Manila’s credit rating seen to stay ‘junk’ through 2020

Manila's credit rating seen to stay 'junk' through 2020

Friday, 26 November 2010 00:00
 
BY LAILANY P. GOMEZ REPORTER

Standard & Poor's Ratings Service (S&P) said a junk rating would likely hound the Aquino administration, as the New York-based firm expects the Philippines' credit score to remain below investment-grade in the next 10 years barring radical structural reforms.

In its report titled "Global Aging 2010: Philippines," S&P drew up a number of scenarios with their corresponding implications for the country's credit rating.

"We project that the Philippines' favorable demographic profile in conjunction with expected fiscal consolidation under our base-case scenario will continue to reduce net general government debt. Our analysis suggests that with fiscal policy reforms, net debt could fall to 11 percent of GDP by 2050 in the Philippines, considerably lower than the sample median of 245 percent of GDP," Agost Benard, S&P credit analyst, said.

An indicator of economic performance, GDP or gross domestic product is the amount of final goods and services produced in the country.

While "such macroeconomic and fiscal trends would imply an improvement to the current 'BB' long-term foreign currency sovereign rating on the Philippines," Benard however said that "in the very long term, prolonged fiscal imbalances and wealth [as measured by GDP per capita] tend to become the dominant factors."

"Using this approach, our 'BB' rating on the Philippines would likely improve in the next decade," he said.

"By 2020, we expect that the Philippines' fiscal indicators will have strengthened such that they would be more in line with sovereigns currently rated in the investment-grade category ('AAA' to 'BBB-') because of the complementary effects of fiscal reforms, stronger growth, and the negligible impact of aging-related expenditures on fiscal balances," he added.

On November 13, S&P raised its credit rating on the Philippines by a notch from "BB-" to "BB." Despite the upgrade, the country's credit score remains in junk territory, as investment-grade ratings range from "AAA" to "BBB-."

A rating of "AAA" has the highest quality with minimal risk, while the "BBB-" carries moderate risk, with adequate capacity for timely payments.

In making the upgrade, S&P cited the country's ample dollar buffer and improving economic prospects, coupled with the orderly conduct of last May's national elections.

On Thursday, the government said Philippine GDP rose by 6.5 percent in the third quarter, or weaker than the 6.7 percent to 7.7 percent projection of the National Economic and Development Authority (NEDA).

This led the economy to grow by 7.5 percent in the first nine months of the year.

So far this year, the country's balance of payments (BOP) position and gross international reserves (GIR) have grown past the full-year projections set by the central bank.

The GIR at end-October rose to $56.8 billion as against the full-year projection of $50 billion. The BSP will likely revise its GIR forecast when the Monetary Board meets on November 18.

Similarly, the BOP registered a surplus of $3.062 billion in September, bringing the cumulative surplus to $6.54 billion in the first nine months as against the full-year forecast of $3.7 billion.

For the third time this year, the central bank revised upward to $8.2 billion its GIR forecast, from an earlier estimate of $3.7 billion.

 

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