Moody’s hints at upgrade

Moody’s Investors Service has hinted at the possibility of the Philippines securing another credit rating upgrade soon, on the likelihood that the pace of the country’s economic growth will be among the fastest in the region.

In its latest commentary on the Philippines, Moody’s said developments in the Philippines’ favor include robust economic growth and the government’s declining debt burden and liability management strategies.

“The Philippines’ economy has entered a structural shift to higher growth, accompanied by low inflation,” Moody’s said.

The credit watchdog expects the Philippines to grow by 6.5 percent this year, one of the fastest growth rates in the world. Last year, the Philippines grew by 7.2 percent.

“The new growth path is being reinforced in part by improved fiscal management … The structure of government debts continues to improve, mitigating currency and refinancing risks,” Moody’s said.

The government’s debt burden, or the ratio between the government’s outstanding debt to the country’s gross domestic product, had consistently fallen from over 70 percent in 2004 to about 49 percent last year.

Government officials attributed this to improving tax collection and liability management strategies. Such strategies include bond swaps, which lengthen average maturity of the government’s liabilities, and preference for peso- over foreign-currency-denominated loans.

Moody’s acknowledged that the average maturity of the government’s debts had been stretched from seven years in 2009 to today’s 10 years.

It likewise cited the country’s ample reserves of foreign exchange that make it less vulnerable to external shocks. The Philippines has about $80 billion in gross international reserves.

“Continued improvements in the country’s main debt metrics, and growth dynamics would support further upgrades [in credit rating],” it said.

Moody’s in October last year upgraded the country’s credit rating by a notch from junk status to the minimum investment grade.

It has assigned a “positive” outlook on the rating, which means further upgrade in the rating is possible if favorable economic and debt indicators are sustained.

A reversal of the positive economic growth trend and the government’s debt dynamics would result in a credit-rating downgrade, Moody’s said. But it added that such a scenario was unlikely at the moment.

The move of Moody’s to assign an investment grade to the Philippines last year followed a similar move by its competitors, namely Fitch Ratings and Standard & Poor’s.

Also citing the strengths of the Philippine economy, Fitch and S&P gave the Philippines the minimum investment grade in March and May last year, respectively.