This Aug. 13, 2010 photo shows a sign for Moody’s Corp. in New York. AP FILE PHOTO
MANILA, Philippines–Global credit rating firm Moody’s Investor Service teased with another glowing report on the Philippines even as it withheld a sovereign upgrade for more than a year now since announcing its “positive” outlook.
In a report Wednesday, Moody’s said the government should sustain the reduction in the level of its indebtedness, while ensuring the stability of the economy and growth.
Political stability also points to continuing reforms even as the end of President Aquino’s six-year term nears.
“The Philippine economy has entered a structural shift to higher growth, accompanied by low inflation,” Moody’s said in a credit opinion report released yesterday.
In October last year, Moody’s became the last of the three major rating agencies to raise the Philippines’ sovereign debt to “investment grade.” This was a sign of the country’s stable economic prospects, which translated to the improved ability of the state to repay obligations.
Moody’s also said its outlook for the Philippines’ rating was “positive,” which implied another upgrade in the next 12 to 18 months. More than a year after raising its outlook, Moody’s still rates the Philippines at its minimum investment grade.
“The positive outlook reflects the expectation of continued economic out-performance by the Philippines relative to rating peers,” Moody’s said. This in turn would further support debt consolidation and associated improvements in debt affordability and sustainability.
Standard & Poor’s raised the Philippines to two notches above junk earlier this year, putting the country ahead of India, Indonesia and Russia, and at par with Italy.
Last year, the Philippine economy grew by 7.2 percent, better than the 6.8 percent the year before. Growth in 2013 was faster than any other Southeast Asian economies.
The new growth path is being reinforced in part by improved fiscal management, Moody’s said.
Revenue growth has accommodated sizeable increases in infrastructure and social spending, although revenue generation remains weak when compared with investment-grade sovereigns overall.
Nevertheless, since 2008, the Philippine government has regularly recorded fiscal deficits that are narrower than similarly rated economies.
The government has also achieved primary surpluses in eight of the last 10 years. This means if interest costs are stripped out, the government has collected more revenues than it spent. This would likely continue over the five-year medium-term horizon, allowing for further consolidation of the government’s debt burden.