S&P to start credit rating review for RP

MANILA, Philippines - Standard & Poor’s Ratings is reviewing its credit rating for the Philippines starting this week, meeting with top government and private sector officials to discuss the country’s macroeconomic prospects.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco said he will meet with the S&P mission arriving this week to discuss monetary policy moves that have been undertaken as well as the outlook for 2009.

S&P had already downgraded its economic outlook for the Philippines early this year but the credit rating agency has kept the country’s outlook at “stable”, marking it as one of the more stable economies in Asia Pacific.

At its most recent action, however, S&P warned that although its “stable” outlook rating is still in place, stalling fiscal corrections could lower its outlook rating to “negative”, especially if revenue erosion becomes a problem because of regressive tax legislations.

In the Asia Pacific Sovereign Report Card released in June last year, S&P detailed the factors shaping sovereign credit quality in 2008 where the Philippines emerged with the reaffirmation of its “stable” outlook rating.

S&P senior analyst Agost Benard said at the time, the stable outlook balanced increasingly robust external liquidity and significant improvements in general government and public sector financial performance.

“This is against continued risks to revenue and deficit targets in light of considerable inefficiencies in the collection of revenues,” Benard pointed out.

According to Benard, the outlook could be revised to positive should there be evidence that revenue-generating capacity has fundamentally improved.

In November 2008, S&P downscaled its growth projections for the Philippines from its previous 5.5-percent estimate to as low as 3.3 percent this year.

S&P said in its November regional report that the ongoing market dislocation is expected to “significantly impact” Asia Pacific in 2009 but factors such as intra-regional trade, supportive policymaking, and still robust forecasts for China and India would help the region navigate the global storm.

But S&P said the specific outlook for the Philippines was not as good as it last projected in August when the credit rating agency said it expected the economy to grow 5.5 percent in 2009 despite the halting effect of high inflation and the consequent tightening of monetary policies in early 2008.

Overall, S&P said the improvement in the country’s outlook ratings should be about developing a sustainable, expanded revenue base that would provide for continued fiscal consolidation and debt reduction while also allowing for ongoing capital spending.

Conversely, S&P said the outlook on the ratings could be lowered if fiscal correction is endangered by stalling reforms or weakening revenue efforts. It warned against rising fiscal deficits or meeting budget goals only through spending cuts at the expense of future growth prospects.

On the whole, however, S&P said that while many Asia Pacific sovereigns are likely to continue to enjoy relatively robust growth, some may neglect to apply prudent policy measures to offset the potentially negative effects from slowing US activity and ongoing financial market turmoil.

S&P said these effects include reduced Asian exports, a decline in capital flows (foreign direct investment and portfolio), tighter credit and liquidity, volatile asset markets and lower corporate profits and spending.