MANILA, Philippines (UPDATE) - The Philippines' credit rating was raised by Fitch Ratings to within one notch of investment grade, putting it on par with neighboring Indonesia and giving the government's economic credentials a boost as it marks one year in office.
Fitch upgraded Manila's long-term foreign currency rating to BB+ from BB, with a stable outlook.
"The upgrade reflects progress on fiscal consolidation against a track record of macro stability, broadly favorable economic prospects and strengthening external finances," said Andrew Colquhoun, head of Fitch's Asia-Pacific Sovereigns team.
Analysts said the upgrade was expected. The government, for its part, said it would continue to work for an investment grade rating.
"The upgrade is well deserved, with the Philippines exhibiting impressive macroeconomic stability in recent years," said Frederic Neumann, co-head of Asia economics research at HSBC. "Further reforms and, especially, a further improvement in the revenue performance of the government are desirable, and probably what may ultimately be needed to push the Philippines over the fence into investment-grade territory."
"We are now just one notch from our goal of investment grade and we will strive to attain that at the soonest possible time," noted Finance Secretary Cesar Purisima.
The Philippines is one of Asia's most prolific offshore bond issuers. An investment-grade rating would lower its cost of borrowing and widen its base of potential investors, as some funds have restrictions on holding sub-investment grade debt.
Five-year Philippine credit default swaps, a measure of risk, were quoted at 142/144.5 on Thursday -- slightly lower than Indonesian spreads.
Fitch's rating for the Philippines is one notch higher than ratings by Standard and Poor's and Moody's Investors Service. Moody's raised its rating last week.
Fiscal weak spot
The Philippines' fiscal weak spot has been poor revenue collection and a weak tax base, but Fitch said there were signs of early successes in efforts to improve tax compliance.
The government cut the budget deficit to 3.7% of gross domestic product (GDP) last year from 3.9% in 2009.
It plans to cut the deficit to 3.2% of GDP this year -- Fitch said it expected the deficit to fall to 3% -- and to 2% in 2013 and beyond.
President Benigno Aquino, who took office on June 30 last year, has been working on lifting revenue by fighting corruption in the collection process and enforcing existing tax laws before looking at increasing tax rates.
The government has also introduced tighter controls on budget spending, and has planned an ambitious public-private partnership (PPP) program to fund much-need infrastructure work without stretching state finances.
"There will be no let up in our campaign to prosecute, convict and jail tax evaders and smugglers," Purisima said.
"We will not rest until we launch several of our PPP projects in infrastructure. We will work doubly hard to ensure that the investment grade rating comes sooner rather than later." - With a report from Reuters