Moody’s says growing economy supports further upgrade

Moodys 2

here’s an article from manila standard today’s correspondent, julito g. rada on moody’s latest analysis on philippine credit rating.

Moody’s says growing economy supports further upgrade

INTERNATIONAL credit rating agency Moody’s Investors Service said improvements in the Philippines’ debt profile and growth dynamics will support further upgrade from its present investment grade status.

“In view of the currently positive outlook on the Philippines’ sovereign rating, a downward rating movement is unlikely over the near 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—would exert downward pressure on the rating,” Moody’s said in a credit opinion released last week.

Moody’s was the only global credit rating agency that gave the Philippines a positive outlook when it upgraded the country to the investment grade status on Oct. 3, 2013. The other two—Fitch Ratings and Standard & Poor’s–only gave the Philippines a stable outlook.

A positive outlook means the Philippines could be upgraded further to Baa2 from the current Baa3 in the next 18 months since October.

Moody’s said the positive outlook reflected the expectation of economic outperformance by the Philippines relative to rating 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,” it said.

Moody’s said the country’s economic expansion would continue to be robust this year at 6.5 percent on the back of the rehabilitation efforts in typhoon-ravaged areas in the Visayas region, although lower than the 7.2-percent growth recorded in 2013.

“Reconstruction and rehabilitation of disaster-stricken areas, along with the government’s renewed focus on infrastructure development, should support domestic demand,” it said.

It said public expenditure, minus debt servicing and subsidy spending, was up 15.8 percent year-on-year through the first two months of the year, with infrastructure and capital outlays increasing 45.1 percent in January alone.

“Trade data also show a strong pickup in exports, which rose 16.4 percent through the first two months of the year, driven in part by the ongoing recovery in developed markets including Japan, the Philippines’ largest export destination. Domestic consumption will also be supported by steady remittance inflows, and still-accommodative monetary policy,” it said.

It also said the balance of payments remained relatively healthy, characterized by the persistence of a current account surplus. It said capital outflows—largely attributed to residents’ sizeable acquisitions of overseas portfolio investments— had contributed to the drop in gross international reserves to $79.8 billion as of end-March 2014 from a peak of $85.2 billion in January 2013, as well as peso depreciation.

But it noted the official international reserves were still larger than the entire stock of the country’s external debt.

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