RP gets stable credit outlook from Moody’s

Money sent home by Filipinos abroad and dollar receipts from business process outsourcing would shield the Philippine economy from external shocks, Moody’s Investors Service said on Monday, even as it cited "crucial challenges" to stronger growth. The global credit watcher gave the country a stable outlook in its latest annual report on the Philippines, which it said had been one of the few countries in the region to have avoided a contraction last year amid the global economic slump. "Its [Ba3] rating is supported by the country’s fortified external payment position, as well as a fairly sound and liquid banking system," Moody’s assistant vice-president and analyst Christian de Guzman said. Moody’s last upgraded the country’s credit rating to Ba3 — of questionable credit quality — from B1 or "poor credit quality" on July 23, 2009. Forex boost "In terms of economic fundamentals, for the near term, remittance inflows and receipts from business process outsourcing — now a major industry — will, among other things, support the current account, as well as private consumption," de Guzman said. He said the country’s historically high level of official foreign exchange reserves had been bolstered by remittances from Filipino workers overseas. This, he added, had helped buffer the economy and government finances from external shocks and kept exchange rates stable. "But there remains a dearth of investment spending relative to its rating and regional peers, thereby underpinning the importance of fiscal reform to generate higher revenues. That would enable adequate public investments and ultimately higher rates of potential growth," he pointed out. On the other hand, Moody’s said, the Philippines continues to post net foreign direct investment inflows despite the emergence of relatively more dynamic destinations in the region such as China and Vietnam. While the country is hampered by poor infrastructure, foreign investors continue to find the Philippines attractive as a low-cost destination due to the abundance of a skilled, English-speaking labor force and favorable fiscal incentives, Moody’s said. The Philippines’ $160-billion economy is in the mid-range among Moody’s-rated countries, but its per capita income of $2,900 is "very low." "That, coupled with relatively low fixed capital investment in the economy, constrain the strength of the country’s economy," the rating firm said. Last year, the country’s balance of payments (BOP) reached a record surplus of $5.295 billion from a surplus of $89 million in 2008. It was almost $300 million more than the central bank’s revised forecast of $4-$5 billion. The BOP is a summary of the country's transactions with the rest of the world. A surplus means more foreign exchange entering, improving the country's ability to repay external debt. The central bank expects the gross international reserves to hit a new record of $47-$48 billion and a payment surplus of $3-$4 billion this year due to robust mining investments and higher receipts for its business process outsourcing sector. It also expects money sent in by Filipinos abroad to increase by 6 percent to about $18.1 billion. Filipino workers overseas sent home a record $17.35 billion last year, 5.6 percent higher than in the prior year. The country’s payment position managed to stay positive in the first two months after it booked a surplus of $1.233 billion in January following a $1.5-billion state borrowing abroad and despite a $125-million deficit last February after the government paid $1.4 billion in debt. — N.P. Aquino, GMANews.TV