JCRA is Japan’s biggest credit rating agency and has the reputation of being the most optimistic among the major credit rating agencies that keep a tight watch on the Philippines and its travails.
According to JCRA, the Philippines had managed to maintain a "comparatively stable macro-economic performance" despite its occasional political instability.
On the other hand, JCRA said it is maintaining its negative outlook due to the anticipated political backlash on the government’s commitment to stick to its fiscal program.
"Presidential election dims the prospect of the fiscal reforms," JCRA said, noting that the peso had plunged to its lowest levels amid intensifying uncertainty over the outcome of the election.
"The peso’s further depreciation would lead to negative impacts such as increased inflation pressure, higher interest rates and greater burdens of external debt repayment," JCRA said. Ultimately, the agency said this could impede the country’s sustainable economic growth.
Despite the negative outlook, Finance Secretary Juanita Amatong said the Arroyo administration was thankful that JCRA recognized the inroads it had made towards achieving fiscal discipline.
"Asians understand Asian issues," Amatong said. "That’s why they provide greater leeway in appreciating the efforts we have poured into rebuilding our revenue base and streamlining our expenditures."
According to JCRA, the new administration would be under pressure to undertake fiscal reforms and its prospects would depend on whether the current track would be "firmly continued".
After the elections, JCRA said it might consider upgrading its ratings outlook to "stable" if the new administration would be able to show that the fiscal reforms would be sustained.
"If it is judged that maintaining fiscal discipline and continuing fiscal reforms will become harder, JCRA may have to consider downgrading the rating," it said.
JCRA chief analyst Kazuo Imai said the agency’s projections indicated that the Philippines could achieve its plan to balance the budget by 2010 if the government would be able to maintain its fiscal performance in 2003.
"If the government could increase revenues and control expenditures over the medium term, it should be able to reduce fiscal deficit steadily, thus making it possible to hold public debts at manageable levels," Imai said.
However, Imai said that maintaining the fiscal performances achieved in 2003 would entail a number of "political difficulties."
"As the election draws nearer, the outlook of the fiscal reforms is becoming increasingly uncertain," he said.