RP gets ‘stable outlook’ rating

The Japanese Credit Rating Agency (JCR) issued a stable outlook rating on the country’s creditworthiness, citing the Arroyo administration’s efforts to pursue economic reforms.

JCR retained its triple B rating of the National Government’s sovereign bond issues, including the 5th and 7th Yen bond series. A triple B rating indicates the Philippine government can service its debts in a timely manner.

"The rating reflects the improvement in trends of the Philippines’ external balance since the Asian crisis, and the new administration’s policy stance of promoting economic reforms," JCR said in its latest review of the local economy.

Finance Secretary Jose Isidro Camacho said the JCR rating affirms the international market’s confidence in the Philippine economy and boosts the country’s chances of getting more favorable terms when it taps the debt market.

"The rating is an objective and unbiased assessment of the long-term prospects of the country. It supports our current Yen bond issues and with a favorable rating, we can borrow cheaper next time," Camacho said.

Government issues bonds under the 5th to 7th Yen bond series in 1996 and 2000.

The bonds in tranches of ¥10 billion, ¥30 billion and ¥35 billion, mature in 2002, 2003 and 2005, respectively.

The JCR is an internationally-accepted credit rating agency and is relied on by the yen-denominated bond market.

The Arroyo administration hopes the optimism expressed by JCR will somehow rub off on other international credit rating agencies which recently maintained their negative outlook on Philippine sovereign bonds.

Last month, Standard & Poor’s (S&P) retained its negative outlook on the country’s credit standing due to its increasing debt burden, poor economic prospects and deteriorating peace and order conditions.

S&P affirmed its BB-long-term and B short-term foreign currency sovereign credit ratings on the Philippines. It also affirmed its BBB-long-term and A2 short-term local currency sovereign credit ratings. S&P’s long-term ratings remain negative.

S&P said recent efforts to regain political stability through the recent electoral exercise, along with the passage of the Omnibus Power Bill, were overshadowed by the worsening fiscal position of the government which brought the Philippines close in line with those of lower-rated countries.

S&P said there are several stumbling blocks that keep it from improving the country’s sovereign ratings: high governmental debt and rising fiscal inflexibility, narrow tax base, with tax revenues falling by more than three percentage points as a share of GDP since 1997; weak banking sector with non-performing loans exceeding 15 percent of total loan portfolio.

S&P also noted the downturn in export markets will also limit growth prospects this year. The government already downscaled export growth targets to just one percent from four percent as its major markets, the US and Japan, have shown signs of economic strain.

S&P warned that government’s failure to stick to a credible fiscal strategy can put more pressure on the local currency which skidded steadily in the past few days with no clear solution to end the kidnappings in Mindanao, and in Metro Manila.

"With more than half the government’s debt denominated in foreign currencies, a further depreciation of the Philippine peso would raise debt servicing and worsen fiscal flexibility – this in turn, could weaken government’s credit standing."

The credit rating firm also expressed concern about the increasing NPLs of banks which went up more than 16 percent last May.

"The banking system remained solvent even after a 50-percent depreciation of the peso since 1997. However, the banks must first allocate operating income to loan loss provisions instead of funding new loans," S&P said, noting that net domestic credit fell to nearby 83 percent of GDP last year from nearly 70 percent of GDP in 1998.