Moody’s Investors Service and Standard & Poor’s (S&P) should rate Philippine bonds at least one level higher, given the country’s improving debt ratios and tax revenue, Finance Secretary Cesar Purisima said.
“I really believe that at least those two are off line,” Purisima said in an interview on Tuesday. “We have a case to suggest to them that we should be at least a notch higher.”
The Philippines moved closer to its goal of winning an investment grade for the first time when Fitch Ratings raised its assessment last month to BB+, the highest junk rating and on par with Indonesia. Fitch said on Tuesday it was more likely to raise Indonesia, while Moody’s said its Philippine rating was appropriate.
But Purisima said the country’s key financial ratios were “very close” to those of peer countries. Debt is 56.5 percent of gross domestic product (GDP), almost the same as 55.9 percent in India. In Indonesia the ratio was 26 percent at the end of last year. The Philippines aims to narrow the budget deficit to 2 percent of GDP by the end of 2013, from a 4 percent level last year that was the same as India’s.
Investors demand an extra 127 basis points from the Philippines’ 4-percent dollar note due January 2021 over US Treasuries, compared with 157 basis points for Indonesia’s 4.875 percent debt due May 2021, Royal Bank of Scotland Group Plc. prices show.
Emerging-market nations from Brazil to Sri Lanka have won rating upgrades, highlighting the relative strength of developing economies amid soaring deficits in advanced nations.
The Philippine government last week completed a record peso-bond exchange, extending maturities by an average of two years, freeing up cash to build roads and schools. This month Purisima announced plans for the nation’s first exchange of dollar bonds into global peso notes to reduce its foreign-debt burden. The yield on the 7-percent local-currency bond due January 2016 fell to 4.68 percent on July 8, from 6.35 percent on February 28.
“This is a window for us to really reduce our risk profile as a country,” said Purisima. “Doing so will also improve our chances in our quest of getting investment grade. We want that as soon as possible. The sooner the better.”
The Philippines’ sovereign rating was increased to Ba2 from Ba3 by Moody’s on June 15, two steps below investment grade. S&P in November last year boosted its rating to BB, also two notches below investment grade. Moody’s said the Philippines was suffering from weaker growth prospects than Indonesia’s.
“The growth momentum for Indonesia seems to be a lot stronger,” Moody’s assistant vice president Christian de Guzman said in an interview in Singapore on Tuesday. “Moody’s thinks the one-notch gap is justified for now.”
Mr. Aquino must show a track record of keeping state finances healthy, as Indonesia’s President Susilo Bambang Yudhoyono did when he was first elected in 2004, de Guzman said.
“Much of the things being said about Yudhoyono are the things we say now about Mr. Aquino,” de Guzman said. “He just got into office, there’s not much of a track record. In 2004 when Yudhoyono won the election, the debt to GDP was 55 percent. It’s right around where we see the Philippines at now.”
The government estimates that growth in the Philippine economy may have quickened last quarter, following an expansion of 4.9 percent in the three months through March from a year earlier, which was the smallest gain since 2009.
The government will take its time to draw up a solid process for seeking bids on contracts for about $16 billion worth of roads, railways and ports, said Purisima.
“There is such a rush to come up with projects already,” said Purisima. “We don’t want to be tempted into that, because if we don’t do it well, we will hurt the potential sustainability of the program. We want to make sure that everything we do is right and will withstand scrutiny.”
Purisima also pointed to the balance of payments surplus, fueled by remittances from overseas workers and strong financial ratios at the nation’s banks as a reason for awarding the nation a higher rating.
“Purisima has to step up to achieve that goal,” said Junie Banaag, head of First Metro Investment Corp.’s Investment Advisory Group. “Aside from maximizing the current tax base, Purisima has to create other sources of taxes. Expanding taxes will allow the government to cut the deficit and pursue infrastructure projects.” Bloomberg News
