Global credit rating agency Moody’s Investors Service said the Philippines may earn another rating upgrade if government efforts to improve fiscal health and address corruption show further progress toward real reform.
In a report released by the central bank on Sunday, Moody’s Senior Analyst Christian de Guzman was quoted as saying in discussions with the Investor Relations Office of the central bank recently that the Philippines continues to surpass expectations, not only in addressing corruption but also in enhancing the gains of economic advancement, thus bolstering its case for an even higher credit rating.
“The Aquino administration has remained true to its campaign promise of no new taxes, proving to the electorate—and Congress—that it can be successful within the existing tax framework before asking for more,” de Guzman said in the statement.
For its part, the Philippine Department of Budget and Management (DBM) said in a comment on Sunday that increased tax collection by the government has helped boost public spending on social and economic services in line with the incumbent administration’s vision of inclusive growth.
“This [improved tax collection]enabled the government to invest more in the delivery of key services to support inclusive growth,” DBM Secretary Florencio Abad said. He recalled that a decade ago, 30 percent of the national budget normally went into debt servicing.
According to Moody’s, the proportion of tax collection to a country’s gross domestic product (GDP) is a closely watched indicator of creditworthiness.
Government data showed that the country’s tax effort consistently improved from 12.1 percent in 2010 to 12.4 percent in 2011, to 12.9 percent in 2012 and 13.3 percent in 2013.
Moody’s will closely monitor the ability of the Philippines to sustain such gains on the fiscal front as the rating agency continues to assess the country’s credit standing.
Last year, Moody’s upgraded the country from ‘junk’ status to the minimum investment grade, joining Fitch Ratings and Standard & Poor’s Ratings Services (S&P) in the move.
De Guzman, added, however, the latest tax effort showed the indicator still stood below levels seen prior to the Asian financial crisis of the late 1990s.
The Philippines’ tax effort was short of the 16 percent level seen immediately prior to the crisis and has remained lower against the tax-to-GDP ratios achieved by its Association of Southeast Asian Nation neighbors, de Guzman said.
The analyst cited Thailand as an example, showing its tax effort at 17.6 percent, Malaysia had 16.1 percent, and Singapore 13.8 percent, following 2012 figures.
To address this, the Philippines, through its recently updated five-year development plan, targets to raise its tax effort to 16 percent by 2016, recognizing the need to sustain measures toward inclusive growth, which is crucial to the fight against poverty.
The government, for its part, said it is aware of its responsibility to foster a healthy fiscal and business climate, which in turn spurs greater economic development. The central bank said after Standard and Poor’s raised the Philippines’ rating by a notch that it was expecting more upgrades could come from other rating agencies.
S&P on May 8 raised the country’s long-term sovereign credit rating to BBB from BBB- with a stable outlook. The latest upgrade follows S&P’s rating action in May 2013, when it assigned the Philippines an investment grade rating.