MANILA, Philippines - The second highest-ranking official at the central bank believes the Philippines deserves a better credit rating even if Moody’s Investor Service and Fitch Ratings have recently raised the country’s status a step closer to investment grade.
“I think we deserve a second look,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said in an e-mail on Sunday.
He noted, for instance, that the country’s creditors are already ahead of the rating agencies, given the narrowing credit spreads each time the Philippines taps the global bond market.
Countries similarly rated as the Philippines by Moody’s and Fitch have significantly wider bond spreads, indicating greater market confidence in the country’s ability to meet its obligations than the rating agencies give it credit for, Guinigundo said.
There is much to be confident about. For one, the proportion of the country’s debt viewed against local output, or gross domestic product (GDP), has gone down significantly in the past 10 years—to less than 30% of GDP from as high as 77% in 2001, he said.
This reduction has proved critical in the continued flow of foreign capital, as well as the strength of the peso versus the US dollar in recent months.
He does not blame the credit watchers solely for being too cautious, however, Guinigundo mentioned that the decision of the government to moderate the pace of disbursements contributed to the notion that a credit upgrade may not be appropriate at this time.
While this may be inadvertent on the part of the government, this explains in part why the major credit-rating agencies continue to deny the Philippines the credit upgrade it has been seeking.
According to Guinigundo, the rating agencies do put premium on increased public spending over deficit issues, as this tends to boost economic activities down the line and resulting in higher tax revenues with which to pay maturing obligations.
“I guess [the rating agencies] also realize that we have a new government and people are trying to work through the new rules. People are still not used to this type of governance so these are like birth pains. That is understood by the market but I hope that in the second half, the birth pains [will have ended],” Guinigundo said.
Budget Secretary Florencio Abad has allayed fears of government-spending restraints, citing the close to 16% rise in disbursements in May this year to P129.7 billion.
“Our fiscal consolidation efforts so far have been acknowledged by the recent credit-rating upgrades. We need to sustain this through fiscal responsibility, particularly through quality spending that leads to direct, immediate and substantial support to the poor,” Abad said.
He said the cumulative spending of P591 billion as of end-May was lower by 10.7% year-on-year, but that this was an improvement against year-on-year declines of 12.7% at end-March and 11.6% at end-April.
Abad also said the period being compared against was beyond normal, given that January to May was the height of election-related spending, not to mention the previous administration’s spending binge in its last semester in office.