Phl ripe for investment grade rating – analysts

MANILA, Philippines - The Philippines could notch its first investment grade rating next year but it must work on passing reforms meant to raise more revenues and sustain economic growth, analysts said.

Seven analysts polled by The STAR said the country is on its way to investment grade status next year, with one saying it could come as early as first semester while the rest see it happening before yearend.

These forecasts were made after Moody’s Investors Service last week upgraded the country’s foreign-currency rating to Ba1, or a notch below investment grade, last Oct. 29. This put Moody’s evaluation of the Philippines in line with those from Fitch Ratings and Standard & Poor’s Rating Services.

The Aquino administration targets to reach investment grade status next year in a bid to further lower debt interest payments and attract more foreign investments to boost job creation.

“We expect Philippines to achieve its first investment grade rating in second half of 2013 given continued strength in external liquidity position, improvement in fiscal/debt dynamics and increased political stability,” Barclays Capital regional economist Prakriti Sofat said in an e-mail.

DBS Ltd. economist Eugene Leow, in a separate e-mail, agreed, saying: “If the government also looks to other ways to broaden the revenue streams, investment grade could be a reality within the next one to two years.”

So far, the government has been committed to passing a bill that increase taxes on tobacco and liquor before yearend. The so-called “sin” tax bill, however, has been “watered down” by the Senate to only collect P15 billion in additional revenues from the original P60 billion. The government said it will agree to P40 billion in incremental taxes at the lowest.

Aside from excise tax reform, however, tax administration efficiency is also “pre-requisite to an upgrade” to investment rating which can come “at the second half of 2013 from Fitch,” said Emilio Neri, economist at the Bank of the Philippine Islands.

Jonathan Ravelas, chief market strategist at BDO Unibank Inc., also pointed to “further improvement in per capita income to $3,000 at least.” The indicator reflects how much has growth trickled to the population in terms of income. 

Benjamin Diokno, senior economist at the University of the Philippines said “bolder tax reform” is needed to convince credit rating agencies to raise Philippines’ rating.

“Rating agencies continue to see tax system as the weakest factor…Size of public debt is also a concern,” he said in a mobile phone message.

Among all the analysts polled, Victor Abola of the University of Asia and the Pacific, was the most optimistic, forecasting an upgrade by the first quarter of 2013.

“A six percent GDP (gross domestic product) growth or close to it and debt-to-GDP ratio falling below 50 percent will do it and both of which are likely,” Abola explained.

GDP is the sum of all products and services created in an economy. As of the first semester, Philippine GDP grew 6.1 percent, slightly better than the governments five- to six-percent target for the year.

Debt-to-GDP ratio, meanwhile, fell to 50.5 percent during the same period from 50.9 percent as of 2011. A lower ratio means the country has more resources to settle its debts.