Credit rater cites continued favorable growth prospects relative to peers

The Philippines secured another credit-rating upgrade from Moody’s Investors Service, which recognized the country’s declining debt burden, favorable growth prospects amid rising investments, and resilience to external risks.

This is the 21stpositive credit-rating action—both actual rating upgrade and improved outlook—that the Philippines has enjoyed since the start of the Aquino administration.

Believing the Philippines deserved more than the minimum investment grade of Baa3, Moody’s raised the country’s credit rating by a notch to Baa2.

The new rating was assigned a “stable” outlook, which indicates that it will likely remain the same at least over the short term.

“The first driver of the upgrade is the decline in the Philippines’ debt burden, which has coincided with structural improvements in fiscal management,” Moody’s said.

From a peak of 68.1 percent in 2003, the general government debt as a percentage of GDP had consistently dropped to hit 37.3 percent as of end-June this year.

The tough anti-tax evasion and anti-smuggling campaigns of the Bureau of Internal Revenue and the Bureau of Customs are driving the rising revenue collection of the government that is cited by Moody’s.

“Administrative reforms in the key revenue‐collecting agencies ‐‐ most recently in the Bureau of Customs – have led to revenue growth in excess of nominal GDP growth for a fourth consecutive year,” Moody’s said.

Moody’s likewise recognized rising private-sector investments that bode well for sustained growth and the economy’s limited vulnerability to external risks.

“In particular, the resilience of private investment portends the sustainability of higher overall growth relative to peers over the next two years,” Moody’s said.

Governor Amando M. Tetangco, Jr. of the BangkoSentralngPilipinas welcomed the credit-rating upgrade, which came about even as the global economy remains fragile.

“The latest credit rating upgrade is a recognition of our efforts to keep the Philippine economy resilient amid constant challenges posed by the external environment. Contributing to this resiliency are the country’s comfortable external liquidity, strong financial system, and a favorable inflationary environment. Moving forward, the BSP will continue to implement prudent monetary policy and sound regulatory standards to safeguard its price and financial stability objectives and to help ensure the continued resilience of the Philippine economy,” Tetangco said.

Meantime, Finance Secretary Cesar V. Purisima said the decision of Moody’s to further raise the country’s credit rating can beattributed partly to efforts of the Aquino administration to institutionalize reforms to help ensure the agenda of good governance continues.

“The upgrade is an acknowledgment of the sound management of the economy. There should be no turning back as far as goodgovernance is concerned; the only direction we should see for the Philippine economy is forward,” the Finance Secretary added.

On the fiscal front, Purisima noted the importance of sustaining the gains in revenue collection to maintainan investment grade rating for the Philippines. From 12.1 percent in 2010, the country’s tax effort has improved to 14.08 percent in the first three quarters of 2014.

Editha L. Martin, executive director of the Investor Relations Office (IRO), said the latest upgrade is a testament to the importance of governance reforms the country has implemented over the years.

“The good governance agenda has brought significant improvement in the country’s competitiveness and credit worthiness over the past four years. Filipinos, therefore, will have to be vigilant to ensure that the commitment to good governance remains intact,” Martin said.

Good governance plays a significant role in credit ratings. Moody’s, for instance, uses reports like the World Bank Control of Corruption Index and World Economic Forum’s Global Competitiveness Index as inputs in making credit-rating decisions.

In October last year, Moody’s upgraded the Philippines’ sovereign credit rating by a notch from Ba1, a junk rating, to the minimum investment grade of Baa3, and at the same time assigned a positive outlook on the rating.

The move followed that of Fitch Ratings and Standard & Poor’s, which also raised by a notch their ratings for the Philippines to the minimum investment grade in March 2013 and May 2013, respectively.

Last year was the first time that the Philippines secured investment grades from the three major international credit rating agencies.

All three cited the country’s much improved fundamentals for their decision to place the Philippines in the “investment grade” status. These include robust economic growth, modest inflation, healthy external payments position, stable banking system, declining debt burden, and rising revenue collection, among others.

Then, in May 2014, S&P further upgraded its credit rating for the Philippines by a notch above the minimum investment grade.

The Philippine government acknowledges the support of its advisors for Moody’s from Goldman Sachs’ Credit Risk Management and Advisory Group, in particular Managing Director Mark Giancola, Executive Director Jacob Young, Executive Director Francisco Mejia and Associate Aaron Collett.