Bangkok--9 Apr--Moody's Investors
Moody's Investors Service says that the credit fundamentals backing the Philippines' B1 rating with a positive outlook on government bonds have held up well through the global economic turmoil of the past year, while its external payments position is stronger than a year earlier with support from a flexible exchange rate policy and continuing large inflows of remittances from overseas Filipino workers (OFW).
"Moreover, the domestic financial system has not posed risks, as it has avoided the types of stress evident in many other systems regionally and globally," says Tom Byrne, a Moody's Senior Vice President, who was speaking on the release of Moody's annual report -- which he authored -- on the Philippines.
"Furthermore, the dollar credit crunch has had little impact, given ample liquidity in the domestic market with top grade corporates issuing bonds, even through the last quarter of 2008, and robust double-digit bank loan growth," adds Byrne. "And the central bank has not had to resort to blanket bank deposit or external loan guarantees."
The new report looks in detail at the factors contributing to Moody's assessment, including Economic Strength (assessed as low), Institutional Strength (moderate), Government Financial Strength (low) and Susceptibility to Event Risk (low).
Economic growth in 2008 slowed, but did not collapse late in the year, as it did elsewhere, in large part due to the steady increase in OFW remittances, the report says. But investment and exports faltered in the fourth quarter of 2008, suggesting that contagion effects from the global recession on domestic economic activity will become increasingly evident in 2009.
The government's intention to increase the national government deficit only moderately in 2009, rather than adhering to its previously stated aim of balancing the budget this year, would not necessarily reverse the progress made in recent years in placing its debt metrics on an improving trend, the report says.
Nevertheless, stronger tax revenue performance is crucial to long-term fiscal sustainability, while adept management of debt and controls on expenditure alone cannot ensure such sustainability.
Moody's notes that its Sovereign Bond Methodology scores the Philippines in the Ba2-B1 range, which mainly reflects the large overhang in public sector debt and strained government finances.
Specifically, Moody's positive outlook on the B1 rating for government foreign and local currency bonds, the Ba3/Not Prime foreign currency country ceiling, and the B1/Not Prime foreign currency bank deposit ceiling was affirmed in February 2009. Upward movement in the rating will depend on the ability of the authorities to protect the fortified external payments position and minimize adverse affects on government finances from the global recession.
The principal methodology used in rating the government of the Philippines is Moody's Sovereign Bond Methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory on Moody's website.
Copies of the annual report -- entitled "Philippines Credit Analysis" -- can be found at www.moodys.com .