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NEWS UPDATES 10 August  2010

Fitch keeps Philippine rating

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Fitch Ratings said it kept its below investment-grade credit rating on the Philippines and would likely hold on to this assessment until such time that the Aquino administration improves its tax collections and shows it would stick to its budget deficit ceiling.

In a statement, the rating firm said it affirmed the Philippines’ long-term foreign-currency issuer default rating at “BB” with a stable outlook.

Fitch also kept its “BB+” long-term local-currency rating, likewise with a stable outlook. The short-term foreign-currency rating still stood at “B,” while the country ceiling held at “BB+.”

“While the credit profile has strengthened in some areas since the ratings were downgraded to current levels in 2003, Fitch waits for the newly elected Aquino administration to deliver on promises to boost the chronically-low tax take and maintain fiscal discipline in the 2011 budget to support a case for any positive rating action,” said Andrew Colquhoun, head of Asia Pacific Sovereigns at the rating firm.

“Raising the fiscal revenue share would directly address the Philippines’ main rating weakness, while generating resources to meet President Aquino’s campaign pledges to raise public investment,” Colquhoun said.

The Philippines’ tax effort of 14.6 percent of gross domestic product (GDP) last year is “well below the median of 21 percent for ‘BB’ range countries,” he said.

An indicator of economic performance, GDP is the amount of final goods and services produced in the country

Besides remittances, “the Philippines’ emergence as a global back-office process outsourcing center” also helped prop up the country’s current account surplus, Fitch said.

It said the Philippines became a net external creditor in 2009 of about 3 percent of GDP, a turnaround from the 40 percent net external debt ratio in 2003.

The rating firm said the Bangko Sentral ng Pilipinas’ (BSP) “monetary management has delivered lower and less volatile inflation than rating peers, contributing to lower dollarization—22 percent against the “BB” median of 54 percent—and supporting financial stability.”

But “sustained growth with low and stable inflation would support the Philippines’ ratings at their current levels” only, Fitch said.

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