RP credit rating may be lowered if revenue collection worsens - S&P

MANILA, Philippines - Standard & Poor’s (S&P) warned that the Philippines’ current credit rating may be lowered if the government’s revenue stream deteriorates further and the country’s fragile fiscal position worsens.

At the same time, the global debt watcher said the ratings could also be raised if there are concrete efforts on the part of revenue agencies to boost collections.

“The ratings could be raised on evidence of renewed focus and commitment to fiscal consolidation, and revenue improvement once the exigencies created by the global slowdown dissipate, and that the new administration continues with such efforts,” S&P said in its latest Asia-Pacific Sovereign Report Card.

S&P currently has a ‘BB-’ long-term and ‘B’ short-term foreign-currency sovereign credit rating on the country. At the same time, it has also assigned a ‘BB+’ long-term and ‘B’ short-term local-currency sovereign credit ratings.

The outlook on both the long-term ratings is stable. Both ratings are below investment grade.

S&P said the next administration should put in place policies that would generate domestic and foreign investment growth so that the economy would lessen reliance on private consumption.

The rating agency expects no major policy changes if the election results are not marred by controversy.

It also expects little risk of volatility “as long as democratic processes are followed, and election results and the winning candidate are free from controversy.”

On the economic front, S&P noted the resilience of the country in the face of the global environment.

This, S&P said was what prevented the economy from slipping into a recession, defined by two consecutive quarters of contraction.

“Notwithstanding sharply slower growth and the concomitant decline in fiscal revenues, the Philippines has withstood the economic and financial maelstrom of 2009 without deterioration in its credit fundamentals. While overall economic growth was badly affected by the precipitous decline in external demand, domestic consumption proved mostly resilient, preventing the economy from slipping into recession,” S&P said.

The Philippine economy, as measured by gross domestic product (GDP), expanded by 0.9 percent in 2009 from 3.8 percent in 2008.

S&P said despite the resilience of the economy, the slowdown in growth still significantly hurt the government’s revenue stream, along with existing structural and administrative weaknesses.