Singapore, October 29, 2012 -- Moody's Investors Service has today upgraded the foreign and local currency
long-term bond ratings of the Government of the Philippines to
Ba1 from Ba2. The ratings outlook is stable.
The key drivers for the decision are:
1. The country's improved economic performance and continued fiscal
revenue buoyancy in the face of deteriorating global demand;
2. The Philippines' enhanced prospects for growth over the medium-term;
and
3. The stable financial system that poses limited contingent risks
and provides a stable source of financing for the government.
Moody's also raised the Philippines' long-term foreign currency
(FC) bond ceiling to Baa2 from Baa3 and upgraded the long-term
FC deposit ceiling to Ba1 from Ba2. The short-term FC bond
ceiling of P-3 and the short-term FC deposit ceiling of
"Not Prime" are unchanged. The outlook for these ceilings is stable.
These ceilings act as a cap on the ratings that can be assigned to the
FC obligations of other entities domiciled in the country. The
Philippines' local currency (LC) bond and deposit ceilings of A2 are also
unchanged.
In a related rating action, Moody's upgraded the issue ratings for
rated liabilities of the country's central bank, the Bangko Sentral
ng Pilipinas (BSP), to Ba1 from Ba2 with a stable outlook.
RATIONALE FOR THE UPGRADE TO Ba1
Despite the headwinds from softening external demand, the Philippines
has demonstrated considerable economic strength and fiscal resilience.
In contrast to similarly rated countries, the country is poised
to record a combination of faster growth, lower inflation,
exchange rate appreciation, and an increase in foreign exchange
reserves, while maintaining trend debt consolidation.
In addition, cyclical features support improved prospects for growth
in the medium-term. Despite the lack of progress in its
public-private partnership program, the government's
spending on infrastructure has picked up, but its fiscal impact
has been mitigated by the continued gains from enhanced revenue administration.
Also, remittance inflows continue to increase despite the global
economic slowdown, which further underscores their role in sustaining
private consumption and maintaining a healthy current account surplus.
Over the longer term, the landmark peace agreement signed between
the government and the Moro Islamic Liberation Front (MILF) may have wider
beneficial effects on investment and economic growth in Mindanao--the
country's largest island--which has untapped agricultural
and mining potential.
The government's renewed focus on the mining sector could also provide
further diversity to the economy and an additional stream of revenue for
the government--although such intentions have faltered in
the past.
The banking system provides an additional source of credit strength in
two ways: 1) the lack of contingent risks to the government's
balance sheet; and 2) a stable source of financing for government
debt. The Philippine banking system as a whole remains reasonably
capitalized, profitable, well-managed, and very
liquid. Nearly a third of the government's LC-denominated
debt is held by Philippine banks, while ample FC liquidity has also
contributed to the substantial domestic absorption of FC-denominated
government debt.
In addition, the Philippines' rating continues to be anchored by
important strengths: 1) macroeconomic stability as reflected in
the success of the central bank's inflation targeting regime;
and 2) a healthy external payments position comprised of a structural
current account surplus and, recently, increased FDI and portfolio
inflows. Also, the Philippines is now a net external financial
creditor: the central bank's stock of foreign exchange reserves
is larger than the country's stock of external debt.
Taken together, these strengths have contributed to the appreciation
of the peso and lower interest rate costs for the government. These
have in turn helped accelerate the process of debt consolidation,
thus addressing the relatively high stock of debt, a constraint
on the Philippine rating.
The long-term FC deposit ceilings have been maintained at the same
level as the government bond ratings. The likelihood of a bank
default on a FC deposit or other FC short-term liabilities is mitigated
by the presence of ample liquidity in the Philippines' foreign currency
deposit units (FCDUs).
WHAT COULD CHANGE THE RATING--UP
Further progress in addressing the country's key weaknesses may
prompt a positive rating action: the passage and effective implementation
of structural revenue reforms; a more rapid reduction in the general
government debt stock; and an acceleration of investment spending
that ensures a higher economic growth trajectory.
WHAT COULD CHANGE THE RATING--DOWN
A negative rating action could be prompted by the emergence of macroeconomic
instability that leads to a substantial deterioration in fiscal and government
debt metrics, an increase in debt servicing costs, and/or
an erosion of the country's external payments position.
METHODOLOGY
The principal methodology used in this rating was Sovereign Bond Ratings
published in September 2008. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
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Christian de Guzman
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
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Bart Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
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Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
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Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
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Moody's upgrades Philippines to Ba1; outlook stable
