S & P RETAINS RP CREDIT RATING, STABLE OUTLOOK
MANILA, SEPTEMBER 15, 2007 (STAR) By Iris Gonzales - Ratings agency Standard & Poor’s (S&P’s) Ratings Services has affirmed its “BB-/B” foreign currency and “BB+/B” local currency credit ratings on the Philippines as well as its stable outlook on the country.
This developed as S&P said that the government is likely to meet its yearend budget deficit target of P63 billion.
“The stable outlook reflects our assessment that local and foreign currency funding and rollover risks remain manageable in the wake of global financial market turbulence and consequent tightening liquidity conditions,” Standard & Poor’s credit analyst Agost Benard said yesterday.
The global debt watcher said that although the Philippines is among the most vulnerable sovereigns due to its high external leverage, the growing strength of the Philippines’ economic fundamentals and the reduction in its public sector borrowing requirements “provide adequate counterbalance to rising global risk aversion and ebbing liquidity.”
The positive trends in domestic fundamentals are reflected in the sovereign’s increasing external strength.
S&P also noted that the country’s balance of payments for the first half of 2007 showed an overall surplus of $3.2 billion, compared to $3.7 billion for the whole of 2006.
This, the ratings agency said, pushed foreign exchange reserves to an all-time high of $30.3 billion as of end-August or equal to 5.6 months of imports coverage, and 5.9 times the country’s short-term external debt based on original maturity.
The Philippines’ external liquidity position is benefiting from robust remittances and strong foreign direct investment flows as well as lower foreign currency financing requirements, S&P said.
This, the ratings agency said, supports a strong peso, which due to the recent market turbulence dipped 4.5 percent to its current P46.8 to the dollar. However, the peso is expected to resume an appreciating path, helping to
keep inflation low and moderate the country’s still significant debt-service costs.
“The country’s positive debt dynamics are now being increasingly augmented by faster economic growth,” said Benard.
Benard also noted that gross domestic product (GDP) growth has surprised on the upside for two consecutive quarters, registering a 7.3 percent year-on-year
average growth for the first half of 2007.
On the fiscal side, S & P said that revenue collection — one of the key constraints on the rating – bounced back strongly in July and August following a disappointing first half performance.
This, he said, raises the chances that the government will meet its 2007 deficit target.
“With reduced public borrowing, low inflation, and relative political stability, the domestic interest rate environment remains benign. This promises
continued low-cost funding and the extension of the substantial interest cost savings of the first half to the rest of the year.
Chief News Editor: Sol Jose Vanzi
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