Finance chief expects ratings upgrade from Moody’s, S&P

Finance Secretary Cesar V. Purisima expects two other international credit watchers upgrading the Philippines’ rating to a notch below investment grade, considering the steady improvement in the country’s economic fundamentals.

Purisima said it was only fitting that Moody’s Investors Service and Standard & Poor’s follow the example of Fitch Ratings, which in June raised the Philippines’ rating to “BB+”—a step away from the level where a country’s capacity to pay its debts is perceived to be “adequate.”

Moody’s and S&P presently rate the Philippines “BB” and “Ba2,” both two notches below investment grade.

However, all the three ratings mean the country is “less vulnerable” to defaulting on its financial obligations.

According to an International Monetary Fund research, investment grade status triggers fund inflows from institutional investors who are contractually prohibited from placing their capital in non-investment grade assets.

“I believe Moody’s and S&P are under-rating the Philippines,” Purisima said Friday during an economic briefing organized by the Bangko Sentral ng Pilipinas and held at the Philippine International Convention Center in Pasay City.

“We are certainly not two notches below investment grade,” the finance chief said. “We are at the same level or even better than countries that are rated one notch below investment grade.”

Purisima cited as reasons the country’s improving balance sheet, with the ratio of outstanding debts to gross domestic product having declined to 51.3 percent as of end-June 2011 from as high as 78.2 percent in 2004.

“Netting out the debt holdings of government agencies, real debt is actually 42 percent of GDP,  which is much closer to the Philippines’ peers.”

Purisima also noted that the country’s gross international reserves continued to grow to record levels, reaching $75.6 billion as of end-August.

In a prepared statement, the finance chief said the government would continue to focus on lowering the country’s debt and interest expense to be able to spend more on infrastructure and social services.

“This objective will help us attain investment grade status,” he added.

Following the rating upgrade by Fitch’s in June, Purisima said the government hoped to hit investment grade within the first half of the Aquino administration‘s term if not sooner.