S&P affirmed the country’s BB foreign currency long-term bond rating, granted last November, which puts the Philippines two notches below investment grade. The ratings agency defines BB as "less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions."
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| Standard & Poor’s Affirms Philippine Ratings |
The Philippines’ local currency rating was also affirmed at BB+, one level below investment grade, considered the "highest speculative grade."
S&P likewise retained its recovery rating of "3" on the Philippines, "which denotes our expectation of 50-70% recovery in the event of a distressed debt exchange or payment default," the statement read.
"The rating on the Philippines is constrained by the country’s relatively low income level, weak fiscal profile, and high, albeit improving, public sector debt and interest burden," S&P credit analyst Agost Benard explained in a statement released on Friday.
These key rating weaknesses offset the country’s strengths such as its strong external liquidity, low external liability position and a record of moderately strong economic growth, he added.
"The stable outlook encapsulates our expectation that remittances and BPO (Business Process outsourcing) receipts will continue to drive current account surpluses, while prevailing government debt and interest burdens and the weak fiscal profile will take time to resolve," Mr. Benard said.
According to the credit rater, the Philippines must achieve sustainable revenue improvement and further sustain its external balance sheet in order to bag an upgrade, as these will reduce the country’s vulnerability to shocks.
"Conversely, we may lower the ratings if a weakened commitment to fiscal consolidation results in a heavier debt burden, or if the external liquidity position deteriorates significantly, possibly precipitated by unfavorable macroeconomic policies or political instability," it said.
S&P’s affirmation of the Philippines’ scores follows successive positive ratings actions from two other debt watchers.
Fitch Ratings upgraded the country to BB+ from BB, one level shy of the investment grade, in June. The rating means the country can repay its debt unless a major economic shock occurs.
In the same month, Moody’s Investors Service also changed the Philippines’ ratings to Ba2 from Ba3, two notches below investment grade, which means the country’s debt papers still have "speculative elements" but are no longer considered a high-credit risk.
Economic managers were not immediately available for comment on Friday. The government is targeting an investment grade score by 2013, to boost investor confidence and bring down its borrowing cost.
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