S&P affirms Philippine debt rating
Still 3 notches below desired grade
By Doris Dumlao
Philippine Daily Inquirer
First Posted 03:01:00 04/19/2008
Filed Under: Economy, Business & Finance
MANILA, Philippines—Global credit watchdog Standard & Poor’s yesterday affirmed its foreign debt rating on the Philippine government at BB-, three notches below investment grade, with a “stable” outlook.
The neutral assessment was largely due to the national government’s perceived reliance on privatization proceeds which, according to S&P, were not counted as part of recurring revenues to reduce the budget deficit in 2007.
A “stable” outlook means no downgrade or upgrade is likely in the next 12 to 24 months. A “positive” outlook is a precursor of an upgrade, while a “negative” outlook indicates the reverse.
Rival credit rating group Moody’s rates the Philippines the lowest at four notches below investment grade but with a “positive” outlook, while UK-based Fitch’s rating is at two notches below investment grade with a “stable” outlook.
Finance Secretary Margarito Teves said the Department of Finance welcomed the S&P decision to retain its “stable” outlook and credit rating on the Philippines.
“Despite increasing global economic volatility, the country has continued to post strong economic growth on the back of sound macroeconomic fundamentals,” Teves said in a statement.
“Nevertheless, we need to do more and push through with reforms to ensure the sustainability of our growth. We are committed to raising enough revenues to fully finance expenditures, especially for vital infrastructure and social services to improve the lives of our people.”
S&P said its outlook could move to “positive” if the government could show evidence that revenue-generating capacity had undergone a fundamental improvement.
A bond with a BB- rating means that protection of principal and interest payments may be moderate and not well safeguarded. Anything below investment grade rating is generally considered speculative.
The country’s total public sector debt at 64.3 percent of GDP in 2007 was much larger than the median of 38.5 percent among similarly rated peers. Its debt to revenue ratio of 345 percent was also much higher than the median of 146 percent within this category.
Also, S&P said the low revenue base was a key reason behind an extended period of meager public investment.
“This left the Philippine economy with inadequate infrastructure, unable to fully exploit growth opportunities,” S&P said. With a report from Michelle V. Remo
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