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Moody's now reviewing PHL's sovereign ratings for upgrade to investment grade
The Philippines' sovereign ratings are now being reviewed by Moody's Investors Service for a possible upgrade to investment grade, the debt watcher said Thursday.
In a statement from Singapore, the global debt-watcher said, "Moody's Investors Service has placed the Ba1 foreign and local currency long-term issuer and bond ratings of the Government of the Philippines on review for upgrade."
Moody's is the only one left of three top global debt-watchers to rate the Philippines one notch below investment grade.
Earlier, the country received an investment grade rating from Fitch Ratings and Standard & Poor’s, while Japan Credit Rating Agency hiked the Philippine sovereign rating to two notches above investment grade.
According to Moody's the key drivers that prompted it to review the Philippines for upgrade are:
recent track record of robust economic growth;
stable and favorable government funding conditions;
improving fiscal and debt dynamics; and
political stability and a strengthened government policy mandate.
“The review will focus on the sustainability of the above factors and the relative strength of underlying credit metrics compared to investment-grade peers in the Baa (investment grade) rating range,” Moody's said.
Philippine output expanded by 7.8 percent in the first quarter, the fastest in Southeast Asia, compared to a 6.8 percent gross domestic product (GDP) in 2012.
“Despite achieving one of the highest growth rates in Asia-Pacific over the past year—and among the highest in emerging markets—there have been no strong signs of overheating or a buildup in macroeconomic imbalances,” Moody's said, noting Philippine inflation remaining within the central bank's 3 to 5 percent target.
The Philippines' economy, Moody's said, relies on the “strength of domestic consumption and investment, both of which have been supported by steady remittance inflows and healthy credit growth.”
“The structure of government debt also continues to improve, mitigating currency and refinancing risks,” Moody's said, referring to the declining proportion of the government's foreign-currency denominated debt.
“[F]iscal deficits have been relatively narrow, while primary balances have been in surplus over the past two years, contributing to debt consolidation,” the debt-watcher noted.
The Philippines recorded a wider budget deficit of P51.3 billion in the first semester of 2013. This, however, is still below the programmed ceiling, prompting the government to maintain that finances remain “well-managed.”
President Benigno S. Aquino III's positive ratings and his senatorial and congressional slate's win in the May polls bode well for the Philippines.
“The mid-term elections in May have also bolstered the Aquino administration's policy mandate and improved reform prospects over the next three years,” Moody's said.
"Moreover, the President's approval ratings remain at historically high levels and support the continuation of the institutionalization of good governance in the government and judiciary," it added.
Greater progress on infrastructure development and a long-term solution to the long-running insurgency in Mindanao could also “lead to higher foreign direct investments,” which remains lagging behind similarly rated peers.
As such, Moody’s said factors that could lead to a ratings upgrade are:
confirmation that reduction in the government debt burden will continue and that funding conditions will remain favorable; and
indications that the acceleration of investment spending will continue, helping to keep the economy on a path to stronger growth.
“These developments should also be accompanied by an assessment that the health of the country's balance of payments and stability of the financial system can be sustained,” the debt-watcher noted.
Sought for comment, Finance Secretary Cesar Purisima told reporters in a text message that the "status of review for upgrade should be seen as recognition of the positive changes in the economy...a decision on our rating will have to be made with urgency."
"I am confident that as Moody’s continues to evaluate the Philippines they will see that the foundations for sustained, resilient growth have been laid, with a bright future for us on the horizon. I commend Moody’s commitment," he noted.
Courtesy: This post originally appeared on BM, GMA News
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