By Jun Vallecera
Reporter
MOODY'S Investor Service, one of the more hard-to-please credit rating outfits around, announced from Singapore on Thursday its decision upgrading the country's credit outlook to "stable" from the current "negative" setting."
At the same time, it indirectly cautioned Malacañang against succumbing to political spending pressure on the eve of elections, which it considered one of the remaining challenges to the country.
Moody's made the upgrade eight months from initially revealing its plan to do so.
"We stated in February that a change in the Philippines rating outlook to stable from negative would depend on the achievement by the government of its 2006 fiscal targets coupled with prospects of further deficit reduction in 2007 and beyond," the agency's vice president Thomas Byrne said on Thursday.
He said the performance of the national government in the first nine months makes it "seem likely the government will readily meet its deficit reduction target for the whole year as a whole."
Byrne expressed optimism collections from the expanded value added tax will hit its target despite the absence of actual EVAT receipts at the moment.
The higher VAT rate of 12 percent had been programmed to collect at least P75 billion—an amount seen to fortify the fiscal sector from the ill effects of its deficit condition.
Also cited was the country's fast-improving external sector, a beneficiary of improved investor and creditor sentiment indicated by the continued flow of foreign direct as well as portfolio inflows.
The inflows helped Manila reduce its reliance on foreign debt and ease its burden at the same time, Byrne said.
On looking ahead, he sees continued challenges he considers "formidable," however.
For instance: "Political spending pressures will also increase in the run-up to the scheduled May 2007 congressional elections."
He said Malacañang should show strong political will to enable the economy to sustain its recent accomplishments.
For the country's rating to move up, Byrne said there should be continued significant deficit reduction and decreased public sector reliance on foreign funding.
"Ultimately, debt ratios need to be reduced from current levels and move closer to levels consistent with Ba-rated countries," he noted.
This pertained to the country's long-term foreign and local currency rating, reflective of a country whose debts are considered non-investment grade.
Business Mirror
November 3, 2006
http://www.businessmirror.com.ph/front01.php
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