The government has welcomed Moody's Investors Service's upgrade on the country's credit rating on Wednesday, saying the improvement can be attributed to the administration's fiscal consolidation program.
Singapore-based Moody's announced that it has upgraded the Philippines' foreign and local currency long-term bond ratings to Ba2 from Ba3 with a stable outlook.
Moody's said key drivers to the upgrade include progress made by the administration in fiscal consolidation, the sustained nature of macroeconomic stability and the continued strength of the country's external payments position.
This is the third credit rating upgrade received by the country since President Benigno Aquino III assumed the presidency last year.
In January, Moody's upgraded the country's rating outlook to positive from stable, while New York-based Standard & Poor's (S&P) raised in November the country's rating to two notches below investment grade from three notches.
In a related action, Moody's also raised the rating of Bangko Sentral ng Pilipinas (BSP) to Ba2 from Ba3 with stable outlook.
A reflection of policies
In a text message to reporters, Finance Secretary Cesar Purisima said the upgrade is reflective of the economic policies implemented by the government.
"This is an affirmation of the economic agenda and leadership of President Aquino, particularly our fiscal sustainability program," he said.
Moody's also noted government’s "small fiscal surplus, building upon the notable turnaround in fiscal management seen during the [second half] of 2010."
For the first four months of the year, the government achieved a P61-million budget surplus after the April surplus of P26.258 billion reversed the P26.197-billion deficit in the first quarter.
Data also showed government revenues rose by 18.22 percent to P461.4 billion in the first quarter of the year, while expenditures fell 11.6 percent to P461.35 billion as interest payments plunged.
Moody's also cited the government's "fiscal restraint" on the expenditure side.
"While we expect expenditures to increase significantly in the second half of 2011, as the government commences its cornerstone infrastructure investment program, the rise will not likely derail the trend towards fiscal consolidation," the agency added.
Pursuing reforms
The Ba2 rating brings the Philippines closer to achieving an investment grade rating, which Purisima said is "crucial in further lowering our borrowing costs and attracting more foreign direct investments."
“This is a reminder to investors that our message is clear — the Philippines is an investment destination with exceptionally promising growth opportunities," he added.
Budget Secretary Florencio Abad, meanwhile, said the upgrade recognizes the reforms put forward by the administration.
“This inspires and energizes us to go deeper in pursuing reform and in ensuring focused and efficient use of public funds," Abad said.
BSP Governor Amando Tetangco Jr. said the credit upgrade has confirmed that the country's macroeconomic policy is consistent with stronger credit fundamentals.
"They specifically mention that the Republic benefits from the absence of economic overheating and inflation pressures, which has been due largely to the adoption of an appropriate policy mix," Tetangco said in a text message to reporters.
"The monetary policy stance which has contained inflation, while remaining supportive of economic growth, and the appropriate management of the country's external position have helped to secure macroeconomic stability," he added.
For his part, BSP Deputy Governor Dina Guinigundo said the country has long deserved the credit rating upgrade.
"The upgrade is well deserved. In the last ten years, we have grown quite impressively even through the crisis, inflation has been muted, the [balance of payments] has been in surplus, the [gross international reserves] has climbed many folds, the banks have been strong and stable, fiscal consolidation has been entrenched," Guinigundo added.
He said the country's debt spreads are comparable to those of higher-rated economies, while countries similarly positioned have somewhat inferior fundamentals.
"Finally, there is fresh wind in terms of governance and leadership. The challenge now is to further work hard and build on these initial strides. we also need to ensure that growth drivers are entrenched to secure sustainability," he said. — JM/VS
