Singapore, July 25, 2013 -- Moody's Investors Service has placed the Ba1 foreign and local currency
long-term issuer and bond ratings of the Government of the Philippines
on review for upgrade.
The key drivers for the decision are:
1. The recent track record of robust economic growth
2. Stable and favorable government funding conditions
3. Improving fiscal and debt dynamics
4. Political stability and a strengthened government policy mandate
The review will focus on the sustainability of the above factors and the
relative strength of underlying credit metrics compared to investment-grade
peers in the Baa rating range.
At the same time, Moody's has also placed the government's foreign
currency shelf rating and the ratings for the liabilities of the country's
central bank, Bangko Sentral ng Pilipinas (BSP), on review
for upgrade.
RATINGS RATIONALE
Since Moody's last rating action on 29 October 2012, the Philippines'
economic performance has exceeded Moody's expectations; supporting
the view that the economy will grow significantly faster than similarly
rated peers over at least the next two to three years.
In addition, despite achieving one of the highest growth rates in
Asia-Pacific over the past year — and among the highest in
emerging markets — there have been no strong signs of overheating
or a buildup in macroeconomic imbalances. Inflation, for
instance, is well-anchored at a low rate and close to the
bottom of the central bank's target range of between 3-5%,
the current account is solidly in surplus, and asset price developments
are relatively benign.
Moreover, economic growth has been robust while global external
demand has slowed over the past year; underscoring the strength of
domestic consumption and investment, both of which have been supported
by steady remittance inflows and healthy credit growth. Furthermore,
the Philippines is not as susceptible to softening commodity prices that
have pressured growth and external balances in other similarly rated emerging
market economies.
Funding conditions for the Philippines have been resistant to external
financial shocks. Government bond yields have remained stable and
very favorable even through recent global market volatility. In
addition, unlike other emerging markets, the government's
regular domestic bond auctions have been conducted successfully with only
a limited increase in financing costs. The Philippines' unfettered
market access has been aided by its increasingly large domestic sources
of financing that reflects both the health of its external payments position
and ample liquidity in the country's banking system—the only
system worldwide deemed by Moody's to have a positive outlook.
The structure of government debt also continues to improve, mitigating
currency and refinancing risks. For example, the proportion
of government debt denominated in foreign currency continues to fall,
aided in part by the full repayment of a $1 billion global bond
that matured in February. The government will likely refrain from
tapping global capital markets this year, meeting nearly all of
its gross funding needs through domestic sources. The government
also continues to proactively address refinancing risks by lengthening
the average maturity of its debt to around 11 years, from about
seven years as of end-2009. In addition, as mentioned
earlier, the country benefits from well-managed inflation
and favorable liquidity conditions, which in turn have contributed
to lower interest rates that have enhanced debt affordability.
Moody's assessment of the Philippine government's financial
strength is constrained by low revenues and a legacy debt burden --
both factors of which compare unfavorably with rating peers. Nevertheless,
fiscal deficits have been relatively narrow, while primary balances
have been in surplus over the past two years, contributing to debt
consolidation.
The mid-term elections in May have also bolstered the Aquino administration's
policy mandate and improved reform prospects over the next three years.
In contrast, the second half of previous administrations were characterized
by stalled reform momentum. Moreover, the president's
approval ratings remain at historically high levels and support the continuation
of the institutionalization of good governance in the government and judiciary.
Furthermore, Moody's notes that improvements in the investment
climate could further bolster the Philippines' economic prospects,
while addressing revenue weaknesses. Greater progress on infrastructure
development and a long-term solution to the long-running
insurgency in Mindanao, for instance, could lead to higher
foreign direct investments (FDI). The country's FDI levels
are lower than its similarly rated peers.
CREDIT TRIGGERS FOR A FUTURE RATING ACTION
Factors that could lead to a ratings upgrade:
1. Confirmation that reduction in the government debt burden will
continue and that funding conditions will remain favorable; and
2. Indications that the acceleration of investment spending will
continue, helping to keep the economy on a path of stronger growth.
These developments should also be accompanied by an assessment that the
health of the country's balance of payments and stability of the financial
system can be sustained.
GDP per capita (PPP basis, US$): 4,412 (2012
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 6.8% (2012 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2.9%
(2012 Actual)
Gen. Gov. Financial Balance/GDP: -2.4%
(2012 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 2.9% (2012 Actual) (also
known as External Balance)
External debt/GDP: 32.3% (2012 Actual)
Level of economic development: Moderate level of economic resilience
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On 23 July 2013, a rating committee was called to discuss the rating
of the Philippines, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have materially increased.
The issuer's institutional strength/ framework, have not materially
changed. The issuer's governance and/or management, have
not materially changed. The issuer's fiscal or financial strength,
including its debt profile, has materially increased. The
issuer's susceptibility to event risks has not materially changed.
An analysis of this issuer, relative to its peers, indicates
that a repositioning of its rating would be appropriate.
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
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Christian de Guzman
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Bart Jan Sebastian Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's: Philippine government ratings on review for upgrade
