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S&P May Raise Philippine Debt Rating to Investment Grade in 2013

The Philippines may win its first investment-grade credit rating next year as Standard & Poor’s raised the outlook on the nation’s debt to positive, citing improved governance and public finances.

S&P boosted the outlook on the nation’s long-term and short-term foreign-currency denominated debt from stable to positive, it said in a statement today. The long-term rating was kept at BB+, the highest junk level.

“We may raise the ratings next year on an improved government revenue structure, a continued diminished reliance on foreign currency government debt financing, or a lower government debt burden,” Agost Benard, a Singapore-based analyst at S&P, said in the statement. “We may also raise the ratings if institutional and structural reforms lead to improved investment environment, and thus better growth potential.”

President Benigno Aquino signed into law today higher tobacco and liquor taxes and may enact legislation providing free contraceptives to the poor before year-end, achieving what his predecessors failed to do for more than a decade. Moody’s Investors Service and Fitch Ratings rate the Philippines a step below investment grade with a stable outlook.

The $225 billion Asian economy expanded 7.1 percent in the third quarter, the fastest pace since 2010. The yield on the 25-year, 6.125 percent peso debt fell 2.5 basis points, halting two days of gains. The peso fell 0.1 percent to 41.073 per dollar at the close, according to Tullett Prebon Plc.

The nation’s strengthening external profile supports the rating, S&P said, citing current account and balance-of-payments surpluses which have bolstered foreign exchange reserves and keep financing risk low. The country posted a BOP surplus of $8.6 billion as of November, surpassing the $6.8 billion central bank projection for the full year, according to official data.

A high level of public debt and low revenue generation are constraints to the ratings, S&P said. The company may scale back the outlook to stable should fiscal consolidation weaken or the external liquidity position deteriorates, it said.

“We are now only half a step toward formally gaining investment grade, which the market has already given us,” Finance Secretary Cesar Purisima said. The outlook upgrade is “another example that good governance is good economics.”

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