A Roman Catholic nun puts a symbolic padlock on the main gate of the Philippine Central Bank during a rally against foreign debt in Manila in this 1999 file photo. The protesters, calling for debt cancellation, criticized the government's debt servicing as a vicious cycle draining the debtor nations of wealth and resources. The Philippines' debt-to-GDP ratio will likely fall to 48 percent by end-2012, according to ANZ. AFP PHOTO/ROMEO GACAD
The Philippine government’s debts, in relation to the economy, will likely fall below the 50-percent threshold this year, boosting the country’s chances of securing an investment grade from credit watchdogs.
According to ANZ, an international financial services firm, the government’s debt-to-GDP (gross domestic product) ratio may decline further to 48 percent by the end of 2012, from last year’s 50 percent.
Debt-to-GDP ratio is one of the closely monitored indicators of a country’s credit-worthiness.
Analysts believe that the Philippines’ relatively high debt burden is one of the reasons why it is still rated one or two notches below investment grade despite its robust economy.
Over the years, the Philippine government’s debt-to-GDP ratio hovered above the 50-percent threshold, peaking at 84 percent in 2004. But government officials are now saying that the debt burden has been on a downtrend since then.
Last year, the government’s outstanding debt reached P4.9 trillion, which was about 50 percent of GDP.
ANZ said that if the ratio were to decline further to below 50 percent, credit-rating agencies would sit up and pay attention.
Even though international ratings firms have rated the country one or two notches below investment grade, capital markets consider the Philippines to be credit-worthy. Philippine bonds are at par with the instruments issued by countries enjoying investment grade, analysts said.
Also, ANZ said the Philippines would soon enter a “virtuous cycle,” which economists define as a phenomenon where reforms lead to faster economic growth. This in turn will attract more investments that can sustain or even speed up economic growth.
“Despite rising global uncertainty, we think the Philippines is on the cusp of a virtuous cycle. This encompasses improved monetary and fiscal policy credibility, and better governance and political stability, which are interacting with large external receipts and stable sovereign financing,” ANZ said.
ANZ said it would stick to its forecast that the Philippines would grow by 5 percent this year—well within the government’s target of 5 to 6 percent.
ANZ’s projection is higher than most private sector forecasts.
In a separate paper on the Philippines, Barclays said Moody’s Investors Service or Standard & Poor’s would raise its credit rating for the Philippines this year. Both firms rate the Philippines at two notches below investment grade.
Barclays also expects Fitch Ratings, which rates the Philippines just a notch below investment grade, to change its outlook on the country’s rating from “stable” to “positive.”—Michelle V. Remo