Singapore, October 03, 2013 -- Moody's Investors Service has today upgraded the rating of the Government
of the Philippines by one notch to Baa3 from Ba1.
At the same time, Moody's has assigned a positive outlook
to the rating.
The rating action concludes the review for upgrade announced on 25 July
2013.
The factors that prompted the review remain intact, namely the sustainability
of the country's 1) robust economic performance; 2) ongoing
fiscal and debt consolidation; and 3) political stability and improved
governance.
In addition, the stability of the Philippines' funding conditions
-- during the recent bout of market volatility in emerging
markets -- points to the country's relative lack of
vulnerability to external financial shocks, such as those arising
from anticipated tapering by the US Federal Reserve of its quantitative
easing policy.
In a related rating action, Moody's has upgraded the government's
foreign currency shelf rating to (P)Baa3 and the ratings for the liabilities
of the country's central bank, Bangko Sentral ng Pilipinas (BSP),
to Baa3. These have also been assigned a positive outlook.
RATINGS RATIONALE
RATIONALE FOR THE UPGRADE
The Philippines' economic performance has entered a structural shift
to higher growth, accompanied by low inflation. Real GDP
expanded by 6.8% in 2012 and 7.6% year-on-year
in the first half of 2013. These levels are among the fastest rates
of growth in Asia-Pacific and across emerging markets globally.
At the same time, CPI inflation remains well anchored and is currently
below the central bank's target range.
The new growth path is being reinforced in part by improved fiscal management.
Revenue growth has accommodated sizeable increases in infrastructure and
social spending, although revenue generation remains weak when compared
with investment-grade countries overall.
Nevertheless, since 2008, the Philippine government has regularly
recorded fiscal deficits that are narrower than the Baa3-rated
median. Primary surpluses recorded in eight of the past 10 years
will likely continue over the five-year medium-term horizon,
allowing for further consolidation of the government's debt burden.
Yet, government debt as measured against GDP will remain higher
than most similarly rated peers.
Over the past few months, the prospects of Fed tapering had only
a muted effect on funding conditions for the Philippines. An underlying
shift in the government's funding profile has contributed to the
country's resilience to such external financial shocks. Although
the Philippine government is the largest sovereign issuer of US dollar-denominated
securities in the Asia-Pacific based on total debt outstanding,
it is now much more reliant on domestic sources of financing. The
government's improved ability to fund itself onshore reflects both
the country's healthy external payments position and the ample liquidity
in its banking system, which is also the only system worldwide deemed
by Moody's to have a positive outlook.
In addition, the Aquino administration has maintained its popularity
among voters, which in turn supports the further institutionalization
of reforms for good governance. This situation has in turn been
reflected in improving third-party assessments of institutional
quality and international competitiveness.
The Philippines will maintain a current account surplus, which has
been bolstered by remittance inflows from overseas Filipinos and services
exports, particularly from the business process outsourcing sector.
These flows are likely to remain strong, if not strengthen,
over the outlook horizon. The Philippines' external strengths
are reflected in the falling external debt to GDP ratio and the ample
stock of gross international reserves, which now exceeds the country's
total external debt.
Moody's has also raised the Philippines' long-term foreign currency
(FC) bond ceiling to Baa1 from Baa2 as well as its long-term FC
deposit ceiling to Baa3 from Ba1.
In addition, Moody's has raised the short-term FC bond
ceiling to P-2 from P-3, while changing the short-term
FC deposit ceiling to P-3 from "Not Prime." 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.
RATIONALE FOR THE POSITIVE OUTLOOK
The positive outlook for the Baa3 rating reflects the expectation of continued
economic outperformance by the Philippines relative to peers, which,
in turn, would further support debt consolidation and associated
improvements in debt affordability and sustainability. Moreover,
sustained political stability points to better prospects for reform over
the second half of the current presidential administration.
WHAT COULD CHANGE THE RATING UP/DOWN
Continued improvements in the country's main debt metrics and growth
dynamics will support further upgrades.
In view of the currently positive outlook on the Philippines' sovereign
rating, a downward rating movement is unlikely over the short term.
However, the emergence of macroeconomic instability --
which leads to a substantial deterioration in fiscal/debt metrics,
a rise in debt-servicing costs, and/or an erosion of the
country's external payments position -- could exert
downward pressure on the rating.
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 01 October 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 has materially strengthened.
The issuer's fiscal or financial strength, including its debt profile,
has materially strengthened. The systemic risk in which the issuer
operates has not materially changed. 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.
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: (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 upgrades Philippines to Baa3, revises outlook to positive
