On Moody’s upgrade of Philippine credit rating

Money bag

Moody’s ups the Philippines’ credit rating, Business Mirror published.

Here is the official statement from the Department of Finance:

A January 6, 2011 press release by the Department of Finance

Manila – Moody’s Investors Service today changed the outlook on the Government of the Philippines’ Ba3 foreign and local-currency bond ratings to positive from stable.  A positive outlook means that a rating may be raised.

Commenting on the outlook change, Finance Secretary Purisima said: “We appreciate the decision of Moody’s to change the outlook of positive from stable. This shows that Moody’s also recognizes the developments in the Philippines. There is no question on our ability or willingness to pay. We have always honored our debts. The Philippine economy has been growing positively for the past 47 quarters. The Philippines was growing even at a time when most of the first world went into crisis and that is strong proof that our credit story is strong.

“But what is more important to us is how the market prices the Philippines. At this time, we are able to borrow at rates a lot lower than the other nations that are similarly rated.”

The good news came on the heels of the rating upgrade from Standard and Poor’s to BB from BB- in November last year. “S&P quickly recognized the improvements in the Philippine credit story and that’s why they upgraded us in November. Our thrust towards intensified revenue collection while maintaining fiscal discipline has gained strong response and increased tax payer compliance. We are strongly committed to fiscal sustainability and consolidation in the near-term.

“The government’s pursuit of continued economic growth and fiscal consolidation is bearing fruits and the international credit rating agencies acknowledge this.

“From a high of 824.78bps in October 2008, the CDS spread for Philippine bonds is now at only 123.67bps as of January 5, 2011.This is proof of strong investor confidence and compares well with peer country Vietnam at 298.85bps and even with higher rated (Ba2) countries such as Turkey at 137.17bps and Indonesia at 125.67bps.”

A credit default swap (CDS) is a form of insurance on a bond or a bond-like security. The rule of thumb is that the better the credit ratings, the lower the CDS spread.

In its latest rating decision, Moody’s cited the strengthening trend in “the Philippines’ external payments position, the successful conduct of monetary policy which has anchored inflation position and helped to lower the government’s cost of funding” as key drivers for the outlook change. Furthermore, “improved prospects for economic reforms will likely have positive effects on government finances, investor sentiment, and economic growth.”

In its press release, Moody’s lead analyst for the Philippines Christian de Guzman cited greater political stability following the “unambiguous outcome” of the Presidential elections as adding impetus to resilient economy growth. Moody’s also noted the notable turnaround in “fiscal management by the Aquino Administration in its first semester in office.”  Moving forward, Moody’s said that its assessment will focus on the government’s commitment to fiscal consolidation and on the successful implementation of the PPP program for infrastructure development.


source: gov.ph

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