Bangkok--10 Sep--Standard & Poor's
Standard & Poor's Ratings Services today assigned its 'BB-' senior unsecured debt rating to the proposed issue of peso-denominated global bond by the Republic of Philippines (foreign currency BB-/Stable/B; local currency BB+/Stable/B). The bond is benchmark size U.S.-dollar equivalent and matures in 2021. Standard & Poor's has also assigned its 'axBB+' long-term ASEAN regional scale rating to the proposed issue.
The proposed bond represents direct unconditional obligations of the sovereign, and ranks pari passu with the government's other external commercial debt obligations. Standard & Poor's has therefore equalized the rating on the bond with our rating on the government's foreign currency debt.
The Philippines' record of steady economic growth is a rating support. Over the past decade, real GDP growth averaged 4.9% without significant fluctuation. This is despite ongoing political volatility and numerous institutional and structural impediments. The Philippines' steady growth is likely to provide a solid basis for further debt reduction as fiscal consolidation resumes. Efforts to counter the effects of the global economic slowdown halted consolidation last year.
The rating on the Philippines is also supported by its external liquidity position, which is steadily improving despite the recent contraction in global demand. Net international reserves are approaching US$50 billion. This is equivalent to covering more than nine months of imports. The reserves also cover short-term external debt by residual maturity by more than five times. Short-term liquidity risk for the Philippines is therefore moderate, in our view, compared with that of its similarly rated peers.
The ratings are constrained by the country's high public debt, and the attendant fiscal constraints. General government debt was an estimated 56% of GDP in 2009, well above the median 40% for sovereigns in the 'BB' rating category. The general government revenue-to-debt and general government interest-to-revenue ratios have improved over the past several years but remain high, at about 300% and 18%, respectively. This is attributable to the Philippines' low revenue base and indicates a higher level of vulnerability compared with similarly rated countries.
The government's still significant, albeit declining, external debt also constrain the ratings. Foreign debt remained relatively high in 2009, at 43.8% of overall public external debt. This highlights the vulnerability of its fiscal profile to adverse external developments.
We could revise the outlook on the sovereign credit rating to positive on evidence of a renewed focus on fiscal consolidation and revenue improvement as economic conditions stabilize. The outlook may be revised to negative, however, if the current deterioration in fiscal outcomes proves more than temporary. This could materialize because of a weakening commitment to fiscal prudence or the inability of a new administration to pursue reforms.
RELATED CRITERIA AND RESEARCH
Philippines (Republic Of), published Sept. 11, 2009
Sovereign Credit Ratings: A Primer, published May 29, 2008
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Analyst Contacts:
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Takahira Ogawa, Singapore (65) 6239-6342