Standard & Poor’s Affirms Philippine Ratings

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."

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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PH among world's top service exporters

MANILA, Philippines - The World Bank has ranked the Philippines among the best performers in the services exports, particularly in the business process outsourcing (BPO) sector, but urged further reforms in the travel and tourism sector if the country intends to sustain growth moving forward.

Business process outsourcing

World Bank senior trade economist Sebastian Saez said in a report that the services sector depends on human capital, the quality of the telecommunications network, and the quality of institutions.

“The experience of exporting outsourced business services in the Philippines shows that by creating an enabling environment where the private sector can deploy its creativity, developing countries can reap the benefits that services exports opportunities are opening,” Saez added.

The Philippine experience shows that services are a viable option for export diversification, he said, adding that trade in goods is no longer the only vehicle to diversify exports for developing countries.

Services exports as a percentage of total exports increased from nine percent in 1999 to 21 percent in 2009 in the Philippines. Its services exports rose 3.6 percent on average per year during the period, higher than that of Asia as a group, which averaged 1.5 percent per year. Unlike many developing countries, the Philippines had been a net exporter of services since 2006.

The Philippines is currently the third largest player in BPO in the world, accounting for 15 percent of the global BPO market, after India (37%) and Canada (27%).

Business Processing Association Philippines (BPAP) chairman Fred Ayala said that the BPO sector currently employs close to 500,000 people and generated about $9 billion worth of exports in 2010.

The industry’s target in terms of annual revenue is $25 billion by 2016 and a direct workforce of 1.3 million.

“There is an urgent need to develop supervisors, middle managers, and more skilled workers to respond to increasing market demand for a broadening array of knowledge-based, complex services,” Ayala said.

The World Bank report also highlights the importance of developing the tourism sector.

Tourism accounts for about nearly seven percent of the country’s gross domestic product (GDP), and directly employs about 3.5 million people. But the report said that tourism could contribute more to help address poverty should reforms outlined in the National Tourism Development Plan (NTDP) are effectively implemented.

The study said major impediments to tourism competitiveness are largely associated with weak ground and air transport infrastructure - roads, railways, ground transport network, and airports. Weak physical infrastructure, it says, lowers accessibility to tourism destinations and discourages private sector investments in accommodation facilities.

Tourism Undersecretary Daniel Corpuz said the government has already started to put in place important reforms that will increase tourism arrivals in the country. The Philippines implemented a liberalized air policy in selected international airports outside Metro Manila to promote greater tourism flows to the country.

“More reforms are underway to transform the Philippines into a ‘must experience destination in Asia,’” Corpuz added.

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