According to the Investor Relations Office (IRO) of the Bangko Sentral ng Pilipinas (BSP), the credit rating agency wanted assurances that the imminent charter change would not derail on-going economic reforms.
Government officials expressed satisfaction that the S&P evaluation team appeared upbeat over the country’s economic prospects, particularly the emerging trend in the government’s fiscal consolidation.
According to IRO executive director Rene Pizarro, S&P was able to affirm the Arroyo administration’s ability to deliver its fiscal reform commitments, particularly after examining the April budget report which indicated the government’s first budget surplus this year.
"Now they want to see the trend that this will be sustained," Pizarro said. "The major concern here is the sustainability of these reforms."
If the Arroyo administration is able to stay on track in the next three to six months, Pizarro said an outlook rating upgrade was possible. "But at that point, we have no expectations of a credit rating upgrade," he said.
At present, S&P’s credit outlook rating for the Philippines is "stable", indicating that the country is not facing imminent credit ratings downgrade in the near future.
An upgrade in the credit ratings outlook would put the Philippines in "positive" level, indicating that the country would soon be a candidate for a possible credit ratings upgrade, a move that would significantly improve the government’s borrowing position and bring in investments.
If the government is able to sustain its fiscal consolidation for another three to six months after that, Pizarro said the country could hope for an actual credit ratings upgrade–the first since the fiscal blow-out in 2000.
Pizarro said S&P’s remaining concern was the possible impact of charter change which has been preoccupying Congress in the last two years. "They want assurances that if there will be a constitutional change, it will facilitate the reform process and economic governance would be prioritized," Pizarro said.
Pizarro said S&P was also concerned about the inflationary impact of the rapid increases in oil prices since the Philippines imports significant amounts of oil and petroleum products for use in power generation and fuel.
"S&P appeared convinced that our economic fundamentals are intact," Pizarro said. "But there are fears over inflation, charter change and sustainability of reforms. These are all reasonable concerns and we will need to address them."
The S&P team is headed by Agost Benard, S&P associate director for sovereign ratings, who said there was cause for optimism especially since the political instability that momentarily distracted the Arroyo administration had cleared up.
Benard declined to speculate on the outcome of the review but he indicated S&P’s meetings with Philippine officials were starting off on a positive note.
"There is optimism that the fiscal consolidation will continue," he told reporters. "There is a good economic team in place so there is reason to believe that there will be further fiscal consolidation."
More significantly, Benard said there had been significant improvements in the country’s political situation following the declaration of the state of emergency in February.
"The political situation has improved considerably," Bernard said, adding that it augured well for the Arroyo administration’s efforts to further consolidate its fiscal position.