THE New York-based Citi Group, one of the world’s largest financial-services firms, said the Philippines deserves more credit than Moody’s Investor Services has given it.

In a recent market commentary sparked by a news report that said Manila was more vulnerable than Jakarta over rising food and energy prices, Citi Group analyst Johanna Chua said Moody’s has it in reverse.

Moody’s previously said soaring food and energy prices in the Philippines posed serious threats to Manila’s forecast budget and exchange-rate objectives.

Chua argued the impact of rising fuel and food prices on the country’s fiscal and financing programs this year should be less than Indonesia’s.

She cited three reasons, the first centering on the argument that Manila, unlike Indonesia, only moderately subsidizes food.

Chua noted the cost of food subsidies in Manila account for only up to 0.8 percent of local output or the gross domestic product (GDP) every year and carried off-budget via the National Food Authority (NFA) and funded through the NFA’s credit lines from local commercial banks.

“The obligations of the NFA are only gradually borne by the national government, and the impact on the budget deficit and financing program is limited up-front.

“While this impacts on the consolidated public sector balance, the burden and financing look manageable.

“Moreover, the government is already considering increasing the subsidized NFA rice price from the current P18.25 per kilo, which would help reduce the subsidy bill,” the Citi Group analyst said.  She also said Jakarta’s fuel and electricity subsidies equal 5 percent of GDP or 19 percent of forecast spending this year and directly carried in its budget.

Already, the continued rise in fuel prices has forced Jakarta to readjust its forecast budget balance on two occasions to accommodate a 28-percent increase in its budget deficit from original forecast level.

Chua also said Manila’s financing flexibility this year looks better than Jakarta’s.

“Rice subsidies in the Philippines are small enough to avail of existing local bank-credit lines.

“Even if the government incurs fiscal slippages, it also has surplus cash position from 2007 [arising from asset sale proceeds of P90.6 billion],” Chua said.

More asset sale proceeds are expected this year, albeit under more challenging circumstances than last year.

She noted Manila has prepared a budget in which it is a net borrower rather than net debt payor this time around.

“With forecast net domestic bonds set to be negative (P19.9 billion of net domestic repayments) in 2008, we think the Philippines has more room to expand local borrowing to meet unforeseen financing shortfall,” Chua said.

According to Chua, Indonesia anticipates paying official loans totaling $1.4 billion this year and that while this could be financed by new program loans, the bulk of its financing program is borne via net bond issuance that was also seen to double the original forecast level this year.

“With local bond yields sensitive to supply, inflation and monetary-policy expectations and global risk appetite given heavy positioning, Indonesia will be more likely to rely on foreign commercial borrowings,” Chua said.

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THE New York-based Citi Group, one of the world’s largest financial-services firms, said the Philippines deserves more credit than Moody’s Investor Services has given it.

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