ASEAN KEY DESTINATIONS
Philippines' credit rating gets a boost
S&P, one of the major international credit rating firms, raised the country’s long-term foreign currency rating from BB to BB+, just one notch below investment grade.
Long-term foreign currency rating is one of the guides used by foreign investors in making investment decisions, such as whether or not to buy bonds sold by a government or do business in a country.
S&P assigned a “stable” outlook on the latest credit rating. This means the rating is likely to remain the same within about a year until a new review is done.
In a report released last night, S&P said its decision was based partly on the government’s improving debt profile.
Over the years, the government has gradually been trimming its debt burden—the proportion of its outstanding debts to the country’s gross domestic product (GDP)—through measures that improve tax and revenue collection.
The debt-to-GDP ratio, one of the key indicators closely monitored by credit rating firms, improved from 84 per cent in 2004 to only about 50 per cent to date.
“The foreign currency rating upgrade reflects our assessment of gradually easing fiscal vulnerability, as the government’s fiscal condition improves its debt profile and lowers its interest burden,” S&P said.
Moreover, the credit rating firm cited the Philippines’ much improved level of foreign currency reserves, which it said made the country able to meet its liabilities to foreign creditors and bond holders.
The GIR indicates a country’s wealth of foreign exchange and determines its ability to pay for imported goods, pay debts to foreign creditors and engage in other commercial transactions with the rest of the world.
The amount is enough to cover over 11 months’ worth of imports and is equivalent to about six times the foreign currency-denominated debts of government and private entities in the Philippines.
The country’s foreign exchange reserves have risen over the years, thanks to sustained growth in remittances from overseas Filipino workers, foreign investments in the country’s business process outsourcing sector and foreign portfolio investments.
“The rating action also reflects the country’s strengthening external position,” S&P said.
Tetangco said the move of S&P came with the improved appetite of foreign portfolio investors for peso-denominated stocks and bonds. Increased purchases of peso-denominated portfolio instruments led the peso to hit a four-year high of 41.72 to a US dollar on Tuesday.
He said the international financial community was recognising favourable economic developments in the Philippines.
2nd fastest in Asia
The latest GDP growth of the Philippines was the second fastest in Asia for the first quarter after China’s 8.1 per cent.
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