Singapore, December 11, 2014 -- Moody's Investors Service has today upgraded the rating of the Government
of the Philippines by one notch to Baa2 from Baa3. The outlook
is stable.
The key drivers of the decision are:
1. Ongoing debt reduction, aided by improvements in fiscal
management;
2. Continued favorable prospects for strong economic growth,
and
3. Limited vulnerability to the common risks currently affecting
emerging markets
In a related rating action, Moody's has upgraded the government's
foreign currency shelf rating to (P)Baa2 and the ratings for the liabilities
of the country's central bank, Bangko Sentral ng Pilipinas (BSP),
to Baa2. The outlook on these ratings is stable.
RATINGS RATIONALE
RATIONALE FOR THE UPGRADE
FIRST DRIVER: DEBT REDUCTION, AIDED BY IMPROVEMENTS IN FISCAL
MANAGEMENT
The first driver of the upgrade is the decline in the Philippines'
debt burden, which has coincided with structural improvements in
fiscal management. 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.
At the same time, budget transparency has been enhanced, in
part by a mix of court-mandated reforms and procedural changes,
although these developments have temporarily weighed on public spending.
As a result, the Philippines' fiscal deficit remains narrower
than that of its rating peers.
Coupled with relatively robust economic growth, the Philippines'
fiscal performance has led to the convergence of general government debt
as a share of GDP to the corresponding peer medians. While we expect
other measures related to the country's public indebtedness and
debt affordability to improve over the next two years, the corresponding
peer medians continue to erode.
Our assessment of the Philippines' fiscal strength is also supplemented
by an improving debt structure that mitigates currency and refinancing
risks. The proportion of government debt denominated in foreign
currency continues to fall, while the Treasury has proactively addressed
refinancing risks by lengthening the average maturity of its debt to around
13 years, from about seven years as of end-2009. In
addition, the Treasury has refinanced maturing debt at lower interest
rates, thus enhancing debt affordability.
SECOND DRIVER: CONTINUED FAVORABLE GROWTH PROSPECTS RELATIVE TO
PEERS
Despite temporary deficiencies in budget execution that weighed on real
GDP growth this year, the private sector has maintained a relatively
rapid pace of growth. In particular, the resilience of private
investment portends the sustainability of higher overall growth relative
to peers over the next two years.
The ongoing recovery in the US, the largest source of remittances,
is supportive of household consumption. Lower global commodity
prices are likely to boost growth through disinflation, in contrast
to weaker growth prospects for a number of the Philippines' more
commodity-dependent rating peers.
Although we expect the restoration of a fiscal impulse in the first half
of 2015, the government's ambitious growth target may be difficult
to achieve in the absence of a meaningful improvement in budget execution.
THIRD DRIVER: LIMITED VULNERABILITY TO COMMON RISKS AFFECTING EMERGING
MARKETS
The third driver of the rating upgrade reflects the Philippines'
resilience to global pressures currently faced by a number of emerging
market rating peers. This resilience limits the possibility that
improvements in fiscal or economic performance would be significantly
undermined.
As a net oil importer, the Philippines stands to benefit from a
prolonged period of lower oil prices via lower inflation and a compression
of its import bill. In addition, as manufacturing goods,
services, and remittances comprise the vast majority of its current
account receipts, the country's external balances will not
be as adversely affected by the terms of trade shock affecting more commodity-reliant
exporters. Moreover, the government's revenue base
is not dependent on commodity-based receipts.
The Philippines is also less reliant on a slowing China, while its
solid current account surplus provides a degree of resilience to shifts
in global liquidity conditions in the context of the imminent normalization
of US monetary policy. Ample onshore liquidity conditions provide
a stable funding base for the government, which simultaneously faces
lower borrowing requirements due to narrower deficits.
In addition, the Philippines continues to improve its rankings on
cross-country surveys of institutional quality, in line with
the current administration's emphasis on good governance.
At the same time, the central bank has continued to bolster its
strong track record of maintaining price and financial stability,
contributing to favorable operating conditions for the country's
banking system, currently the only system deemed by Moody's
to have a positive outlook.
Nevertheless, the Philippines' credit profile is encumbered
by the persistence of low income per capita, while revenue mobilization
remains one of the weakest among investment grade countries. Moreover,
the main challenge facing Philippine policymakers is sustaining the positive
trajectory of institutional quality through the political cycle.
WHAT COULD MOVE THE RATING UP/DOWN
The stable outlook suggests that the upside and downside risks are balanced.
Nonetheless, upward pressure on the sovereign's rating could arise
from a steady increase in income levels or greater revenue mobilization
that would further bolster government finances.
Conversely, the emergence of macroeconomic instability --
which leads to a substantial deterioration in fiscal and government debt
metrics and an erosion of the country's external payments position --
would exert downward pressure on the rating.
COUNTRY CEILINGS
Moody's has also raised the Philippines' long-term foreign currency
(FC) bond ceiling to A3 from Baa1 as well as its long-term FC deposit
ceiling to Baa2 from Baa3.
In addition, Moody's has raised the short-term FC deposit
ceiling to P-2 from P-3, while the short-term
FC bond ceiling remains at P-2. 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 remain
unchanged at A2.
GDP per capita (PPP basis, US$): 6,597 (2013
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 7.2% (2013 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 4.1%
(2013 Actual)
Gen. Gov. Financial Balance/GDP: -1.4%
(2013 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 3.8% (2013 Actual) (also
known as External Balance)
External debt/GDP: 28.9% (2013 Actual)
Level of economic development: Moderate level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 08 December 2014, 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 has materially increased.
The issuer's governance and/or management has materially increased.
The issuer's fiscal or financial strength, including its debt profile,
has materially increased. The issuer has become less susceptible
to event risks.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in September 2013. 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: (852) 3551-3077
Alastair Wilson
MD-Global Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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: (852) 3551-3077
Moody's upgrades Philippines to Baa2, outlook stable
