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Moody’s lifts Philippines’ credit rating further into investment grade

Scarlet Venilia and Chantal Reyes -, 11 December, 2014

The Philippines has gone further into uncharted terrain after one of the world’s three leading credit rating firms delivered yet another upgrade.

In a statement, Moody’s Investors Service today said it raised the Philippines’ debt score by a notch to “Baa2” from “Baa3.” The debt watcher assigned a “stable” outlook, which means the new score will remain in the next 12-18 months.

Moody’s latest move comes more than a year after it first elevated the Philippines to investment gradepushing a country that had been dubbed the “sick man of Asia” further into uncharted territory.

According to Moody’s, the government’s success in reducing its debt was one of the key reasons for the fresh upgrade. Since the Arroyo administration, the Philippines has been trimming its debt, particularly the foreign component, which has been a source of instability in the past given the country’s erratic foreign exchange earnings.

From more than half of its gross domestic product (GDP), the Philippines’ debt has slipped to less than 40 percent so far this year. The foreign component of the country’s debt also has slipped to about a fifth this year from a third a decade ago.

Besides an improving fiscal profile, the country’s strong economy and limited vulnerability to financial risks that usually infect emerging markets like the Philippines also called for the increase in its debt score, the rating firm said.

Despite headwinds in the global economy that have pulled Japan and parts of the euro area back into recession, the Philippines has been growing above trend, making it one of Asia’s fastest-growing in the last two years.

Adjustments by advanced economies to the global financial crisis of 2008-2009 also have created financial market volatility, but the Philippines remains less vulnerable than its emerging market peers given the country’s strong current account, which has been in surplus for more than half a decade.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the latest credit-rating upgrade is welcome news coming at a time when the global economy remains fragile.

“The latest credit rating upgrade is a recognition of our efforts to keep the Philippine economy resilient amid constant challenges posed by the external environment. Contributing to this resiliency are the country’s comfortable external liquidity, strong financial system, and a favorable inflationary environment,” Tetangco said.

Finance Secretary Cesar V. Purisima said Moody’s latest move is the result of the Aquino administration’s “efforts… to institutionalize reforms to help ensure the agenda of good governance continues.”

“The upgrade is an acknowledgment of the sound management of the economy. There should be no turning back as far as good governance is concerned; the only direction we should see for the Philippine economy is forward,” Purisima added.