S&P on Tuesday said it revised its outlook for the Philippines to negative and warned that Manila’s precarious fiscal position could put pressure on the peso.
The revision came a week after the government said its budget deficit for the nine months to September reached P166.47 billion, about 57 percent above official projections.
Press Secretary Ignacio Bunye, who is travelling with Arroyo in the United States, told local radio DZBB by telephone the president felt that the ratings agency may not have appreciated "the other aspects of our economy and the reforms we are doing for the country."
"Be that as it may, the president said she is still confident that she can work to regaining our stable rating," Bunye said.
S&P said investor confidence could only improve if Manila became more consistent in its fiscal management and implemented reforms in industries including banking and energy.
Arroyo earlier this month assured investors her economic managers were working to prevent a "runaway deficit" for the whole year, even as she acknowledged the full year target of containing the deficit to P130 billion was not realistic.
Meanwhile, JP Morgan said the decision of S&P to downgrade its ratings outlook for the Philippines came as a surprise, adding that it revealed the rating agency’s "short fuse".
JP Morgan is the biggest issuer of sovereign bonds for the Philippine government this year, with issues amounting to $1.3 billion worth of dollar-denominated global bonds issued in March and May this year.
It is in JP Morgan’s interest for the Philippines to retain a positive rating since this would affect the yields of its bonds.
In a reaction to the S&P announcement, JP Morgan economist David Fernandez said S&P had only recently upgraded its outlook on the Philippines to "stable", then citing the Arroyo administration’s success at staunching the deterioration of public finances.
"What its action reveals is S&P’s extremely short fuse when it comes to the Philippines on fiscal issues," Fernandez said. "True, in five months since S&P upgraded its Philippines’ outlook, the fiscal outturn has continued to disappoint."
However, Fernandez said the slippage from a deficit of 4.1 percent of gross domestic product last year to almost five percent this year did not "appear to warrant an outlook change."
According to Fernandez, S&P should have waited until early next year to assess the trends, especially after the criticzl April tax month.
Fernandez said S&P gave little weight to the Arroyo administration’s explanation for its dismal performance in the first half as well as the slight improvement in collection in the second half. – Des Ferriols, AFP