Bloomberg News

Moody’s Sees Philippine Upgrade Potential Amid Investment Push

February 26, 2012

(Updates with comment from economist in fourth paragraph.)

Feb. 24 (Bloomberg) -- The Philippines is a “potential candidate” for a credit rating upgrade, said Thomas Byrne, a senior vice president at Moody’s Investors Service, as the Southeast Asian nation’s government seeks to boost investment.

“There’s a thing called ratings momentum in the Philippines,” Byrne, who is responsible for the ratings of Japan and other major Asian economies, told reporters in Tokyo today. “The new government has very big intentions for reforming the economy and improving governance and getting more private and public-sector investment.”

Philippine President Benigno Aquino won credit-rating upgrades from Fitch Ratings and Moody’s last year after increasing efforts to narrow the budget gap from a record 314.5 billion pesos ($7.3 billion) in 2010. The nation has the highest junk rating at Fitch and is placed at two levels below investment grade by Moody’s and Standard & Poor’s.

“We expect Moody’s and S&P to play catch-up with Fitch, likely raising the ratings within the next 12 months,” Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc., said today. “The improved fiscal position from last year gives the government scope to be much more supportive of growth.”

Deficit Narrows

The budget deficit likely narrowed to 192 billion pesos in 2011 against a targeted ceiling of 300 billion pesos, Budget Secretary Butch Abad said on Feb. 5. Spending fell 2 percent in the 11 months through November. The release of the full year budget report is due in March.

The Philippines’ sovereign rating was increased to Ba2 from Ba3 by Moody’s in June and to BB+ by Fitch in the same month. S&P boosted its outlook on the nation’s BB grade to positive in December.

The Philippines is able to borrow at rates similar to nations perceived as “more advanced, more stable, more worthwhile to lend to,” Aquino told reporters in Trece Martires City south of Manila today.

The nation’s credit-default swaps and dollar-denominated bonds “more than price in the upgrade potential, even trading through investment grade spreads,” Paracuelles said in a research note released yesterday.

IMF Turnaround

Five-year credit-default swap contracts for the Philippines traded at 155.28 basis points on Feb. 23 from 157.33 points on Feb. 17, according to data provider CMA, which compiles prices quoted by dealers in the privately negotiated market. That’s lower than the 161.28 basis points for Indonesia yesterday. The contracts insure debt against non-payment, and traders use them to speculate on credit quality.

The Philippines’ $200 billion economy is underrated, Finance Secretary Cesar Purisima reiterated this week after meeting representatives of Fitch and Moody’s in London.

From a borrower, the Philippines is now a creditor to the International Monetary Fund, the central bank said this week. As of Dec. 31, the nation had made about $251.5 million available to the IMF through a currency exchange arrangement, of which more than half was disbursed to European countries such as Ireland, Portugal and Greece in an effort to address that region’s financial crisis, Bangko Sentral ng Pilipinas said in a Feb. 21 statement.

The central bank paid its outstanding debt to the IMF in 2006, ending the country’s use of IMF resources after nearly four and a half decades, Bangko Sentral said.

--With assistance from Keiko Ujikane in Tokyo and Joel Guinto in Manila. Editors: Stephanie Phang, James Mayger

To contact the reporters on this story: Clarissa Batino at; Andy Sharp in Tokyo at

To contact the editor responsible for this story: Stephanie Phang at

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