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Tuesday, July 15, 2014

PH gets another upgrade, this time from The Economist Group

Following the debt rating lift from Japan's R&I, the Philippines again received a credit rating upgrade, this time from the Economist Intelligence Unit (EIU).

In a statement, the government's Investors Relations Office said the EIU, which is the research and analytics division of The Economist Group, raised the country's sovereign risk rating by a notch to BBB from BB, citing the declining ratio of the state's outstanding debt against its gross domestic product (GDP) as the latter works on improving its public debt position.

The Philippines' debt-to-GDP ratio has dropped from 54.8 percent in 2009 to 49.2 percent last year.

BBB, as EIU defines it, means that the debt issuer has a capacity and commitment to honor its debt obligations and only has a slight susceptibility to changes in economic climate.

EIU said the Philippine government's prudent practice of relying more on medium- and long-term debt issuance--weaning from short-term credit--has helped it improve its finances. It also said this "healthy fiscal picture' will give the state more room to hike its investments in infrastructure and social services.

“As a proportion of GDP, expenditure will rise gradually as the government seeks to increase social spending, particularly on vital infrastructure. This will help boost economic expansion and revenue collection,” the London-based firm said.

For the first time, the debt watcher also raised the political risk rating of the Philippines from CCC to B, mainly because of the peace accord between the government and the Muslim rebels. EIU said the Comprehensive Agreement on Bangsamoro will spur investments in Mindanao.

The upgrade in the political risk rating--which measures the potential drag of political events on a country's ability to pay its debts--indicates the stability of the political environment is no longer questionable to creditor at least for the short-term.
“The security situation in the Philippines should ease in the coming years following the signing in March of a comprehensive peace agreement between the government and the Moro Islamic Liberation Front (MILF), which in theory, puts an end to a decades-long conflict,” EIU said.

While the Philippines' public finance and political risk profile were raised, the EIU kept the country's currency risk rating at BBB, the banking sector risk rating at BB and economic structure risk rating at BB.

It cited a stable outlook on the peso, strong asset quality and capital adequacy of banks, and sustained flow of remittances that boost household consumption as reasons behind these ratings.

- Interaksyon

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