The Philippines has lagged behind its neighbors in Southeast Asia in reducing poverty even as its economic expansion mostly kept pace the past two decades, which may stall efforts to achieve an investment-grade debt rating.
The CHART OF THE DAY tracks the change in gross domestic product of the Philippines, Thailand and Malaysia in dollar terms since the end of 1988. The lower panel shows the change in each country’s poverty rate, defined as a percentage of the population, using World Bank data. Both graphs are normalized to show how each country has performed relative to 1988.
Standard & Poor’s, Fitch Ratings and Moody’s Investors Service all rate the Philippines below investment grade, deterring some asset managers from buying the nation’s debt. Finance Secretary Cesar Purisima has said the assessments are too low, citing the government’s ability to borrow at rates similar to investment-grade countries.
“The Philippines has lagged in its poverty-reduction agenda and that is why rating agencies are focused on revenue growth,” said Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc. “More revenue would allow the government to invest in human capital, education and health, which will eventually lead to reduction in poverty rates and better quality of life.”
Fitch rates the Philippines one step below investment grade, while S&P and Moody’s currently have the sovereign rating at two levels below. President Benigno Aquino has gone after tax evaders and corrupt officials as part of an effort to gain an investment grade before his term ends in 2016. Thailand is rated the third-lowest investment grade by Moody’s and S&P. Malaysia is one level higher than Thailand by both.
Benchmark 10-year Philippine bond yields are trading at 5.26 percent, compared with 5.92 percent for 10-year Italian notes and 8.46 percent for 10-year Russian debt, according to prices compiled by Bloomberg News at about 4 p.m. Manila time yesterday. S&P rates Italy four steps above the Philippines and Russia three levels higher.
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