Bangkok--19 Oct--Standard & Poor's
-- We are assigning our 'BB-' senior unsecured debt rating to the Philippines' proposed benchmark-sized global bond issue maturing in 2034.
Standard & Poor's Ratings Services today said it had assigned its 'BB-' senior unsecured debt rating to the Republic of Philippines' (foreign currency BB-/Stable/B; local currency BB+/Stable/B) proposed benchmark-sized global bond issue maturing in 2034.
The sovereign credit ratings on the Philippines are supported by its resilient external accounts, as demonstrated by an improving liquidity position that continues to lower external liquidity risk despite the extremely challenging external environment. Resilient remittance inflows, which rose 2.9% in the first half of 2009, growing surpluses in service exports, and a resurgence of net positive portfolio inflows, have seen a continued rise in foreign reserves. The Philippines is therefore exposed to only moderate short-term liquidity risk compared with its peers in the 'BB' rating category.
The rating is also supported by the low level and low likelihood of realization of contingent liabilities posed by the banking system, given the absence of features that caused bank collapses and necessitated government bailouts in numerous other countries. System-wide asset quality and capitalization are not expected to deteriorate materially from 2008 levels of 4.2% nonperforming loans and a capital adequacy ratio of 14.6%.
These factors are balanced against ongoing risks centered around an inadequate revenue base, slow progress in addressing this issue, as well as questions over collection efficiency and policy response in the current economic downturn. To a large extent, the sharp fall in fiscal revenues this year can be explained by cyclical factors, but offsetting measures that could have moderated the fiscal slippage were not forthcoming.
The sovereign credit ratings could be raised if there is a renewed focus on fiscal consolidation and revenue improvement as the exigencies created by the global slowdown dissipate, and if such efforts are carried forward by the new administration set to take office in June next year. By contrast, the ratings could come under downward pressure if indications emerge that the deterioration currently experienced in fiscal balance outcomes is not a transitory phenomenon, either because of weakening commitment to fiscal prudence or policy paralysis in a new administration.
RELATED RESEARCH
"Sovereign Credit Ratings: A Primer," May 29, 2008
"Asia-Pacific Sovereign Report Card: Amid Encouraging Signs, A Bumpy Road Lies Ahead," June 9, 2008.
"Philippines (Republic Of)," June 26, 2008 (Full Analysis)
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