S&P Raises Philippines’ Credit Rating “BB+” to 9-Year High

July 5, 2012: The Philippines' debt rating was raised to the highest level since 2003 by Standard & Poor's, taking President Benigno Aquino nearer his goal of attaining investment grade.

The nation's long-term foreign currency-denominated debt was raised one level to BB+ from BB, S&P said in a statement Wednesday (July 4, 2012). That's one step below investment grade and on a par with neighboring Indonesia. The outlook on the rating is stable.

"The foreign currency rating upgrade reflects our assessment of gradually easing fiscal vulnerability," Agost Benard, a Singapore-based analyst at Standard & Poor's, said in the statement. "The rating action also reflects the country's strengthening external position, with remittances and an expanding service export sector continuing to drive current- account surpluses."

Emerging nations from Brazil to Indonesia have won credit- rating upgrades in the past year as governments contained budget deficits. A higher assessment for the Philippines will help Aquino as he moves to boost spending to a record this year and seeks $16 billion of investment in roads, bridges and airports to shield the economy from Europe's sovereign-debt crisis.

The Philippine peso (₱) is up 4.8 percent against the dollar in 2012, the best performer in a basket of 11 major Asian currencies tracked by Bloomberg. The Philippine Stock Exchange Index climbed to a record this week. The benchmark seven-year bond yield fell to the lowest in at least two months yesterday.

'Very Positive'

S&P's recognition for the Philippines' strong external position, growth prospects and improving fiscal sector adds fundamental support to the market, Bangko Sentral ng Pilipinas Governor Amando Tetangco said yesterday after the ratings action.

Moody's Investors Service boosted its outlook on the Philippines to positive in May 2012, citing improving debt levels. Fitch Ratings raised the country's debt to one step below investment grade in June 2011.

S&P's move is "very positive because it promotes the country's macroeconomic and fiscal context," said Fitz Aclan, who helps manage ₱850 billion pesos ($20.4 billion) at Manila- based BDO Unibank Inc. "There could be some upward movement for our sovereign bonds, even our local bonds. This will also be positive for equities."

Aquino plans to narrow the budget shortfall to 2 percent of gross domestic product by 2013 from a target of 2.6 percent this year. The government has stepped up efforts to catch tax evaders and smugglers, and has drawn up bills aimed at increasing revenue to narrow the fiscal deficit.

"We expect further rating improvements will likely be driven by either our appraisal of improving political and institutional factors or by evidence of a sustainable structural revenue improvement," S&P said. "Conversely, we may lower the ratings if the government's commitment to fiscal consolidation weakens, resulting in rising debt, or if the external liquidity position deteriorates significantly."

The $200 billion economy grew 6.4 percent in the first quarter, the fastest pace since 2010. Aquino is aiming for an expansion of as much as 8 percent annually to cut poverty.