S&P cuts RP sovereign credit rating on fiscal deficit concerns
S&P cuts RP sovereign credit rating on fiscal deficit concerns
Agence France-Presse, Manila
Standard and Poor's on Monday cut the Philippines sovereign credit ratings, citing the government's failure to shore up its shaky public finances for a move that could make efforts to balance its accounts even more expensive and difficult.
"The downgrades reflect the government's inadequate response to its fiscal problems," the international ratings agency said in a statement.
"With public sector debt at 110 percent of Gross Domestic Product (GDP) and government interest expense at nearly 40 percent of revenue, prompt passage of the government's fiscal plan was necessary to support the Philippines ratings at their previous levels," it said.
Analysts said the peso as well as shares on the Philippine Stock Exchange are expected to take a beating when they open on Tuesday.
The peso closed at 55.525 to the dollar before the news came out and stocks rose 1.77 percent to near 5-year highs with investors said to be more relaxed about the fiscal position after earlier worries about a possible sovereign downgrade.
Manila's long-term foreign currency rating was cut one notch to BB-minus from BB and its long-term local currency rating to BB-plus from BBB-minus.
SP also lowered the country's short-term local currency rating to B from A-3 but affirmed its short-term B foreign currency sovereign credit rating. The outlook is stable.
SP credit analyst Agost Benard said SP "has now revised downward its expectations that the government will be able to raise tax receipts materially from their current low level of 12 percent of GDP and that the governments debt trajectory will move to a clear downward trend."
President Gloria Arroyo asked Congress last year to pass a series of measures designed to raise an additional 80 billion pesos (US$1.5 billion) to avoid a potential fiscal crisis in three years' time.
However, only one measure, on tobacco and liquor products, has been passed so far and that in what SP described as a "watered- down version."
Half the country's debt, put at 4.3 trillion pesos at the end of June last year, is in foreign currency, exposing it to the risk that rising global interest rates or a weakening peso would "sharply limit policymakers room to maneuver."
Arroyo spokesman Ignacio Bunye said THE government remained hopeful the SP would revise its outlook, citing A "respectable fiscal performance and healthy growth in 2004.
"We are confident SP will revisit our rating and consider reversing the downward action once they have a complete understanding of the government's significant achievements to raise revenues," Bunye said.
Central bank governor Rafael Buenaventura said the ratings downgrade may not impact on the government's borrowing costs since the cut had been anticipated.
"There is a degree of impatience on their part. (It's because) they're not seeing action fast enough," Buenaventura told reporters.
"We need to work twice as hard (and) that we will, in fact, be able to do what we say we will do to take away the skepticism," Buenaventura said.
Benard of SP said the stable outlook "reflects the more comfortable rating relativities at this lower rating level at which the Philippines weak fiscal and debt profiles are balanced by the countries external position.
"Total public and private sector external debt at year-end 2005 is projected to be less than 120 percent of current account receipts and the Philippines 2005 gross external financing requirement should equal only 77 percent of unencumbered net official reserves.
"Coupled with modest success in enacting some of the governments fiscal measures in the upcoming legislative session, Standard and Poors sees the upside and downside risks to the Philippines new ratings as balanced," Benard added.