STRONG FIRST quarter growth, coupled with a steady improvement in the government’s finances, bode well for the Philippines’ credit rating, Moody’s Investors Service said.
In a credit outlook released yesterday, Moody’s hailed the 7.8% gross domestic product (GDP) growth in the first quarter, which beat market expectations and the government’s full-year target of 6-7%.
"GDP growth in the Philippines is on an upward trend, in contrast to lackluster global growth performance," Moody’s noted.
"On a year-on-year basis, the Philippines’ first-quarter real GDP growth is the strongest among all rated countries in the Asia-Pacific region, outpacing larger emerging markets such as China (7.7%) and Indonesia (6%)."
Moreover, Moody’s cited the P36.8-billion fiscal surplus posted in April -- the highest monthly surplus on record that was driven by a 28.9% jump in income tax collections.
"The improvement in tax receipts demonstrates that the government’s efforts to bolster tax compliance are gaining traction and helping to boost revenue generation, one of the key weaknesses of the Philippines’ credit profile," it said.
It added that with President Benigno S. C. Aquino III sticking to a campaign promise not to raise taxes, it was important for his government to prove that its strategy of raising revenues via tax compliance could work.
Year to date, meanwhile, the government has posted a fiscal deficit of P29.68 billion and Moody’s noted the "moderate" increase could suggest spending restraint on the part of the government despite the May midterm elections.
"[T]he government’s spending decisions are increasingly driven by long-term economic objectives rather than short-term political ones," it noted.
It likewise praised the speedy roll-out of infrastructure projects so that these wouldn’t be compromised by the Commission on Elections’ ban on public spending leading up to the May elections.
Moody’s forecast that the government would hit its P238-billion deficit target for this year -- equivalent to 2% of GDP -- unlike in 2010 when frenzied campaign spending bloated the deficit to P293.2 billion, over the target of P131.6 billion or 3.5% of GDP.
"The government thus largely honored the constraints imposed in order to provide for free and fair elections, while simultaneously maintaining fiscal discipline," it said.
In summary, Moody said, "these developments are credit positive."
The rosy outlook boosted hopes that the debt watcher would soon raise the Philippines’ credit rating to investment grade. Moody’s currently rates the Philippines at Ba1, one notch below.
The two other major debt watchers, Standard & Poor’s and Fitch Ratings, earlier this year upgraded the Philippines to BBB-, taking the country to investment grade.
Mr. Aquino, for his part, yesterday said he did not want to predict Moody’s actions. He told reporters, however, that the government was hoping to give the credit rater enough reason to award an upgrade.
"I don’t want to preempt them ... But I think the second quarter figures should be of the same ilk [as first quarter GDP growth]. We are hoping that they will be same or even better," Mr. Aquino said.
Moody’s has yet to visit the Philippines this year.
"We are still working on a date with the Moody’s team," Investor Relations Office Executive Director Claro P. Fernandez said.
"They do a due diligence regularly, at least once a year."
BW Online
