The Philippines has a good chance of winning an investment grade rating for the first time in 2013 as it sustains faster growth and cuts debt levels, Budget Secretary Butch Abad said.
Standard & Poor’s this month raised the nation’s long-term foreign currency-denominated debt rating to BB+, which is one step below investment grade, and the highest level since 2003. Moody’s Investors Service boosted its outlook to positive in May, and Barclays Plc predicts the country’s score will be elevated from so-called junk status in 12 months to 18 months.
“We deserve it,” Abad said in an interview in his office in Manila yesterday. “We are moving into a virtuous cycle of sustained and inclusive growth. Eighteen months is too long; they’ll have to see our performance over the next two quarters.”
Emerging nations from Brazil to Indonesia have won credit-rating upgrades in the past year as governments contained budget deficits. A higher assessment for the Philippines could help President Benigno Aquino as he boosts spending to a record this year and seeks $16 billion of investment in roads, bridges and airports to shield the economy from Europe’s sovereign-debt crisis and a growth slowdown in China.
The peso, Asia’s best performer this year in a basket of 11 most-traded currencies, fell 0.1 percent to 41.912 per dollar at the noon trading break in Manila, according to Tullett Prebon Plc. The Philippine Stock Exchange Index fell for a fifth day.
The government plans to narrow the deficit to 2 percent of gross domestic product by 2013 from a target of 2.6 percent this year. The shortfall last month was probably wider than the 19.9 billion-peso ($475 million) figure in May, Abad said.
The deficit for the first five months was 22.79 billion pesos, less than 10 percent of the 2012 ceiling of 279 billion pesos, Abad said. State spending was “significantly more” in June compared to May when expenditure climbed to 151.3 billion pesos, the highest level this year, he said.
“We want to hit the max, especially if it leads to productive investments,” Abad said.
Increased revenues, lower interest payments and a budget deficit that’s significantly below target gives the two-year-old Aquino administration room to spend on items not earmarked in the 2012 budget, Abad said. The government plans at least 20 billion pesos in additional outlays this year to improve access to tourism zones, and upgrade lighting and security in airports to ease congestion and cater to more visitors, he said.
More tourists and overseas investors will help add jobs and boost incomes as the government improves education and health care to reduce the poverty level to 16.6 percent by the end of Aquino’s term in 2016, Abad said. That’s compared to 26.5 percent in 2009, at the time of the last survey.
The $200 billion Southeast Asian economy grew 6.4 percent in the first quarter, the fastest pace since 2010. Second-quarter growth will be within the 5 percent to 6 percent target for the year, Abad said, while reiterating Aquino’s goal of expansion of 7.5 percent to 8.5 percent by 2016.
Starting 2013, funds allocated for projects will be valid for only a year instead of two years, to force agencies to speed up implementation, Abad said.
“We will be able to accelerate spending further in the second semester,” the budget chief said. “We are looking at advancing the implementation of projects in 2013.”
The government has also stepped up efforts to catch tax evaders and smugglers, while a so-called sin tax seeks to boost collection from liquor and cigarette manufacturers by 30 billion pesos per year. Aquino will also ask Congress to increase the levy on mining from 2 percent to at least 5 percent, Abad said.
Higher taxes and collections will boost tax revenue as a percentage of gross domestic product from about 14 percent to the 20 percent level in investment grade neighbors such as Singapore, Abad said. Debt is scheduled to drop to 42 percent of GDP by the end of Aquino’s term from about 49 percent.
“Our priority is dealing with poverty, governance and the economy,” Abad said. “This is firmly founded on what every nation needs. The high cost of doing business, corruption are things we are already addressing.”