MANILA, Philippines – The Philippines’ strong fundamentals will not only keep the economy afloat, but will also ensure that the recent financial market turbulence will not have any effect on the country’s credit rating, debt watchers said.
Standard & Poor’s (S&P) Ratings Services and Fitch Ratings, which granted the country investment-grade status earlier this year, said the Philippines is in a good position to weather the sentiment-led volatility.
“It will not have any impact on the Philippines’ credit rating. Our outlook for the Philippines is stable,” S&P credit analyst Agost Benard said in a phone interview yesterday. He declined to elaborate.
For his part, Andrew Colquhoun, Fitch’s head of Asia-Pacific Sovereigns, said the country is “well-placed” to absorb the recent sell-off driven mainly by concerns the US would reduce and eventually pullout its stimulus measures.
In effect, cheap money that has been utilized to boost growth in Asia found their way back to the US on optimism interest rates would increase there. Proof of this was the plunge of the local index to its lowest level since January yesterday, to close at 5,971.05, down 3.41 percent.
Colquhoun cited the large current account surplus posted by the country since 2003, allowing it to generate dollars more than enough to meet its external obligations. As of March, the current account surplus stood at $3.4 billion.
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The current account – which include earnings from exports, remittances and business process outsourcing – has contributed to the country’s over-all balance of payments (BOP), which recorded a surplus of $1.884 billion as of May.
For the whole year, the Bangko Sentral ng Pilipinas expects an excess of $4.4 billion in the BOP, although this amount is still down from last year’s $9.236 billion.
“This was one of the factors driving Philippines’ upgrade to investment grade in March this year,” Colquhoun pointed out.
Last March, Fitch became the first credit rater to upgrade the Philippines’ credit worthiness to investment grade, at BBB-, with a stable outlook. The move was followed by a similar action from S&P last May.
The Aquino administration aimed at reaching investment-grade status this year, as it looked at expanding credit avenues, lowering debt interest payments and attracting more foreign investments to boost growth.
So far though, Moody’s Investors Service – another major credit rater – has kept the Philippines at its highest junk rating, Ba1, with a stable outlook, although recent comments have suggested it could grant an upgrade soon. Moody’s could not be reached for comment.
Despite the absence of Moody’s upgrade and the selloff though, Bank of America-Merrill Lynch said the country would have no problem raising funds from the capital markets as bulk of its funding needs were already fulfilled.
The Philippines, according to the bank, has already covered 69 percent of its total financing needs for the year and investors would allow it to raise the remaining amount going forward.
“As demand weakens, we think the market will increasingly focus on the issuance needs of countries relative to their gross issuance targets,” the investment bank said in a report.
