Bangkok--6 Jan--Moody's
Moody's Investors Service will assign a Ba3rating to the Philippines government's forthcoming Philippinepeso-denominated global bond issuance. Non-resident holders of thesebonds may be exempt from taxation under prevailing Philippine laws,rules, and regulations. The proposed rating is subject to receipt offinal documentation, the terms and conditions of which are not expectedto change in any material way from the draft documents reviewed byMoody's.
"The rating is well anchored by the continued strength in the sovereign'sexternal payments position and a favorable outlook for domestic-demanddriven economic growth. In addition, the rating is supported by a relatively sound and liquid banking system, which does not poseforeseeable risks to the government's balance sheet," says Christian deGuzman, a Moody's Assistant Vice President and the lead sovereign analyst for the Philippines.
Robust overseas remittances over the past few years have coupled withsizeable portfolio inflows more recently to boost foreign exchangereserves to a historically high level, providing the economy andgovernment finances a significant buffer against external shocks.
The stable outlook is also influenced by the continued ability of thecountry's central bank to anchor inflationary expectations under itsformal inflation-targeting framework. Inflation fell close to the lowerbound of Bangko Sentral's target range of 3.5 to 5.5 percent for 2010 and is expected to remain well within the range of 3.0 to 5.0 percent for2011.
"The sovereign's Ba3 rating, however, also reflects continued weaknessesin revenue collection, as well as a large public-sector debt overhang,relative to its rating peers," notes de Guzman. "However, recent fiscaldevelopments suggest a possible return to fiscal consolidation through
intensified tax enforcement and expenditure restraint."The national government is likely to meet its deficit target for 2010,but it remains unclear whether its current tax compliance efforts caneffect a structural improvement in revenue performance. Moreover, thePhilippines has a larger stock of debt and devotes a larger share of itsrevenues towards interest payments than the median among its Ba-ratedpeers. The authorities' continued commitment to resume fiscalconsolidation will be crucial to supporting the rating outlook and augurwell for the Philippines' long-term economic fundamentals.
The last rating action on the Philippines was taken on July 23, 2009, when Moody's upgraded the sovereign bond rating to Ba3 from B1.
The principal methodology used in rating the government of the Philippines is Moody's Sovereign Bond Methodology published in September 2008. Othermethodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.