S&P delivers PH's 2nd investment grade rating

by Kathleen A. Martin, ABS-CBNnews.com

Posted at May 02 2013 03:54 PM | Updated as of May 03 2013 04:27 AM

MANILA, Philippines (UPDATE) -- Standard & Poor's on Thursday awarded the Philippines an investment-grade rating, a month after another debt watcher upgraded the country to the much-coveted status.

In a statement, S&P said it has raised the country's sovereign credit rating to BBB- with a stable outlook from BB+ with a positive outlook.

"The upgrade on the Philippines reflects a strengthening external profile, moderating inflation, and the government's declining reliance on foreign currency debt," Agost Bernard, S&P credit analyst, said in a statement on Thursday.

"We expect the country to move into a near-balanced external position because of persistent current account surpluses, in which large net transfers from Filipinos working abroad more than offset ongoing trade deficits," he added.

S&P noted the present and previous administrations have improved the country's fiscal flexibility, decreased the share of foreign-currency debt, and deepened capital markets.

"The Philippines' improved inflation environment is also a rating support. Despite some shortcomings in monetary policy transmission, inflation is low and fairly stable, helped partly by currency appreciation," Bernard said.

But S&P stressed the country's low per capita GDP remains a rating constraint. Moreover, it pointed out the need for more infrastructure and restrictions on foreign ownership hamper economic growth.

"We may raise the ratings on evidence of government revenue reforms that facilitate needed improvements in physical and human capital, and institutional and structural reforms that boost private sector investment, including FDI," S&P said.

Ratings may be lowered, S&P warned, if the country's external performance weakens "significantly" or it fails to manage an expected surge in investments that may result in the overheating of the economy.

"We may also lower our ratings if problems at one of the large conglomerates impair investor confidence, or if political developments cause the government to veer from its commitment to improving governance," S&P said.

Fitch Ratings in March became the first debt watcher to give the country an investment grade rating, boosting business sentiment in the country.

Moody's Investors Service, meanwhile, currently rates the country a notch below investment grade at Ba1 with a stable outlook.

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. said this upgrade "undoubtedly cements the Philippines’ status as an economy with one of the brightest prospects globally."

"With our investment grade rating, we are more confident that these inflows, particularly of more FDIs (foreign direct investments), will swing towards increasing the country’s productive capacity, thereby generating more employment and higher incomes," Tetangco said.

Finance Secretary Cesar V. Purisima, for his part, said:  "For now, we must redouble our efforts to remove the remaining constraints to our growth if we are to reach even greater heights. The Philippine Government will continue to focus on infrastructure development, on creating a larger fiscal space to support social investments, and on further opening up the economy."