INSTITUTIONAL INVESTMENT | Cesar Tordesillas, Philippines

Philippine sovereign bonds retain ratings

Standard and Poor's rating on the global bonds of the Philippine Republic maturing in 2020 and 2034 was affirmed. It occurred after a proposed reopening of these instruments.

Standard & Poor's gave these bonds a 'BB-' senior unsecured debt rating.

The sovereign credit ratings on the Philippines derive support from the country's resilient external accounts, whereby an improving liquidity position continues to lower external liquidity risk.

Resilient remittance inflows, which rose 4.5 percent in the first 10 months of 2009, growing surpluses in service exports, and a resurgence of net positive portfolio inflows and foreign direct investments have seen continued rise in foreign reserves. Net international reserves are at an all-time high of close to US$45 billion, providing more than eight months of import cover and 4.2 times short-term external debt cover by residual maturity. Compared with its peers in the rating category, short-term external liquidity risk for the Philippines is moderate, and remains on an improving trend.

The rating is also supported by the low level and low likelihood of realisation of contingent liabilities posed by the banking system, given the absence of features that necessitated government bailouts in numerous other countries. System-wide asset quality and capitalisation are not expected to change materially from 4.2 percent nonperforming loans and capital adequacy ratio of 14.6 percent, which prevailed prior to the onset of the global financial and economic crisis.

These factors are balanced against ongoing risks centered around an inadequate revenue base, slow progress in addressing this, as well as questions over collection efficiency and policy response in the current economic downturn. Although the sharp fall in fiscal revenues in 2009 was mainly attributable to cyclical factors, offsetting measures that could have moderated the fiscal slippage were not forthcoming.

The sovereign credit ratings could be raised on evidence of renewed focus on fiscal consolidation and revenue improvement as the exigencies created by the global slowdown dissipate, and that such efforts are carried forward by the new administration set to take office in June this year. By contrast, the ratings could be lowered if indications emerge that the deterioration currently experienced in fiscal outcomes is not a transitory phenomenon.

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