Moody’s gives Phl 3rd major investment grade rating

MANILA, Philippines - From being an Asian economic laggard, the Philippines has emerged as one of the region’s preferred destinations for investors based on another investment grade rating, this time from Moody’s Investors Service.

Moody’s announced yesterday giving the country a Baa3 rating “with positive outlook,” a notch up from the earlier Ba1. A positive outlook means another upgrade may be on the horizon in the next 12 to 18 months.

Malacañang expressed elation yesterday at the news of the latest investment grade rating, the third for the country.

“The pleasant surprise was that we were also given a positive outlook; meaning, the prospects of another upgrade are quite positive as well,” Secretary Ricky Carandang of the Presidential Communications Development and Strategic Planning Office said.

“This will have implications or has already had implications for our credit standing, but this sort of just formalizes it,” Carandang said. “It is a continuation of the confidence that the international community has in the fiscal management of the President and his team.”

The upgrade to investment grade rating is on the back of the country’s robust economy, fiscal and debt consolidation, and political stability and improved governance, Moody’s said.

“The Philippines’ economic performance has entered a structural shift to higher growth, accompanied by low inflation,” Moody’s said.

The economy expanded by 7.6 percent in the first half, from the strong 6.8 percent growth in 2012.

“These levels are among the fastest rates of growth in Asia-Pacific and across emerging markets globally,” Moody’s pointed out.

At the same time, Moody’s cited the improved fiscal management, which has increased tax revenues.

“Revenue growth has accommodated sizable increases in infrastructure and social spending, although revenue generation remains weak when compared with investment-grade countries overall,” Moody’s said.

Moreover, the country’s resilience in the face of volatility brought about by the likelihood of the easing of the US Federal Reserve has also contributed in part to the credit rating action.

“Over the past few months, the prospects of Fed tapering had only a muted effect on funding conditions for the Philippines. An underlying shift in the government’s funding profile has contributed to the country’s resilience to such external financial shocks,” Moody’s said. The country is now less dependent on foreign loans.

“The government’s improved ability to fund itself onshore reflects both the country’s healthy external payments position and the ample liquidity in its banking system, which is also the only system worldwide deemed by Moody’s to have a positive outlook,” it said.

The debt watcher noted the country is likely to maintain a current account surplus amid strong remittance inflows from overseas Filipinos and as the business process outsourcing sector continues to grow.

“In addition, the Aquino administration has maintained its popularity among voters, which in turn supports the further institutionalization of reforms for good governance,” Moody’s pointed out.

“This situation has in turn been reflected in improving third-party assessments of institutional quality and international competitiveness,” it added.

“Sustained political stability points to better prospects for reform over the second half of the current presidential administration,” it pointed out.

“In view of the currently positive outlook on the Philippines’ sovereign rating, a downward rating movement is unlikely over the short term,” Moody’s said.

But the debt watcher stressed “macroeconomic instability” can adversely affect ratings in the future.

“The emergence of macroeconomic instability – which leads to a substantial deterioration in fiscal/debt metrics, a rise in debt-servicing costs, and/or an erosion of the country’s external payments position – could exert downward pressure on the rating,” it added.

Moody’s is the third major credit rating agency to give the country an investment grade rating. The firm announced its rating review on the country in July.

The country’s first investment grade rating was received from Fitch Ratings in March, while the next was given by Standard and Poor’s in May.

Potential recognized

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said the rating was a recognition of the country’s strong prospects.

“This is an affirmation of the steady and responsible macroeconomic stewardship and purposeful structural reform agenda of the Philippines,” he said. “Clearly, Moody’s has acknowledged the strong upside potentials and the constructive dynamics of the economy that should enable it to ride out the volatilities in global financial markets,” Tetangco said in a text message to reporters.

He said the latest credit rating is likely to further spur investments and help sustain the robust economic growth.

“This development should bode well for more investments, both local and foreign, in the country. Greater investments should strengthen the base for sustained and inclusive economic growth and usher in a transformative period for the Philippine economy,” Tetangco said.

“The BSP shall continue to be attentive to challenges and risks in the operating environment. We will continue to ensure that the economy’s resilience and flexibility are safeguarded through prudent monetary and financial policies,” he said. – With Zinnia dela Peña, Paolo Romero, Delon Porcalla