Standard & Poor’s blames weak revenues:RP fails to get rating firm’s confidence vote



By Maricel E. Burgonio, Reporter

Manila--THE Philippines failed to secure a confidence vote from one of three important foreign credit-rating companies, after the country’s revenue-generating agencies missed collection targets for the first quarter.

In a statement issued Friday night, Standard & Poor’s Ratings Services said it kept its credit-rating outlook for the country, currently stable, dashing government hopes that the rating company would lift the same to positive.

A stable outlook means that S&P is likely to maintain its present below-investment grade rating on the country over the next six months to a year. A below-investment grade, or junk rating, means the country would continue to pay heftier interest rates whenever it borrows money abroad. Higher rates translate to a heavier debt burden for every Filipino.

S&P said it affirmed its “BB negative” foreign currency and “BB positive” local currency issuer credit ratings on the Philippines, with a stable outlook.

Agost Benard, S&P’s credit analyst, said the stable outlook reflects both the government’s achievements in fiscal reforms and uncertainty surrounding the adequacy of the revenue base, given problems on collection and administration efficiency.

Benard said the outlook could change to positive if additional revenue measures will be forthcoming early on in the life of the new Congress, including the passage of pending fiscal reform bills.

He, however, warned that the outlook on the ratings could again come under downward pressure if reforms are stalled, making the government’s balanced budget goals unattainable. Also a concern is any attempt to cut expenditures, and so erode future economic growth prospects.

Benard said one of the major rating categories is the country’s level of vulnerability to economic shocks or negative policy changes. The government’s total public-sector debt at 75.5 percent of 2006 gross domestic product (GDP) is well in excess of the 47.3 percent for comparable countries, he said. GDP is the amount of goods and services produced in a country.

The S&P official said the Philippines’ external leverage is similarly excessive, given net public-sector external debt to current account receipts of 20 percent against the median of 4.4 percent.

He said the debt-to-revenue ratio of 386 percent against the median 162 percent highlights the relatively high level of indebtedness and low revenue base from which to service it.

“The revenue shortfalls evident so far this year highlight this ongoing weakness, which in the absence of further revenue-generating steps, will put a question mark over the administration’s ability to create the fiscal base necessary for attaining its goals of a balanced budget from 2008 onwards, and simultaneous large capital spending,” he said.

The S&P official recognized the Arroyo administration’s fiscal reform gains, citing the revenue to GDP ratio of 16.3 percent, which is higher than 14.6 percent in 2004. Also noteworthy is the decline in the budget deficit to 1.1 percent of GDP from a peak of 4.8 percent.

Benard said this achievement led to a consolidated public-sector surplus of 0.1 percent of GDP last year.



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