Moody's: Philippines Outlook Stable, But Fiscal Reform Needed

Moody's Investors Service says that the outlook for the Philippines' Ba2 sovereign credit rating is stable. The rating is underpinned by fiscal consolidation, increased macro-economic stability, strong GDP growth, and higher investment spending.


The rating was upgraded to Ba2 from Ba3 in June 2011 in recognition of the country's progress on fiscal consolidation, according to Moody's in its annual report on the Philippines.


Furthermore, prospects for increased investment spending, and thus an enhanced outlook for potential growth, are set to improve due to expected gains in governance and macroeconomic stability.


And inflationary expectations look well-anchored, despite the rise in global commodity prices and historically high levels of GDP growth.


In its assessment of the Philippines, Moody's evaluates four factors on a scale which includes "very high," "high," "moderate," "low," and "very low."


For economic strength, it assesses the country as "low"; for institutional strength "moderate": for government financial strength "low"; and susceptibility to event risk "low."


The Moody's report notes that the administration of President Benigno Aquino III -- who was elected in May 2010 -- has brought government expenditures under control following the adverse effects of the global financial crisis and the subsequent national elections on the Philippines' fiscal performance. Revenues have also improved without the benefit of tax increases.


But, looking ahead, structural improvements in revenue generation will likely require significant fiscal reform.


In addition, as the Philippines' sovereign rating now sits atop its methodological range at Ba2, further upward rating movement will therefore require a more sustained improvement of credit fundamentals.





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