Rene Pizarro, executive director at the Bangko Sentral ng Pilipinas’ Investor Relations Office, said Moody’s Investors Service has expressed satisfaction over how the Philippines is doing in terms of solving its fiscal deficit but said the sustainability in implementing the tax reform measure will be closely monitored.
"They are very much encouraged by the favorable developments compared to last July when the country’s credit rating had been downgraded. If they don’t change outlook, they will have a lot of explaining to do," Pizarro said.
Pizarro said the Philippines has managed to maintain its current account surplus against a backdrop of high oil prices. It was also successful in attracting investments in mining, information and communication technology and the business process outsourcing sectors.
"These are clear evidences that we have delivered on reforms. We asssure results that will put the country on a sustained path of fiscal stability and economic growth. We expect Moody’s to take these as constructive impetus for positive rating action," he said.
Pizarro said among the obstacles to a credit rating upgrade are incomplete and unsustained implementation of the VAT law and potential spilling over of political instability to the country’s fiscal and macroeconomic performance.
Since the May 2004 elections, the government has intensified efforts to put in place a reform program aimed at reaching a fiscal balance by year 2010 after having pushed back an earlier target from 2006," Moody’s earlier said in a report.
The program seeks to boost revenues by P80 billion by increasing VAT or excise tax rates or both.
Moody’s said the Philippines’ fiscal position will remain highly vulnerable to shocks — exchange rate, interest rate or even from a sudden shift in market sentiment — over the near to medium-term, although the relatively long maturity structure of government debt provides some cushion.
Remittances from OFWs coursed through banks rose 28 percent year on year to $941 million in September. This brought the nine-month level to $7.9 billion, up 28 percent from the comparable level in 2004.
The BSP projects this amount to hit $10.3 billion for the full year, or an increase of 20 percent from $8.5 billion last year. Pizarro said Moody’s also expressed concern over the proposed changes in the Charter, which could affect the momentum towards a sound fiscal position.