S&P upgrades Phl credit rating BB

By Prinz Magtulis

MANILA, Philippines - Standard & Poor’s yesterday upgraded the Philippines’ debt to one notch below investment grade, reflecting gains made by the country in both fiscal and monetary fronts.

S&P improved the country’s long-term foreign currency rating to BB+ from BB, the same level as that of Fitch Ratings.

The credit rater also affirmed its long-term local currency rating of BB+. Both ratings have a stable outlook.

The upgrade followed the outlook improvement to “positive” awarded by S&P to the country last December.

“We thank S&P for recognizing the gains the Philippines has achieved in the fiscal and monetary front,” Finance Secretary Cesar Purisima said.

“This is the eighth positive credit ratings action under the Aquino administration, and this only gives us more confidence to continue with the work that we have started towards macroeconomic stability, fiscal sustainability and inclusive economic growth,” he added.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco also hailed the ratings upgrade.

“We welcome the upgrade from S&P. Its recognition of the net-external-creditor position of the country, our track record on growth and the healthy fiscal improvements should provide further fundamental support to the market,” he said.

Presidential Communications Group spokesman Ricky Carandang said the upgrade is “an affirmation of the fiscal management of the administration.”

“At a time when countries around the world are debating austerity versus stimulus, we have had the fiscal space to provide stimulus without weakening our fiscal position. The President and the economic team have worked hard to win ratings upgrades, and we are now another step closer to investment grade status,”he said.

Purisima added, “Two out of the three major credit rating agencies now have us one notch below investment grade. We can now clearly make our case for an investment grade status.”

S&P said: “The foreign currency rating upgrade reflects our assessment of gradually easing fiscal vulnerability, as the government’s fiscal consolidation improves its debt profile and lowers its interest burden.”

“The rating action also reflects the country’s strengthening external position, with remittances and an expanding service export sector continuing to drive current account surpluses,” S&P added.

The national government’s budget deficit has been contained at roughly P23 billion as of May, with revenues rising by 11 during the same period.

The national government debt, meanwhile, stands at 50.9 percent as of last year, the lowest in 13 years.

On the monetary side, gross international reserves hit $76 billion for the first five months of the year, driven largely by huge inflows from overseas Filipino workers who sent home $7.3 billion as of April, 5.7 percent up year-on-year.

“A long record of current account and overall balance of payments surpluses has produced a substantial foreign exchange reserve buffer. Foreign exchange reserves cover about 10 months of current account payments,” S&P said.

“We project ongoing current account surpluses of about two percent of GDP (gross domestic product), based on remittance inflows from a large and well-diversified expatriate labor force, and a fast expanding business process outsourcing (BPO) industry,” the credit rating agency added.

The Bangko Sentral ng Pilipinas (BSP) this month revised its outlook for current account surplus to $4.6 billion from $4.3 billion on the back of rising export receipts.

S&P said constraints to further upgrade are the country’s low-income level, a “high, albeit declining, interest burden” and low revenue due to narrow tax base.

“The stable outlook balances the country’s expected net external creditor status, relatively strong external liquidity, and signs of improving growth prospects against low income levels and continuing challenges in fiscal and structural reforms,” S&P explained.