MANILA, Philippines – The country’s third investment grade rating may be forthcoming as Moody’s Investors Service has lauded the Philippine economy’s robust expansion, the Aquino government’s record budget surplus, and the conduct of generally peaceful elections.
Moody’s is the only global credit rating agency that still rates the Philippines one notch below investment grade or BA1. The country obtained its first, investment grade upgrade from Fitch Ratings Services in March. Standard & Poors’ followed suit in May.
In a statement issued yesterday, Moody’s said the Philippines’ first quarter GDP (gross domestic product) and record budget surplus are “credit positive,” a sign that that an upgrade may be in the offing.
National Treasurer Rosalia De Leon said officials from Moody’s are expected to arrive in the Philippines next month.
Last week, the government announced that it posted a P36.8-billion budget surplus in April, the highest monthly surplus it achieved, largely due to a 28.9- percent year-on-year increase in income tax receipts.
“The improvement in tax receipts demonstrates that the government’s efforts to bolster tax compliance are gaining traction and helping to boost revenue generation, one of the key weaknesses of the Philippines’ credit profile. The relatively moderate year-to-date fiscal deficit also suggests that a degree of spending restraint in the run-up to the midterm elections held last month and that the government’s spending decisions are increasingly driven by long-term economic objectives rather than short-term political ones,” said Moody’s senior analyst Christian de Guzman.
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De Guzman noted that President Aquino has largely kept the income tax regime intact since he assumed power in July 2010, mainly by stepping up enforcement and enhancing administrative procedures to boost taxes.
The Bureau of Internal Revenue (BIR), the government’s main tax collection agency, has recorded a marked improvement in performance, with April collections rising 28.2 percent compared with the 12.4 percent increase logged last year.
In contract to a lackluster global economy, De Guzman said the Philippines registered the strongest GDP numbers among all rated countries in the Asia-Pacific region, outpacing larger emerging markets such as China (Aa3 stable), which posted a 7.7 percent growth, and Indonesia (Baa3 stable), which rose by 6 percent.
Aside from better tax collection, spending restraint ahead of the May National elections also helped the government in attaining a budget surplus.
De Guzman said the government’s spending decisions “are increasingly driven by long-term economic objectives rather than short-term political ones.”
“The fiscal deficit consequently came in at P29.7 billion through the first four months of the year and the government is likely to meet its full-year fiscal deficit target of P238 billion, or two percent of GDP. In contrast, the fiscal deficit for the same period in 2010 – when the Philippines last held elections – came in at P131.6 billion against a full-year target of P293.2 billion, or 3.5% of GDP.
The Aquino government intends to maximize the benefits of an investment grade credit rating as it lowers the cost of financing, and widens the state’s fiscal space especially for infrastructure spending.
Moody’s Analytics, a sister company of the credit rating watchdog, earlier said the Philippines was likely to grow between 6.5-7 percent this year, outperforming several rising emerging markets.
De Guzman said that with President Aquino’s party dominating local governments, Congress and the Senate, prospects for more fiscal reforms seem underway.
In particular, bills on the mining sector and the rationalization of fiscal incentives are seen to boost government revenues, De Guzman said.