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Moody's assigns a provisional rating of (P)Ba1 to the forthcoming Philippine peso global bond

November 9, 2012 Moody's Investors Service
Singapore, November 08, 2012 -- Moody's Investors Service has assigned a provisional rating of (P)Ba1 to the Philippine government's forthcoming global Philippine peso-denominated bond issuance.

RATINGS RATIONALE

Moody's upgraded the Philippines' foreign currency and local currency sovereign ratings to Ba1 from Ba2 on 29 October 2012.

The key drivers for the decision were: 1) the country's improved economic performance and continued fiscal revenue buoyancy in the face of deteriorating global demand; 2) its enhanced prospects for growth over the medium-term; and 3) the stable financial system that poses limited contingent risks and provides a stable source of financing for the government.

Despite headwinds stemming from softening external demand, the Philippines has demonstrated exceptional economic and fiscal resilience over the past year. In 2012, in contrast to rating peers, the country is projected to record a combination of faster growth, lower inflation, exchange rate appreciation, and foreign exchange reserve accumulation, while maintaining trend debt consolidation.

Moody's expects a primary surplus to be maintained this year. Revenue performance has improved despite the absence of legislative reforms, while spending disbursements, especially on infrastructure, have picked up significantly.

Furthermore, active debt management, coupled with the central bank's increasingly solid track record of inflation management, has allowed for an improvement in the country's debt structure, including lower average borrowing costs and foreign currency exposure, as well as longer average maturities.

The rating is supported by sound macroeconomic policy management, as reflected in the health of the balance of payments and financial system stability. The sovereign's external payments position continues to be bolstered by healthy remittance inflows, as well as increasingly large receipts from the business process outsourcing (BPO) sector. Coupled with sizeable capital inflows, the robust current account surplus has led to the accumulation of international reserves to $82.1billion as of end-October 2012, an ample cushion relative to residual maturity short-term debt and to cope with the risk of a sudden stop in external credit.

However, revenue mobilization continues to lag those of similarly rated countries despite the gains in tax administration over the past two years. A structural change in revenue generation will thus likely require significant fiscal reform. The government also carries a large public-sector debt overhang relative to its peers, but this is mitigated to a certain extent by the presence of a bond sinking fund that guards against near-term liquidity pressures.

The principal methodology used in this rating was Sovereign Bond Ratings published in September 2008. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Company — Philippines
  • Full name
    Republic of the Philippines
  • Registration country
    Philippines