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Philippines still ‘underrated’

Posted on July 05, 2011

TWO SUCCESSIVE credit rating upgrades have not fully taken into account continued fiscal improvements and as such the Philippines remains “underrated,” a senior Bangko Sentral ng Pilipinas (BSP) official said.

“We deserve a second look,” central Deputy Governor Diwa C. Guinigundo told reporters late last week when asked about the country’s chances of finally securing an investment grade score.

Local officials have played up the possibility following consecutive upgrades announced last month by debt watchers Moody’s Investors Service and Fitch Ratings.

Moody’s mid-June decision to raise the country’s score to Ba2, two notches below investment grade, placed its rating in line with the BBs held at that time by Fitch and Standard & Poor’s (S&P).

A week later Fitch announced that it was giving the Philippines a higher BB+ rating -- one notch below investment grade -- and the focus has now shifted to S&P, which had issued its upgrade to BB in November last year.

Mr. Guinigundo claimed that BSP studies show the Philippines is “two to three notches underrated, which means if that is considered properly then we should be an investment grade [country].”

This view, a central bank official who requested anonymity explained, means the Philippines should be ranked with higher-rated economies such as India, Morocco and Egypt.

“But of course the credit rating agencies will have different appreciation of those studies that we did,” Mr. Guinigundo qualified, adding: “What is important is that we are going in the right direction.”

Mr. Guinigundo said he was confident that another upgrade would be obtained in the next review cycle, which -- considering that these normally run for eight to 12 months -- means one just before the year ends or sometime in the first half of next year.

“If the fiscal position will continue to improve and the fundamentals of the macro economy, particularly the external payments position, remains strong, I think we can expect a further upgrade,” Mr. Guinigundo said.

Officials from three top credit rating agencies were not immediately available for comment.

Moody’s, in announcing its upgrade on June 15, pointed to a speedy fiscal consolidation being overseen by the Aquino administration.

Among others, it noted the P61-million budget surplus recorded of April, which it described as “a notable turnaround in fiscal management” from the P131.8-billion shortfall recorded a year earlier.

Fitch, meanwhile, said its upgrade “reflects progress on fiscal consolidation against a track record of macro stability, broadly favorable economic prospects and strengthening external finances.”

Both debt watchers raised concerns about the sustainability of revenues and government underspending, but officials have recently claimed that the latter is being addressed as the budget swung to a P9.54-billion shortfall in May.

Mr. Guinigundo said the government remained focused on mobilizing investments for infrastructure and social spending that will keep the economy growing.

“It is another aspect in improving economic fundamentals, besides sustaining sound reserves coverage and debt service ratio as well as keeping inflation benign,” he said.

In a telephone interview yesterday, Mr. Guinigundo added: “fiscal gains assure the market that good governance is swaying the fiscal sector.” -- ASOA