MANILA, Philippines - The Philippines has to overcome hurdles before it can reach investment-grade rating, debt watcher Standard & Poor’s Ratings Services (S&P) said, justifying its decision to put the country’s credit outlook behind Indonesia, South East Asia’s largest economy.
In a report titled “The Race to Investment Grade: Indonesia and the Philippines,” S&P addressed investor questions with regard to the two countries seen to be Asia’s leading bright spots at this time of global economic turmoil.
Under S&P’s metrics, the Philippines and Indonesia are both at BB+, a notch below investment grade status. Indonesia, however, has a positive outlook, which means S&P could upgrade its rating within 18 months. Philippines, on the other hand, has a stable forecast.
“The stable outlook on the Philippines indicates that risks to the ratings are balanced,” S&P analyst Agost Benard said.
“The positive outlook on Indonesia recognizes ongoing improvement in the government’s balance sheet and the country’s income metrics,” he added.
Benard pointed to the country’s low revenue base, which puts pressure on its fiscal profile despite noting some improvements under the Aquino administration. Budget deficit hit P71.208 billion as of August, well below the P183.343-billion third quarter cap. Revenues rose 11.1 percent.
The Philippines also has a lower per capita income than Indonesia. S&P said from 1991 to 2011, Indonesia’s per capita income — estimated income of each person affected by economic growth— increased to $3,600 from $928 as against Philippines’ which rose to $2,330 from $1,014.
This suggested slower growth for the Philippines during the period.
“Aside from slower growth, the Philippines has made little inroads in improving family planning. Its relatively high population growth rate (averaging about two percent per year), compared with 1.3 percent in Indonesia, also detracts from attaining higher per capita wealth levels,” S&P said.
Reacting to S&P’s low revenue base finding, Finance Assistant Secretary Ma. Teresa Habitan said: “Improving revenue generation is our priority and the reason why we are pursuing “sin” tax and fiscal incentives reforms.”
But the country is not all behind Indonesia when it comes to other factors such as political stability and external strength.
“Since the inauguration of the Aquino administration in 2010, political stability and the legislative environment have improved. The president has high levels of public support and commensurate backing in the legislature,” S&P said.
For Indonesia, S&P said: “A modest improvement in the country’s political and policy dynamics--combined with Indonesia’s other credit attributes--could lead to an upgrade.”
Indonesia’s external profile is also “less robust and more susceptible to global commodity cycles,” the credit rater said as evidenced by sustained overseas Filipino remittances.
S&P said a positive rating for Indonesia does not mean the country will be upgraded first before the Philippines.
“The next rating action could be an upgrade, but we could also revise the outlook back to stable,” it said. - By Prinz P. Magtulis
