MANILA, Philippines—Global credit watchers Moody’s Investor Service and Standard and Poor’s recently cited improvements in the Philippine economy and hinted at a possible rating upgrade for the country in the short term.
This bolsters the belief of monetary authorities that an investment-grade rating for the Philippines may be achievable as early as the middle of this year if not the yearend.
Last January, Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said that in six months to a year, it is possible for the country to attain an upgrade of “a notch or two,” especially after S&P improved its outlook on the country from “stable” to “positive” last December.
Finance Secretary Cesar V. Purisima, while showing the same confidence, would only say that investment grade is certain within the term of President Aquino.
Underrated
“If you look at the [credit watchers’] market implied ratings index, they actually show that we are four notches underrated, which means that we should even be two notches above investment grade,” Purisima said in an interview.
For borrowings from foreign lenders, Moody’s Investor Service and S&P rate the country “BB” and “Ba2,” respectively, both indicating two notches below investment grade.
But Fitch Ratings marks the country with “BB+,” which is just a step away from the level where a country’s capacity to pay off its debts is perceived to be “adequate.”
A two-notch upgrade would bring Moody’s and S&P ratings on the Philippines to investment grade, as a one-step uptick will do with Fitch ratings.
Positive rating sanction
“I am confident that the ratings agencies, so long as we continue to do what we have been doing, will ultimately realize their oversight and will upgrade us to investment grade,” Purisima said.
“We share our confidence that there will be a positive rating sanction because we cannot be two notches lower than Indonesia [which has recently been rated investment grade],” he added. “The thing is to really just continue to focus on the fundamentals.”
The finance chief said attaining investment grade is important because it will allow not just the government to continue to access even lower rates of borrowing, but also private companies.
Purisima, former chairman of auditing giant SGV and Co., said that when their cost of borrowing is lower, companies become more aggressive and continue to have longer-term commitment.
“Moreover, companies that have been deterred from investing in the Philippines will have one less reason not to,” he said.
Early this month, Purisima renewed calls for credit rating agencies to take a second look at the Philippines and “reflect true market sentiments to the country.”
He said the government debt stock as a proportion of GDP as of December 2011 has dropped to 50.9 percent, the lowest in 13 years.
The finance chief attributed the “commendable” debt-to-GDP ratio to the government’s good fiscal position and prudent debt management.
Downward trajectory
“With this improvement in our national government debt, we expect a similar downward trajectory in our general debt, further boosting our case before credit rating agencies that the Philippines deserve a better rating,” he said.
Purisima said the general government debt ratio, an indicator that credit rating agencies and the Organization for Economic Cooperation and Development are tracking, has fallen to 40.7 percent of gross domestic product as of June 2011.
“The market is already considering the Philippines as an investment-grade nation,” Purisima said. “I hope credit rating agencies will listen to what the market is saying.”
“I’m sure (this will happen) within the term of President Aquino,” he added. “That’s our goal, but the sooner the better.”