Rating Action: Moodys upgrades Philippines to Baa3, revises outlook to positive Global Credit Research - 03 Oct 2013 Singapore, October 03, 2013 -- Moodys Investors Service has today upgraded the rating of the Government of the Philippines by one notch to Baa3 from Ba1. At the same time, Moodys has assigned a positive outlook to the rating. The rating action concludes the review for upgrade announced on 25 July 2013. The factors that prompted the review remain intact, namely the sustainability of the countrys 1) robust economic performance; 2) ongoing fiscal and debt consolidation; and 3) political stability and improved governance. In addition, the stability of the Philippines funding conditions -- during the recent bout of market volatility in emerging markets -- points to the countrys relative lack of vulnerability to external financial shocks, such as those arising from anticipated tapering by the US Federal Reserve of its quantitative easing policy. In a related rating action, Moodys has upgraded the governments foreign currency shelf rating to (P)Baa3 and the ratings for the liabilities of the countrys central bank, Bangko Sentral ng Pilipinas (BSP), to Baa3. These have also been assigned a positive outlook. RATINGS RATIONALE RATIONALE FOR THE UPGRADE The Philippines economic performance has entered a structural shift to higher growth, accompanied by low inflation. Real GDP expanded by 6.8% in 2012 and 7.6% year-on-year in the first half of 2013. These levels are among the fastest rates of growth in Asia-Pacific and across emerging markets globally. At the same time, CPI inflation remains well anchored and is currently below the central banks target range. The new growth path is being reinforced in part by improved fiscal management. Revenue growth has accommodated sizeable increases in infrastructure and social spending, although revenue generation remains weak when compared with investment-grade countries overall. Nevertheless, since 2008, the Philippine government has regularly recorded fiscal deficits that are narrower than the Baa3-rated median. Primary surpluses recorded in eight of the past 10 years will likely continue over the five-year medium-term horizon, allowing for further consolidation of the governments debt burden. Yet, government debt as measured against GDP will remain higher than most similarly rated peers. Over the past few months, the prospects of Fed tapering had only a muted effect on funding conditions for the Philippines. An underlying shift in the governments funding profile has contributed to the countrys resilience to such external financial shocks. Although the Philippine government is the largest sovereign issuer of US dollar-denominated securities in the Asia-Pacific based on total debt outstanding, it is now much more reliant on domestic sources of financing. The governments improved ability to fund itself onshore reflects both the countrys healthy external payments position and the ample liquidity in its banking system, which is also the only system worldwide deemed by Moodys to have a positive outlook. In addition, the Aquino administration has maintained its popularity among voters, which in turn supports the further institutionalization of reforms for good governance. This situation has in turn been reflected in improving third-party assessments of institutional quality and international competitiveness. The Philippines will maintain a current account surplus, which has been bolstered by remittance inflows from overseas Filipinos and services exports, particularly from the business process outsourcing sector. These flows are likely to remain strong, if not strengthen, over the outlook horizon. The Philippines external strengths are reflected in the falling external debt to GDP ratio and the ample stock of gross international reserves, which now exceeds the countrys total external debt. Moodys has also raised the Philippines long-term foreign currency (FC) bond ceiling to Baa1 from Baa2 as well as its long-term FC deposit ceiling to Baa3 from Ba1. In addition, Moodys has raised the short-term FC bond ceiling to P-2 from P-3, while changing the short-term FC deposit ceiling to P-3 from Not Prime. These ceilings act as a cap on the ratings that can be assigned to the FC obligations of other entities domiciled in the country. https://moodys/research/Moodys-upgrades-Philippines-to-Baa3-revises-outlook-to-positive--PR_283602
Posted on: Wed, 16 Oct 2013 08:24:25 +0000