The Philippines should grow its economy more quickly and attract more investments to get an investment grade rating from the global agency Fitch Ratings, a Fitch official said Tuesday.
To get a positive rating outlook, the country needs to catch up with its peers in the “BB+" rating that is a notch below investment grade, said Fitch head of Asia Pacific Sovereigns Andrew Colquhoun. “I think that a further positive rating outlook would be dependent on structural reform to raise the economic growth rate," Colquhoun said.
He also said further fiscal slippage through deterioration in budget balance will create a main negative pressure on ratings.
Fitch expects Philippine fiscal managers to narrow the budget deficit to about 3 percent of gross domestic product (GDP) from about 3.7 percent of GDP in 2010.
However, Colquhoun noted that the Philippines’ revenue level remains low after its revenue effort fell to 14.2 percent of GDP last year from 16 percent of GDP in 2006 after the implementation of the value-added tax reform law.
He added that the country’s revenue effort was way below the 26-percent median in other “BB+" rated countries.
“Expenditure control is very tight in the first half of the year and expenditures are down year on year on cash terms, but we don't think that could be sustainable until the end of the year," Colquhoun said.
He also said it will be difficult for the Philippines to boost its revenue collections by relying only on improving administrative and collection-related efficiency and without introducing new tax measures. The Aquino administration, on the other hand, has vowed to do otherwise.
“A higher or stronger fiscal revenue base would support Philippines' sovereign credit profile. As to whether that is done through administrative measures or through higher tax rates that is the question for the administration. Looking at experience around the world, it is difficult to identify cases where administrative measures alone have driven some meaningful rise in fiscal revenue take," the Fitch official noted. — PE/VS.
