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While it maintains a stable
outlook for the Philippines, Fitch Ratings Inc. has affirmed that
the level of the country’s credit rating still compares
unfavorably with its rating peer group whose debt burden has
considerably fallen.
Fitch said the
Philippine national government debt to revenue ratio is expected to
be 371 percent at year-end compared with the ‘BB’ median of 166
percent.
“There are
21 sovereigns in Fitch’s ‘BB’ category, and government debt is
falling in 20 of these countries. As a result, Philippine debt
ratios are forecast to be no closer to ‘BB’ medians by end-2007
than they were in 2002,” said James McCormack, head of Asia
Sovereigns at Fitch.
Specifically,
Fitch Ratings affirmed the Republic of the Philippines’ long-term
foreign and local currency issuer default ratings (IDRs) at ‘BB’
and ‘BB+,’ respectively. The agency also affirmed the short-term
IDR at ‘B’ and the country ceiling at ‘BB+’.
McCormack,
however, noted that the major fiscal adjustment in the Philippines
in recent years due to reformed value-added tax (RVAT) has driven
the government debt burden to decline.
But he said
further that “without further significant improvements in tax
collection to match the new spending . . . Philippine fiscal gains
could be at risk.”
“There are
no new tax policies and, in our view, the various programs to
enhance collection have yet to deliver meaningful results,”
McCormack added.
According to
Fitch, fiscal flexibility in the Philippines remains severely
constrained as interest payments alone account for 30 percent of
government revenue.
Fitch
forecasts the country’s economic growth, as measured by gross
domestic product, to reach 5.3 percent for 2007, marking the fourth
consecutive year of growth in excess of 5 percent.
This is lower
than the government’s GDP growth forecast of 6.1 percent to 6.7
percent this year.
“An extended
period of restrained spending and the successful implementation of
the VAT in 2006 demonstrate the government’s clear commitment to
fiscal prudence,” McCormack said.
Moreover,
Fitch indicated that the strong support for Philippine
creditworthiness is derived from the country’s balance of payments
performance, external debt repayment profile and international
liquidity position.
“Given the
country’s external finance profile, even a relatively weak fiscal
position should not hamper the sovereign’s capacity to repay its
foreign debt obligations,” McCormack said.
Growing
remittance inflows underpin the agency’s forecast current account
surplus of $4.1billion in 2007. This, in turn, will eliminate the
Philippines’ gross external financing requirement such as
amortization payments plus the current account balance this year,
which is unusual for a ‘BB’ sovereign.
In terms of
gross international reserves, Fitch expects a further accumulation
to $22.1 billion excluding gold reserves by year-end.
The Bangko
Sentral ng Pili-pinas expects total reserves to reach up to $25
billion this year.
“The
positive external payments position and the improved international
liquidity for the economy are our major credit strength. We expect
our external accounts to continue strengthen in 2007,” BSP
Governor Amando M. Te-tangco Jr. said.
Tetangco said
the external accounts will continue to strengthen in 2007 on account
of robust OFW remittances and sustained growth in exports and
foreign direct and portfolio investments. “This would enable us to
post a BOP surplus and further build up of reserves this year,” he
said.
Due to a
possible increase in political tensions in the congressional
elections, Fitch said the build up of reserves and strong balance of
payments fundamentals is expected to provide a positive economic
backdrop.
 --Maricel
E. Burgonio
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