Moody's upgrades Philippines's credit rating anew

MANILA, Philippines - Moody's Investors Service on Thursday raised the Philippines's credit rating to Baa2 with a stable outlook.

Moody's cited the country's ongoing debt reduction and improvements in fiscal management, continued favorable prospects for strong economic growth and limited vulnerability to the common risks currently affecting emerging markets. 

"In addition, the Philippines continues to improve its rankings on cross-country surveys of institutional quality, in line with the current administration's emphasis on good governance. At the same time, the central bank has continued to bolster its strong track record of maintaining price and financial stability, contributing to favorable operating conditions for the country's banking system, currently the only system deemed by Moody's to have a positive outlook," the credit rater said.

Moody's said the Philippines is also less reliant on a slowing China, and the country's solid current account surplus provides cushion to shifts in global liquidity conditions brought by imminent normalization of United States monetary policy. 

"Ample onshore liquidity conditions provide a stable funding base for the government, which simultaneously faces lower borrowing requirements due to narrower deficits," Moody's said.

However, Moody's warned that the Philippines may not reach its growth target.

"Although we expect the restoration of a fiscal impulse in the first half of 2015, the government's ambitious growth target may be difficult to achieve in the absence of a meaningful improvement in budget execution," it said.

Moody's likewise upgraded the government's foreign currency shelf rating to (P)Baa2 and the Bangko Sentral ng Pilipinas' liabilities have also been assigned a Baa2 rating and a stable outlook.

According to Moody's, the stable outlook for the Philippines suggests that the risks which may raise or lower its credit rating are balanced.

The credit rater said steady increase in income levels or greater revenue mobilization that would further bolster government finances may lead to another rating upgrade.

Conversely, the rating may be downgraded due to the emergence of macroeconomic instability, which leads to a substantial deterioration in fiscal and government debt metrics and an erosion of the country's external payments position.

In October last year, Moody's raised the country's credit rating to Baa3 from Ba1, becoming the last major credit rater to give the country an investment grade rating.

The rating action was on the back of the Philippines' robust economy, fiscal and debt consolidation, and political stability and improved governance.