Singapore, June 15, 2011 -- Moody's Investors Service has today upgraded the the Government of the
Philippines' Ba3 foreign and local currency long-term bond ratings
to Ba2 from Ba3. The outlook is stable.
The "Not Prime" short-term ratings are unaffected by
this action.
The key drivers for the decision are:
(1) The progress made in fiscal consolidation by the new Aquino administration;
and
(2) The sustained nature of macroeconomic stability, coupled with
continued strength in the external payments position, against a
background of a significant pick-up in the momentum for economic
growth.
The Philippines' long-term foreign currency (FC) bond ceiling
was also raised to Baa3 from Ba1, while the long-term FC
deposit ceiling was upgraded to Ba2 from Ba3. The short-term
FC bond ceiling was raised to P-3, while the short-term
FC deposit ceiling remains at "Not Prime." The outlook
for these ceilings is stable.
These ceilings act as a cap on ratings that can be assigned to the foreign
currency obligations of other entities domiciled in the country.
In addition, the local currency bond and deposit ceilings were unified
at A2.
In a related rating action, the issuer rating for the country's
central bank, the Bangko Sentral ng Pilipinas (BSP), was upgraded
from Ba3 to Ba2 with stable outlook.
RATIONALE FOR THE UPGRADE TO Ba2
Over the first four months of 2011, the national government recorded
a small fiscal surplus, building upon the notable turnaround in
fiscal management seen during 2H 2010. Much of the improvement
has been attributed to expenditure restraint, but there is also
evidence of an uptick in revenue generation.
Of particular note is the fact that interest payments have fallen despite
a larger stock of debt in peso terms, reflecting in turn the continued
success of the BSP in anchoring inflation expectations and consequently
debt-servicing costs. While we expect expenditures to increase
significantly in 2H 2011, as the government commences its cornerstone
infrastructure investment program, the rise will not likely derail
the trend towards fiscal consolidation.
By demonstrating firm fiscal restraint, the government has bolstered
its policy credibility and has improved prospects for reform. Nevertheless,
continued uncertainty over the implementation of structural measures to
improve revenue generation justifies the stable outlook for now.
In addition, the government's budgetary interest burden and
its debt overhang remain high when compared with its rating peers.
Moody's further notes that owing to continued prudence in macroeconomic
management, solid growth momentum in the Philippines has not produced
substantial overheating pressures -- either through inflation
or a large deterioration in the current account.
However, headwinds stemming from softening growth prospects in the
region have emerged, although these should be offset by a sustained
improvement in domestic demand conditions.
The Philippines' external payments position is strong in relation
to its rating peers, and vulnerabilities related to a possible sudden
stop of capital inflows are mitigated by its growing foreign exchange
reserves.
WHAT COULD CHANGE THE RATING--UP
Continued strength in the country's balance of payments and health
of the financial system, coupled with sustained progress towards
fiscal consolidation and debt reduction -- all these achievements
will likely require policy prudence and additional fiscal reform,
especially on the revenue side. Moreover, improvement in
the investment environment will be required to place the economy on a
path of strong, sustainable growth.
WHAT COULD CHANGE THE RATING--DOWN
A deterioration in government finances leading to rising interest costs
and a greater debt burden; a structural weakening in the balance
of payments, or uncontrolled inflation expectations that adversely
affect financing conditions.
METHODOLOGY
The principal methodology used in this rating was Sovereign Bond Ratings
published in September 2008.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Singapore
Christian de Guzman
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: (852) 3758 -1350
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Singapore
Thomas J. Byrne
Senior Vice President - Regional Credit Officer
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
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Moody's upgrades the Philippines' sovereign ratings to Ba2; outlook stable