Japan credit rating agency upgrades RP credit outlook

The Japan Credit Rating Agency (JCRA) upgraded yesterday its outlook on the country’s credit rating from "negative" to "stable," affirming all of its credit rating on the government’s long term debts.

Usually the most upbeat of the four major credit rating agencies, JCRA warned, however, that political uncertainty might persist as long as anti-government forces take advantage of the dissatisfied segments of the armed forces.

After concluding its visit last March, JCRA announced yesterday that it was upgrading its outlook to "stable" indicating that a downgrade of the country’s credit rating was no longer imminent.

JCRA downgraded its credit rating outlook in July last year following the mass resignation of the Arroyo administration’s economic team.

However, the agency said that with the impeachment charges now past and after the increase in the expanded value-added tax rate (EVAT), its outlook had changed.

Beyond politics, however, JCRA said the dollar remittances from overseas Filipino workers have been maintaining solid growth in support of the country’s balance of payments and private consumption.

"The real GDP (gross domestic product) growth rate which decelerated to 4.5 percent in the third quarter of 2006, recovered to 6.1 percent in the fourth quarter," JCRA chief analyst Kazuo Imai said in a statement. "While it was slower than six percent in the previous year, it is regarded comparatively high, given the country’s political unrest."

Imai said JCRA believed the country’s chronic fiscal deficit to be "on the steady decline," indicating that the Philippine economy had stayed "generally sound in contrast to the unstable political situation."

According to Imai, JCRA expected the political unrest to persist but its analysts said the conditions that made military coups succeed in the past would be harder to meet at present.

"Taking these points into consideration, JCR has decided to revise the country’s rating outlook from "negative" to "stable," Imai said.

But Imai said JCRA would keep a close watch on the administration’s further efforts to improve its fiscal condition as well as the future political developments particularly the proposed constitutional amendment.

Imai said the agency also expected the completion of the fiscal reform program that would reduce the annual fiscal deficit from P146.8 billion in 2005 to P124.9 billion this year and to balance the budget by 2008.

Imai said the public sector debt was also expected to drop to about 90 percent of GDP after building up due to past fiscal deficit and peaked at about 101 percent of GDP in 2003.

"JRC expects that in addition to the sustained tax revenue expansion and the intensified tax collection measures, the administration will seek to reinforce fiscal discipline with the legislation of the fiscal responsibility act," he said.