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GLOBAL
credit watcher Rating and Investment Information Inc.,
or R&I, of Japan sees no drastic change in the country’s
potential for growth this year and has affirmed its
triple B minus (BBB-) rating.
It also
hinted strongly of a credit upgrade for the Philippines
over the near term, saying its rating outlook was
“positive.”
This
could mean a double B or BB rating for the Philippines
over the next 12 months provided its economic managers
get it right and build on the country’s macroeconomic
strengths.
“There
appears little reason to expect that the underlying
strength of the economy had changed significantly,” R&I
analysts said upon seeing the government seems bent on
pursuing “appropriate efforts to manage annual
expenditures, by expanding infrastructure investments
while maintaining is fiscal deficit reduction stance.”
Demand-driven growth in the country has slowed but this
was due to accelerating inflation, according to R&I.
Growth
drivers that include remittances from overseas Filipino
workers and the buoyant business-process outsourcing
sector are growing steadily, R&I said.
Its
analysts urged the Philippines to pursue “measures to
strengthen the fundamental building blocks for growth
centered on infrastructure investment” while also
implementing a public debt-reduction plan.
“In this
regard, the ability to continue improving the ratio of
tax revenues to gross domestic product is likely to
become the most critical issue,” R&I said. “R&I will
continue to closely watch government efforts to broaden
the tax revenue base, including necessary tax system
reform,” it added.
Continued tax reform is a sensitive issue among economic
managers, particularly the value-added tax (VAT) regime
that recently came under attack when the price of
imported oil was constantly going up.
Finance
Secretary Margarito Teves refused to buckle under the
populist movement to have the VAT system, especially
those imposed on petroleum products, recast and the tax
abolished or suspended.
R&I
noted VAT collections last year was lower than
anticipated due to lower-than-expected inflation and the
removal of the cap on input VAT.
The
latter development, R&I said, “gives some reservations
on the capability of fiscal authorities to manage
revenues with the goal of achieving the program to
reduce public debt to under 50 percent of the gross
domestic product by the end of 2010.”
The
Japanese credit watcher also urged the government to
quicken the pace of reforms in the investment sector,
which has recovered from a period of lackluster
participation from overseas and domestic entrepreneurs.
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