S&P raises Philippine credit rating to a notch below investment-grade
MANILA - (UPDATED 8:42 p.m.) After weeks of talking up the country's stellar first-quarter economic performance, the Aquino government got what it wished for: a credit rating upgrade from one of three major international debt watchers.
In a statement, Standard & Poor's Ratings Services on Wednesday said it lifted the Philippines' long-term foreign currency rating to 'BB+' from 'BB.' The agency also affirmed its 'BB+' long-term local currency rating on the Philippines. Both ratings were assigned a stable outlook.
S&P's action lifts the country's credit score to a notch below investment-grade, putting it at par with the score affirmed last week by another major agency, Fitch Ratings.
This leaves Moody's Investors Service as the only other key rater that has yet to raise its score on the Philippines to the same level.
A higher rating allows the Philippines to borrow abroad at a cheaper rate, thus enabling the government to set aside more money for addressing infrastructure bottlenecks and helping the poor.
"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," said Agost Benard, S&P credit analyst.
"A high, albeit declining, interest burden constitutes an additional rating constraint. The interest burden of 13 percent of general government revenues is high, largely because revenues remain low relative to the size of the economy," Benard said, citing the need to widen the tax base and improve compliance.
"Notably, the government's foreign-currency debt stands at a relatively high 42 percent of total, rendering debt service costs and fiscal outturns susceptible to adverse exchange rate movements," he added.
Data the Bureau of Treasury released on Wednesday showed that debt servicing last May rose nearly eight percent from a year ago, but the year-to-date figure had fallen by 12.4 percent.
The Philippines' key debt ratios have been on a downtrend, hitting decade lows in 2011. In the first quarter of this year, the country's external debt ratio - foreign debt as a percentage of the country's gross domestic product - eased to 27.4 percent from a year ago's 29.5 percent. This ratio is a measure of solvency, and so indicates the Philippines' capacity to pay down debt in the long run.
The country's external debt service ratio likewise fell to eight percent this year from 8.2 percent in 2011, and is way below the 20 to 25 percent international benchmark. This ratio measures the sufficiency of foreign exchange to meet maturing debt.
The Philippines has enjoyed ample foreign exchange inflows so far this year, causing the peso to hit a four-year high on Tuesday. Part of that liquidity helped fuel a stock market rally that saw the Philippine Stock Exchange index hitting a new record close of 5,365.7 also on Tuesday.
Despite the global uncertainty caused by the euro zone debt crisis and the slowdown in the US and China, the Bangko Sentral ng Pilipinas still expects the country to register a $2.7 billion balance of payment surplus this year.
Current account surplus forecast at 2% of GDP
"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," Benard said.
"We project ongoing current account surpluses of about two percent of GDP, based on remittance inflows from a large and well-diversified expatriate labor force, and a fast-expanding business process outsourcing industry," he added.
Communications Secretary Ramon Carandang said the upgrade to BB+ "is an affirmation of the fiscal management of the Aquino 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're now another step closer to investment grade status," he said.
Separately, Finance Secretary Cesar V. Purisima said the Philippines "can now clearly make our case for an investment grade status."
"This is the eight 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.
On Tuesday, the Cabinet economic cluster, meeting with President Benigno Aquino III, forecast GDP growth in the second quarter exceeding the better-than-expected 6.4 percent in the first quarter.
Budget Secretary Florencio Abad said he already cleared for disbursement 91 percent of the infrastructure outlay falling under the Department of Public Works and Highways, laying the ground for more government spending in the coming months.