Bangkok--29 Mar--Moody's
Moody's Investors Service says that it has a stable outlook on the Ba3 sovereign credit rating of the Philippines and that the prospects for the economy remain good, but a number of crucial challenges are apparent.
"The Philippines was one of the few countries in the region to avoid year-on-year contractions in output during the worldwide recession, and its rating is supported by the country's fortified external payments position, as well as a fairly sound and liquid banking system," says Christian de Guzman, a Moody's Assistant Vice President and analyst.
"The country's historically high level of official foreign exchange reserves has been bolstered by the resilience evident in remittances from the large numbers of Filipino workers overseas; this situation has helped buffer the economy and government finances from external shocks and has greatly supported its exchange rate stability," according to de Guzman.
The author was speaking on the release of Moody's latest annual report on the Philippines. The publication looks at the strength of the economy, noting its recent economic performance; the country's institutional capacities, observing that they show a mixed quality; the state of government revenues, which has shown improvement over the past few years; and the implications of event risk, which is currently low.
"In terms of economic fundamentals, for the near term, remittance inflows and receipts from business-process outsourcing -- now a major industry -- will (among other things) support the current account, as well as private consumption," says de Guzman.
"But there remains a dearth of investment spending relative to its rating and regional peers, thereby underpinning the importance of fiscal reform to generate higher revenues. That would enable adequate public investments and ultimately higher rates of potential growth."
At the same time, the Philippines continues to receive net inflows of foreign direct investment, despite the emergence of relatively more dynamic destinations in the region, such as China and Vietnam.
Although it is hampered by a relative lack of infrastructure, foreign investors continue to find the Philippines attractive as a low-cost destination due to the abundance of a skilled, English-speaking labor force and favorable fiscal incentives, as well as other factors.
The scale of the Philippines' $160 billion economy is in the mid-range among Moody's-rated countries, but its per capita income of $2,900 is very low. That, coupled with relatively low fixed capital investment in the economy, constrain the strength of the country's economy.
The last rating action on the Philippines was taken on 23 July 2009, when Moody's upgraded the sovereign bond rating to Ba3, from B1.
The report, which is entitled Philippines, can be found at www.moodys.com.
The principal methodology used in rating the government of the Republic of Indonesia is Moody's Sovereign Bond Methodology, published in September 2008 which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.