Standard & Poor’s raises debt outlook of Philippines to positive

MANILA, Philippines—Standard & Poor’s on Friday raised the outlook on the Philippines’ sovereign debt from “stable” to “positive,” thus boosting the country’s chances of getting a credit rating upgrade next year.

A “positive” outlook means the existing credit rating may be upgraded within the short term if existing credit fundamentals are sustained or even improved.

But S&P maintained its rating on the country’s foreign-currency, long-term debt at “BB,” which is two notches below investment grade. Its rating on the country’s foreign-currency, short-term debts was also maintained at “B,” which is three notches below investment grade.

On the country’s peso-denominated long-term obligations, the S&P credit rating stands at “BB+,” a notch below investment grade, and “B” for short-term ones.

“We revised the outlook to positive to reflect our assessment that the Philippines’ external vulnerability has diminished,” S&P credit analyst Agost Bernard said in a statement.

“We expect further rating improvements to be most likely driven by improvements in fiscal and debt credit metrics,” Bernard added.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. welcomed the improved outlook by S&P.

“The outlook upgrade brings us a step closer to what the market has been pricing our external debt at as evidenced by our credit default swaps. The recognition of our diminished external vulnerability because of our strong external liquidity position is well-placed,” Tetangco said.

“The ratings could be raised on material progress in achieving a sustainable structural revenue improvement or further strengthening of the public balance sheet, yielding reduced fiscal vulnerability,” Bernard said.

However, Bernard said the country might miss its chance of getting a credit-rating upgrade if favorable liquidity and fiscal indicators deteriorate.

He noted that the Philippines still had relatively little cash and large debts, even as its interest burden was now easing.

“Conversely, the ratings could stabilize at the current level or come under downward pressure in the event of a weakened commitment to fiscal consolidation,” he said, which would force the government to take on more debt.

The other potential trigger for a credit downgrade would be if its foreign exchange reserves deteriorated significantly, S&P added.

Finance Secretary Cesar Purisima likewise welcomed the outlook upgrade while stressing his belief that the country was underrated by credit-ratings firms.

“Clearly, this adjustment from S&P reflects the Philippines’ strength amid the present global uncertainties, thanks to the reforms the (President) Aquino administration has instituted in the past 18 months since it took over.”

Mr. Aquino came to office last year, during which time ratings firms have made five positive actions on the Philippines’ credit-worthiness, Purisima said.

“We hope that this outlook improvement will translate into a much-deserved credit rating upgrade, sooner rather than later.”

The improvement in the outlook came amid the push of the Philippine government for better credit ratings for the Philippines.

Monetary and finance officials said indicators point to the country’s improving credit-worthiness.

They cited the country’s rising reserves of foreign currencies, the improving debt ratio, and declining budget deficit, among others.

According to the BSP, the country’s total reserves of foreign exchange stand at a record high of about $76 billion, or equivalent to over 11 months of imports and was at least six times the country’s foreign currency-denominated debts maturing within the short term.

Based on international benchmarks, foreign exchange reserves worth at least four months of imports are considered comfortable.

Moreover, the national government’s budget deficit stood at only P74.25 billion in January to October, down by nearly 73 percent from P270 billion in the same period last year. With a report from AFP