Moody’s raises Philippine debt rating

MANILA, (AFP):The Philippines sovereign debt on Wednesday edged to within two notches of investment grade when Moody’s upgraded it to Ba2 with a stable outlook, citing a growing economy and improved fiscal position.

President Benigno Aquino’s government welcomed the decision, which moved it two rungs higher, saying it proved his economic policies had pad off. “Over the first four months of 2011, the national government recorded a small fiscal surplus, building upon the notable turnaround in fiscal management seen during the second half of 2010,” the ratings agency said in a statement.

“Much of the improvement has been attributed to expenditure restraint, but there is also evidence of an uptick in revenue generation.”Falling debt interest payments reflect central bank success in reining in inflation, it said.

“While we expect expenditures to increase significantly in (the second half), as the government commences its cornerstone infrastructure investment programme, the rise will not likely derail the trend,” it added.

“The Philippines’ external payments position is strong in relation to its rating peers, and vulnerabilities related to a possible sudden stop of capital inflows are mitigated by its growing foreign exchange reserves,” it added.

Presidential spokesman Edwin Lacierda said the upgrade vindicated Aquino’s decision not to raise taxes, while also giving the government greater access to cheaper foreign credit to plug its budget deficit.

“We’ll expect lower interest rates provided to us, again, which shows that we have provided greater fiscal space in our country without raising taxes for this year, as we have been stating all along,” Lacierda said.

He said it was up to the finance department to determine whether the government would raise its foreign borrowings.

Budget Secretary Florencio Abad said the upgrade was a nod to Aquino’s efforts to fight corruption and put fiscal reforms in place.

“The upgrade also helps our country become a more favourable destination for investments,” Abad added.

However, Moody’s noted the Philippines’ budget deficit, equivalent to 3.7 percent of gross domestic product last year, as well as its debt levels remained high compared with countries that have the same sovereign rating.

It said more fiscal reform was needed to boost revenues as well as improve the investment climate to sustain recent high economic growth.

Uncontrolled inflation and a deterioration of government finances could reverse the ratings gain, it warned.

Moody’s in January raised the Philippines’ sovereign credit outlook from “stable” to “positive”, reflecting improved economic prospects under Aquino, who took office nearly a year ago.