Moody’s upgrades RP credit rating

Moody's upgrades RP credit rating

By CHINO S. LEYCO

June 16, 2011, 1:15am

MANILA, Philippines — New York-based Moody's Investors Service raised yesterday the Philippines' credit rating due to the government's improved fiscal position and the country's stable macroeconomic environment.

Moody's, one of the three international credit rating agencies, said in a statement that the country's foreign and local currency long-term bond ratings were increased to Ba2 from Ba3, or two levels below investment grade.

"The key drivers for the decision are the progress made in fiscal consolidation by the new Aquino administration and the sustained nature of macroeconomic stability, coupled with continued strength in the external payments position, against a background of a significant pick-up in the momentum for economic growth," Moody's said.

In the first four-months of the year, the national government recorded a small budget surplus, building upon the notable turnaround in fiscal management seen in second semester of 2010. Much of the improvement has been attributed to expenditure restraint, but there is also evidence of an uptick in revenue generation.

"By demonstrating firm fiscal restraint, the government has bolstered its policy credibility and has improved prospects for reform," Moody's said.

President Benigno Aquino is going after tax evaders, smugglers and corrupt officials to increase state revenue and narrow the budget deficit from a record P314 billion last year to P300 billion this year, equivalent to 3.2 percent of the country's gross domestic product.

Moody's further noted that owing to continued prudence in macroeconomic management, solid growth momentum in the Philippines has not produced substantial overheating pressures -- either through inflation or a large deterioration in the current account.

"The Philippines' external payments position is strong in relation to its rating peers, and vulnerabilities related to a possible sudden stop of capital inflows are mitigated by its growing foreign exchange reserves," Moody's stated.

Finance Secretary Cesar V. Purisima, meanwhile, said in a text message that the credit rating upgrade from Moody's brings the country a step closer to investment grade rating and is crucial in further lowering the borrowing costs and attracting more foreign direct investments.

But Moody's, however, explained that for the Philippines to be deserving for an investment grade rating, the country should continue to strength its balance of payments and health of the financial system, coupled with sustained progress towards fiscal consolidation and debt reduction.

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