...the improved PH key debt ratio

Risk perception of financial community on PH improving

Moody’s expects key debt ratio to fall below 50%

By Michelle V. Remo
Philippine Daily Inquirer

Monday, November 19th, 2012

Moody’s Investors Services has projected that the Philippines’ key debt ratio this year will fall below the 50-percent threshold, from a peak of 74.4 percent eight years ago, due to efforts to shore up revenue collection and reduce liabilities.

The credit watchdog also took note of the improving risk perception of the international financial community on the Philippines as a result of improving credit indicators.

The debt-to-GDP ratio—the proportion of the national government’s outstanding debts to the country’s gross domestic product—is a closely watched indicator of a country’s creditworthiness.

Based on international standards, a ratio of a maximum of 50 percent is considered “manageable.”

“Prudent fiscal management has combined with the solid performance of the balance of payments and economic growth to result in the steady improvement in key debt ratios [including the debt-to-GDP ratio],” Christian de Guzman, vice president and senior analyst for the sovereign risk group at Moody’s, said in a statement issued by Moody’s Monday.

As the country’s debt burden declines, Moody’s said, the government enjoys warm reception of the international market for the bonds that it sells.

For instance, Moody’s said, the $750 million in global bonds sold by the Philippine government this month indicated the significant appetite that investors have for instruments from the country.

The proceeds of the sale were used to partly finance the buyback of nearly $1.5 billion in outstanding debt paper.

Moody’s recognized the prudence of the buyback program, saying it helped the government trim its interest liabilities (given that the interest rate on the freshly issued bonds is lower than the rates of bonds repurchased) and extended the average maturity of its total debt (given that the freshly issued bonds have a longer maturity).

“The Philippines is exploiting favorable financing conditions to accelerate its ongoing debt liability management program,” De Guzman said.

Just this month, Moody’s raised the credit rating for the Philippines from Ba2 to Ba1, or from two notches to just one notch below investment grade.

Government officials hope the country will be given an investment grade by next year.

Meantime, Moody’s Analytics, a research firm and a sister company of the credit watchdog, said in a separate statement that it expects the Philippines to post a GDP growth of 5.2 percent for 2012 from 3.7 percent last year.

The government’s official growth target for this year is between 5 and 6 percent.

A 5.2-percent growth for the full year, however, indicates a slowdown in the second half from the 6.1-percent growth registered in the first semester.

“The Philippines’ economy likely decelerated mildly in the third quarter from the second quarter’s 5.9-percent year-on-year growth pace. This will keep 2012 growth above potential at 5.2 percent,” Moody’s Analytics said.

The projected slowdown on a quarter-on-quarter basis is due to adverse effects of bad weather on agricultural output, it said.

Meantime, the projection of a faster GDP growth for this year compared with last year is attributed to higher government spending, sustained rise in household consumption, and increased investments by domestic firms.