Philippines’ Credit Rating Boosted by Moody’s to Ba1

The Philippines’ debt rating was raised to the highest level since the start of 2004 by Moody’s Investors Service, bringing the Southeast Asian nation one step away from investment grade. The peso and bonds rose.

The country’s foreign and local currency long-term bond ratings were upgraded to Ba1 from Ba2, Moody’s said in a statement today. That brings the Philippines on par with Turkey and Hungary. The ratings outlook is stable.

“The writing is clearly on the wall,” said Roberto Juanchito Dispo, president of First Metro Investment Corp., one of the arrangers of the government’s record retail bond sale this month. “The Philippines is definitely on its way to becoming investment grade in due course. This will bring numerous tangible economic benefits to the country.”

President Benigno Aquino has won ratings upgrades as he takes steps to contain the budget deficit and lure foreign investors to spur expansion in the $225 billion economy. Standard & Poor’s in July raised the debt rating to BB+, one level below investment grade, citing improved prospects for growth, while an agreement with Muslim rebels this month to end a four-decade insurgency in the mineral-rich south has boosted the country’s appeal.

Peso Gains

The peso erased losses, gaining 0.1 percent to 41.177 per dollar as of 2:06 p.m. in Manila, according to data from Tullett Prebon Plc. It is the top gainer this year among the 11 most-widely traded Asian currencies tracked by Bloomberg. Philippine dollar-denominated bonds maturing in January 2037 rose after the upgrade, halting a four-day slide. The yield on 5 percent bonds fell one basis point, or 0.01 percentage point, to 3.78 percent, according to data compiled by Bloomberg.

“Improved economic performance and continued fiscal revenue buoyancy in the face of deteriorating global demand” led to the upgrade, Moody’s said in a statement. “In contrast to similarly rated countries, the country is poised to record a combination of faster growth, lower inflation, exchange rate appreciation, and an increase in foreign exchange reserves, while maintaining trend debt consolidation,” it said.

Aquino is taking steps to reduce corruption while seeking more than $16 billion of investments in roads and airports to spur expansion to as much as 7 percent in 2013 to create jobs and reduce poverty. Gross domestic product rose 5.9 percent in the second quarter from 6.3 percent in the previous three months, which was the fastest expansion in Southeast Asia.

“This is another affirmation of the economic agenda of President Aquino,” Finance Secretary Cesar Purisima said in a mobile text message today. “Good governance indeed is good economics. We will continue to focus on the fundamentals of fiscal sustainability and business environment enhancement.”

Beneficial Effects

Bangko Sentral ng Pilipinas last week cut its overnight borrowing rate by 0.25 percentage point to a record 3.5 percent, bringing the total reduction in 2012 to 1 point. An investment-grade rating is possible next year, Governor Amando Tetangco told reporters today.

“Over the longer term, the landmark peace agreement signed between the government and the Moro Islamic Liberation Front may have wider beneficial effects on investment and economic growth in Mindanao,” which has untapped agricultural and mining potential, Moody’s said.

The central bank lowered its inflation forecast for this year to 3.3 percent from 3.4 percent, and to 3.9 percent from 4.1 percent next year. Inflation unexpectedly eased in September to 3.6 percent from a year earlier.

Today’s upgrade contrasts with recent actions on other Asian nations. Vietnam’s government bond rating was cut last month by Moody’s for the first time since 2010 as the nation grapples with rising bad debt in its banking system that has hurt growth, while S&P said this month India may lose its investment-grade rating within the next 24 months if growth slows and political opposition to policy overhauls increases.

“A stable outlook signals possible further upgrades in the future,” central bank Deputy Governor Diwa Gunigundo said in a mobile text message. “The challenge for us is to sustain what we have been doing in strengthening the macro economy and enhancing good governance.”

(Corrects 10th paragraph to remove reference in Moody’s quote of Mindanao being largest island.)
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