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NEWS UPDATES Asean Affairs                    22  September 2011

S&P delays credit upgrades

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Standard & Poor’s Ratings Services on Wednesday said the persistent global uncertainties in advanced economies are delaying the possible upgrade in the credit quality of Asia-Pacific sovereigns.

In a report titled “Asia-Pacific Sovereigns: Is The Positive Rating Trend On Hold?,” S&P said the weaker-than-expected global growth, combined with domestic inflation and specific weaknesses in some sovereigns, could slow the pace of upgrades for some Asia-Pacific sovereigns such as Indonesia and Sri Lanka.

The rating agency said the current environment also could result in negative rating actions for sovereigns with already weak balance sheets at their rating levels.

Asia-Pacific sovereign ratings have bucked the global trend so far this year with two upgrades to one downgrade.

“But several sovereigns in the region face a potential global recession with higher debt burdens and weaker budget positions than what they had in 2008. In some cases, the weaker balance sheets are due to the fiscal stimulus measures employed to offset the previous global slowdown,” said Kim Eng Tan, S&P’s credit analyst.

Aside from the growing risk of slower external demand, Asia-Pacific sovereigns are also facing inflation due to higher food and commodity prices.

“Central banks are now caught between the need to tighten monetary policy to head off an increase in inflationary expectations and the need to support the economy through lower interest rates,” said Elena Okorotchenko, S&P’s credit analyst.

International wholesale funding markets have started to show signs of strain, as indicated by the rising cost of interbank US dollar borrowing.

S&P said that if a serious liquidity squeeze recurs in the near future, it could affect Asia-Pacific sovereigns that depend on external funding or those with financial systems reliant on offshore markets.

“Most sovereigns in the region, however, are in a strong position to meet the possible downturn. A number of governments have improved their balance sheets and strengthened their external positions during past periods of strong economic growth. Partly for this reason, we maintain a stable outlook on 16 of the 22 foreign currency long-term sovereign ratings in the region,” Okorotchenko said.

On November 13 last year, S&P raised the Philippines’ credit rating to “BB” from “BB-” with a stable outlook.

The New York-based credit watchdog attributed the upgrade to Manila’s improving external liquidity profile and the underlying strengths of its external accounts, which mitigate the vulnerabilities posed by still high public and external debt, thereby providing buffer against adverse shifts in terms of trade or investor sentiment.

Economic managers have been saying that the Philippines “deserves a second look at its credit worthiness,” although they are not preempting what the credit rating agencies should be doing.

Besides S&P, Fitch Rating Services and Moody’s Investor Service this year upgraded Manila’s ratings to a notch below investment grade.



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