S&P affirms RP ratings, stable outlook Ronnel Domingo Philippine Daily Inquirer
July 04, 2009
MANILA, Philippines—Credit watcher Standard & Poor Ratings Services affirmed on Friday its non-investment grade rating for Philippine sovereign issues, while maintaining a “stable” outlook.
The Department of Finance took the rating firm’s decision as a vote of confidence in the country.
S&P said in a statement it had a stable outlook on Philippine ratings, which for long-term foreign currency issues were kept at ‘BB-’ and ‘B’ for short-term ones.
Also, the New-York based agency affirmed the ‘BB+’ rating for long-term, local currency sovereign issues and ‘B’ for short-term ones.
Based on S&P’s system of ratings, a BB designation means that the issuer is more prone to changes in the economy, while B means the financial situation is relatively volatile.
S&P analyst Takahira Ogawa explained that the ratings and stable outlook reflected a balance between the external strength and relatively low vulnerability of the banking sector and the Philippines’ long-standing fiscal weaknesses, which have been accentuated by the effects of the global economic downturn.
Ogawa said the ratings derive much support from “the apparent resilience” of the government’s external accounts, noting an improving liquidity position that continued to lower risks from external liquidity.
“Resilient remittance inflows, which rose 2.6 percent in the first four months of 2009, combined with growing surpluses in service exports and prudent exchange-rate management, ensure a safe level of external reserves,” Ogawa said.
Also, Ogawa said the presidential and congressional elections in 2010 could “create moderate volatility and pose a distraction to policy-making and implementation.”
“But in our opinion, there is only a limited risk to policy continuity,” he said. “Nevertheless, the resulting delay in passing and implementing fiscal reform measures currently in the legislature could re-ignite concerns over the medium-term fiscal trajectory.”
In a text message to reporters, Finance Secretary Margarito B. Teves said he considered S&P’s ratings and outlook as a vote of confidence in the resiliency of the domestic economy, having withstood the worst impact of the global crisis.
However, S&P also expressed its concern over the declining revenues of the government. Sharing this sentiment with other credit agencies, S&P said the government’s fiscal standing would be a major factor in determining the agency’s future decisions as to the country’s rating.
S&P’s actions comes after Fitch affirmed its ratings on the Philippines in May, also citing the strength of the banking system and noting remittances had held up. Still, Fitch rates the Philippines one notch higher than S&P. Moody’s has the lowest rating among the three major agencies, at “B1” though it has a “positive” outlook on the foreign currency rating.
