S&P affirms RP's “stable” currency outlook

By Joanne Santiago

MANILA, July 4 (PNA) – Credit ratings agency Standard and Poor’s affirmed Friday its stable outlook on the Philippines.

S&P’s rated the country’s long-term foreign currency at “BB-/B” and “BB+/B” for the local currency.

“The outlook on both the long-term sovereign ratings is stable. We also affirmed all of the issue ratings,” the ratings agency said.

S&P said current credit ratings of the country “balance the external strength and relatively low vulnerability of the banking sector against the Philippines long-standing fiscal weakness.”

It said the weaknesses in the country’s fiscal position “have been accentuated by the effects of the global economic downturn.”

“The ratings derive much support from the apparent resilience of the sovereign’s external accounts, whereby external liquidity risk even against the backdrop of an extremely challenging external environment,” it said.

S&P credit analyst Rakahira Ogawa said remittance inflows, which remained resilient amid the global slowdown and even posted a 2.6 percent year-on-year growth last April, “ensure a safe level of external reserves” along with the “growing surpluses in service export and prudent exchange rate management.”

“And they have managed to do so in the face of drastic recent contractions in foreign direct investment and portfolio inflows,” he said.

S&P said the domestic economy is “therefore exposed to only moderate short-term liquidity risk compared with its peers in the rating category.”

“We project its gross external financing requirements at 78 percent of usable reserves plus current account receipts,” it said.

The ratings agency also expects the country’s usable reserves to cover short-term debt with residual maturity by 3.2 times.

The country’s rating is “supported by the low level, and low likelihood of realization of contingent liabilities posed by the banking system, given the absence of features that caused bank collapses and necessitated government bailouts in numerous other sovereign countries,” S&P said.

“System-wide asset quality and capitalization may deteriorate but only slightly from 2008 levels of 4.2 percent non-performing loans and a capital adequacy ratio of 14.6,” it said.

S&P said that “any potential worsening is likely to be capped by the absence of rapid credit growth and comfortable liquidity.”

The 2010 elections, S&P said “may create moderate volatility, and pose a distraction to policy making and implementation.”

It, on the other hand, pointed out that “there is only a limited risk to policy continuity.”

“Nevertheless, the resulting delay in passing and implementing fiscal reform measures currently in the legislature could ignite concerns over the medium-term fiscal trajectory,” it said.

S&P said the current outlook on the country “could be revised to positive on evidence of a renewed focus and commitment to fiscal consolidation and revenue improvement.”

It also said that the ratings could turn to negative “if indications emerge that the deterioration currently experienced in revenue performance and fiscal balance outcomes is not a transitory phenomenon, either because of weakening commitment to fiscal prudence, or due to policy paralysis in a new administration.”

Philippines is among the nine countries in the Asia Pacific region that S&P eyes to register positive growth this year along with China, India Indonesia, Mongolia, Pakistan, Papua New Guinea, Sri Lanka, and Vietnam. (PNA)