators are chosen on a nationwide basis, thus favoring familiar names such as past presidents, actors, sportsmen and even failed coup-makers (there are two in the current Senate). Even then, politicians need big money for national campaigns, which makes them beholden to special interests such as the tobacco lobby.The constitution says that the state must “prohibit political dynasties as defined by law.” However, congress has never passed any implementing legislation. Provincial family fiefdoms, though somewhat eroded by urbanization, are still numerous throughout the Philippines. In 40% of provinces the governor and local congressman are related, and more than 50% of governors and congressmen are related to previous holders of these offices.The obvious solution is to enforce the constitution. There are anti-dynasty bills in the lower House and Senate, but they are unlikely to be enacted before 2016. Another option is more rigorous term limits, but this is an increasingly distant reform goal.Proposals for change include moving to a parliamentary system with a single-chamber legislature to streamline the legislation process, and providing for the Senate to be elected on a regional, not national, basis. Others suggestions include public funding for nationwide political parties to reduce corruption and make parties more important than personalities.Whatever the idea, the combination of a two-chamber legislature and the Senate’s composition makes for very slow progress in putting them into action. This stymies attempts to amend the constitution, which is particularly problematic since restrictions on foreign ownership are written into this document and need to be changed. Although they are meant to protect national interests against predatory foreigners, in practice these restrictions protect local oligarchs, deter investment and leave foreigners with minority interests that are too often exploited by Philippine partners.In this legislative situation, pushing through any major change in the political structure cannot happen without strong presidential leadership. Thus far Mr. Aquino has yet to show any interest in these big political issues. While that may be understandable given immediate priorities such as rooting out graft, constitutional change may be essential if his reforms are to stick. With nearly two and a half of a six-year term now gone, Mr. Aquino needs to start enunciating a plan to safeguard the gains of his presidency and the Philippines’ corresponding rise in international esteem.

  • http://profile.yahoo.com/ZUGKMNYSK2ZSSS4B2LVNDWP5XM lagalag

    Hindi ok na ulam ang TALANGKA,mataas ang cholesterol

  • http://www.facebook.com/boy.dalius Boy Dalius

    Nagkalat ang mga alagang talanka’t alimasag ni GMA. Nyahahaha!

  • http://twitter.com/PINOYPOWER100 JUAN DELA CRUZ

    Iba talaga kapag hindi corrupt ang pangulo, maliwanag ang landas tungo sa kaunlaran!

    Mabuhay ka PNoy!

  • http://www.facebook.com/people/Danny-Bravo/100003693617613 Danny Bravo

    until  the  leader  now  are  still  in  malacanang  the  economics  of  the  phillippines  cannot  drops 10000000%  guarantee  no  end  ,,,

  • billy gunner

    yellowturds here must have been amnesiac about the UN report that the govt’s reduction program  is still dismal. oh and the report was only made on print yesterday! disinformation drive by malacanan boys and girls seems to have been set to hyperdrive! lol

    • sacrebleau

       Your wheelchair is on hyperdrive.

    • http://pulse.yahoo.com/_AR3F3RNQX4U3PKBI526NJI6BYM Jose

      Based on 2008 to 2010 data, ha ha ha. 

    • OFW28

      angtangamo Tiglao! magbago kana kung gusto mong umasenso, maghanap ka ng trabaho para di ka pakalat-kalat sa kalye! 
      Tiglaoism! talangka  

  • GOPHILIPPINESGO

    The best is yet to come under the leadership of PNoy, the incorruptible president!

    • billy gunner

       nautot ako sa comment mo! lol

      • OFW28

        TIGLAOISM!!

    • what_is_going_on

      Don’t get your hopes to high…we’ll see where we are after 2016. 

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