June 7, 2012, BusinessWorld
AT LEAST one global credit rating agency might upgrade the Philippines in the next three to six months to catch up with Fitch Ratings that presently rates the Philippines a notch below investment grade, according to UK-based bank Barclays.
We believe the Philippines’ sovereign credit rating is firmly on a positive trajectory, given recent developments on ‘sin’ taxes, public-private partnerships (PPP), as well as increasing interest from (foreign direct investment) partners,” read the Barclays note “Credit Strategy: Instant Insights” dated June 7.
“We expect at least one rating agency to upgrade the Philippines in three to six months, catching up with Fitch.”
Fitch has given the country a BB+ score — one level shy of investment grade — with a stable outlook.
Moody’s Investors Service and Standard & Poor’s (S&P) Ratings Services, meanwhile, rate the Philippines two notches below investment grade. Moody’s rated the country Ba2 with a positive outlook, and S&P, BB with a positive outlook.
“In addition,we now believe Fitch is likely to change the outlook to positive in the coming three to six months,” Barclays said.
Upgrades are expected to come after the House of Representatives on Wednesday approved the sin tax bill on third and final reading.
House Bill No. 5727, which will raise excise taxes on tobacco and alcohol, has been sent to the Senate for further deliberations. If approved by the Senate, it will be transmitted to Malacanang and signed into law.
The new measure is expected to raise an additional P31.35 billion in revenues that will be used for universal health care programs and for the benefit of tobacco farmers.
“[W]e believe this is a structural boost to revenues, and is a positive for the country’s fiscal position and debt dynamics. In our view, it supports our constructive view on the credit,” Barclays said.
Moreover, positive developments from the Philippines such as the economic growth of 6.4% in the first quarter and the impeachment of the Supreme Court Justice will support a ratings upgrade.
“With the court case out of the way, we believe the government can work to address key issues, such as infrastructure (through public-private partnerships) with renewed focus,” the note read.
Barclays noted the rollout of a PPP project earlier this month, which showed the government’s commitment to invest in the country’s infrastructure.
So far, the government has rolled out two projects since the start of this year: the P10.04-billion PPP for School Infrastructure Project and the P60-billion deal involving the extension and management of Metro Manila’s Light Rail Transit Line 1.
Only one PPP project — the P1.96-billion Daang Hari-Southern Luzon Expressway link won by Ayala Corp. last December — has been awarded since the infrastructure program was launched in 2010.
Barclays also noted that foreign investors are becoming interested in the Philippines.
“For instance, Gazasia Ltd., along with Aboitiz, plans to build facilities that will convert organic waste into renewable fuel and will invest about $150 million,” it said.
Moody’s, in May, has said it may raise the country’s ratings if improvements in revenue collections are made, reductions in national government debt take place, and acceleration in investment spending is seen.
The agency also said the country should continue to maintain a healthy balance of payments position and a stable financial system.
S&P, meanwhile, has said structural improvements in the revenue system and a strengthening of the country’s balance sheet will result in a credit ratings upgrade.
Fitch has also cited a strengthened fiscal revenue base as a rating upgrade trigger, along with a decline in debt ratios, increase in investments and improvement in the country’s business environment. — Kathleen A. Martin
