Commentary
WEALTH MANAGEMENT | , Singapore
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Moody's assigns a B1 rating to the Philippines' global bond

Singapore, January 07, 2009 -- Moody's Investors Service has assigned a foreign currency rating of B1 with a positive outlook to the government of the Philippines' forthcoming global bond issuance.

The change in the rating outlook to positive from stable was originally taken in January 2008, and was prompted by the progress the government had made in stabilizing public finances, thereby placing the Philippines' key debt ratios on an improving trend.

In addition, the country's fortified external payments position -- as reflected in the build-up in official foreign exchange reserves -- is helping the country's economy weather the global financial crisis.

Moody's outlooks attempt to signal possible rating changes over a 12-18-month horizon.

The outlook change was also influenced by the ability of the country's central bank to anchor inflationary expectations under its formal inflation targeting framework.

And although such past success was overwhelmed by the surge in commodity prices through mid-2008, the recent decline in oil and food prices was reflected in a fairly sharp deceleration in inflation to 8.0% in December 2008.

"Low inflation and a stable exchange rate are crucial for the government's debt affordability," says Tom Byrne, a Moody's Senior Vice President and Regional Credit Officer.

"Nevertheless, despite improving debt trends, the B1 rating on the government's foreign and local currency bonds also reflects the country's large public-sector debt overhang, which leaves government finances vulnerable to shocks," notes Byrne. "In addition, if overseas worker remittances decline due to a global recession, the buffer to external financial market pressures, as provided by the current account surplus, could be eliminated."

"In the current environment, the challenge for the authorities is to attempt to minimize the damage from the global credit contraction and recession," says Byrne.

"Accordingly, although economic growth will be adversely affected by global conditions and fiscal performance may inevitably slip, a commitment to public-sector fiscal reform and consolidation would bode well for the country's long-term macroeconomic prospects and credit fundamentals," concludes Byrne.

The last rating action on Philippines was taken on 25 January 2008, when Moody's changed the outlook on Government of Philippines' B1 rating to positive, from stable.

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Investment Asia. The author was not remunerated for this article.

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