Moody’s hints at rating upgrade for Philippines

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Global debt watcher Moody’s Investors Service said continued improvement in the Philippines’ main debt metrics and growth dynamics provides positive implications, a statement widely taken as an indication of a further rating upgrade for the country.

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In a credit opinion, Moody’s said that the structure of Philippine government debt continues to improve, mitigating currency and refinancing risks.

The ratings agency explained that the proportion of government debt denominated in foreign currency continues to fall, while the Bureau of Treasury continues to proactively address refinancing risks by lengthening the average maturity of its debt to about 10 years, from about seven years as of end-2009.

“In addition, well-managed inflation and favorable liquidity conditions have contributed to lower interest rates that have enhanced debt affordability,” it said.

In terms of economic growth, Moody’s said it expects the country’s growth conditions to be robust in 2014 with real gross domestic product forecast to increase by 6.5 percent this year.

“Reconstruction and rehabilitation of disaster-stricken areas, along with the government’s renewed focus on infrastructure development, should support domestic demand,” it said, noting that domestic consumption will also be supported by steady remittance inflows and the still-accommodative monetary policy of the central bank.

Moody’s said that revenue mobilization, on the other hand, continues to improve as tax receipts increased 12.8 percent in 2013.

The ratings agency also said that the cessation of Priority Development Assistance Funds likely contributed to the lower disbursements in the latter half of 2013 and should contribute to greater budget transparency and spending restraint going forward.

Administrative reforms implemented at the Bureau of Customs in late 2013 are showing preliminary signs of gaining traction with associated revenues up 21.7 percent year-on-year through the first two months of the year, it added.

In October 2013, Moody’s granted the Philippines an investment grade rating as it upgraded the country’s sovereign rating to Baa3 from Ba1, while the outlook for the rating was also revised to positive.

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