Bangkok--15 Nov--Standard & Poor's
Philippines' strong external liquidity and signs of improving growth prospects are balanced against enduring fiscal weaknesses, and high albeit improving debt ratios.
We raised our foreign currency sovereign credit rating on the Philippines to 'BB/B' from 'BB-/B', and affirmed our 'BB+/B' local currency sovereign ratings. Our ASEAN scale ratings of 'axBBB+/axA-2' were also affirmed.
The outlook on the ratings is stable.
Standard & Poor's Ratings Services today raised its long-term foreign currency sovereign credit rating on the Republic of the Philippines to 'BB' from 'BB-', while affirming the 'BB+' long-term local currency rating. The outlook on the ratings is stable. At the same time, Standard & Poor's affirmed the 'B' short-term ratings on the sovereign and its ASEAN scale ratings of 'axBBB+/axA-2'.
In tandem, Standard & Poor's raised its long-term rating on the Philippines' foreign currency senior unsecured debt to 'BB' from 'BB-'. Standard & Poor's also affirmed its transfer and convertibility assessment of 'BB+', and its recovery rating of '3' on the sovereign's senior unsecured foreign currency debt, which signals the expectation of an average recovery of 60%-70% in the event of a distressed debt exchange or payment default.
"We have upgraded the Philippines based on its steadily improving external liquidity profile and the underlying strengths of its external accounts, which increasingly mitigate the vulnerabilities posed by still high public and external debt, and provide buffer against adverse shifts in terms of trade or investor sentiment," said Standard & Poor's credit analyst Agost Benard. The upgrade also reflects the progress achieved in debt reduction and the underlying fiscal consolidation, which brought public debt ratios in line with many of its 'BB' rated peers.
"Positive structural features of the current account and prudent exchange-rate management afford an enhanced ability to accumulate a reserve buffer, which has been an evolving credit strength for the Philippines. This and a manageable foreign debt amortization schedule combine for increasingly strong external liquidity, compared to similarly rated sovereigns," Mr. Benard said.
The stable outlook balances our expectation that the structural strengths of the current account will continue to improve the external accounts, against the prevailing high public and external debt burden and ongoing fiscal weaknesses, which will take time to resolve.
The narrow revenue base and high incidence of tax evasion have been the principal contributing factors to weak public finances, which resulted in still-high public debt, and severely depressed public investment for an extended period. These weaknesses remain constraining factors on the sovereign rating, and in Standard & Poor's view, current administrative measures to boost collection efficiency will need to be augmented by a structural transformation of the revenue base for lasting improvement.
We could raise the ratings on evidence of sustainable structural revenue improvement, or further strengthening of the external balance sheet and reduced vulnerability to shocks. Conversely, we could lower the ratings if: (1) the government's commitment to fiscal consolidation weakens, resulting in an upward debt trajectory; or (2) the external liquidity position deteriorates significantly, possibly precipitated by unfavorable economic policies or political instability.
RELATED CRITERIA AND RESEARCH
Report Card: Asia Pacific Sovereigns: A Mostly Sunny Outlook, With The Chance Of Isolated Thunderstorms, published Sept. 29, 2010
Sovereign Credit Ratings: A Primer, published May 29, 2008.
Complete ratings information is available to RatingsDirect subscribers on the Global Credit Portal at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
David Wargin, New York (1) 212.438.1579,
[email protected]
Analyst Contacts:
Agost Benard, Singapore (65) 6239-6347
Takahira Ogawa, Singapore (65) 6239-6342