Moody’s sees 5-6% growth for Philippine economy in 2011, 2012

MANILA, Philippines—Moody’s Investors Service has kept a favorable growth outlook for the Philippines, saying the economy could grow between 5 and 6 percent for 2011 and 2012.

In a report on its credit assessment of the Philippines, Moody’s recognized the increase in private-sector investments, which have been helping drive growth of the economy since 2010.

“The recent strength of investment spending is credit positive for the Philippines,” Moody’s said

“The Aquino government’s emphasis on good governance – coupled with an increasingly strong track record of macroeconomic stability – has seemingly supported the return of greater investment spending, especially from the private sector,” the credit rating firm added.

The growth projection of Moody’s for this year is the same as that of the government. For 2012, however, the government is aiming for a faster growth rate of at least 7 percent.

Meantime, Moody’s said any adverse impact on the Philippines of the recent natural disaster in Japan and the political tensions in the Middle East would be insignificant.

The credit ratings firm said Japan has been gradually recovering from the calamity, and so has been its demand for imported goods, such as those from the Philippines.

Moreover, it cited steeply growing remittances from Filipinos based in various countries, so that any negative effect from the Middle East conflict would be tempered.

In June, Moody’s upgraded the country’s credit rating to Ba2, or from three to two notches below investment grade, citing favorable macroeconomic indicators. The outlook on the rating is “stable,” meaning it is relatively safe from a downgrade for at least a year.

However, the credit rating firm said the Philippines should work more on the fiscal aspect, noting that substantial improvements in its budget position would result in the further upgrading of its credit rating.

“The Philippines’ sovereign rating now sits atop its methodological range at Ba2. Further upward movement in the rating will thus require a more significant improvement of its credit fundamentals,” it said.

Moody’s noted that the revenue-to-GDP ratio of the Philippine government has been lagging far behind those of similarly rated countries. In 2010, the ratio for the Philippines stood at 14.7 percent compared with the average of 23.7 percent for other countries with comparable credit ratings.

It acknowledged that the Philippines, since the start of this year, has recorded improvements in its revenue collection and significantly reduced its budget deficit. However, Moody’s also said it would take some time before the Philippines could reach the revenue-to-GDP ratio of similarly rated countries.

Moody’s also said that although the country’s overall economy has grown, its per capita income, which has just surpassed the $2,000 mark in 2010, remains low.

The credit rating firm said the Philippines would grow at a respectable growth rate this and next year, and that the stable outlook would remain. It stressed, however, that challenges involving fiscal position and per capita income should be addressed before the country could expect its credit ratings to improve further and move much closer to investment grade.