Deficit, govt debt, low tax take keep RP rating upgrade elusive

The fiscal sector is the most important factor that keeps rating agencies from giving the Philippines a credit rating upgrade, even though the country is catching up with its Asian peers. “There is strong basis for a credit upgrade," Finance Undersecretary Gil Beltran, who attended the recently concluded spring meetings in Washington, said in a telephone interview on Wednesday. Beltran said discussions with IMF analysts and representatives from the various rating agencies centered on the Philippines' fiscal sector and the likelihood of another large deficit this year as a percentage of the gross domestic product (GDP). "But they also note we have a strong banking sector with a low incidence of soured or non-performing loans [NPLs] and a strong external sector best proven by a surplus in the balance of payments," Beltran said. NPLs have been below 4 percent of total loans for 17 months and alarming deficits in the balance of payments have started moving toward a forecast surplus of $3.7 billion this year, according to the Bangko Sentral ng Pilipinas. Analysts in Washington noted the Philippines is “closing in on its peers in the region" with the savings rate averaging 29 percent of the GDP, Beltran said. Domestic savings, which exclude those of the overseas Filipino workers, now average 19 percent for the Philippines, although the norm among other countries in the region is – on average – 35 percent of the GDP. Savings deposits in the country have been rising by 20 percent – enough resources to guarantee the national government’s borrowings and its efforts to plug the budget deficit, Beltran said. As a result, borrowings by the government for budgetary purposes can be done through the sale of bonds, Beltran said. According to him, analysts from IMF and from the rating agencies are concerned with the risks presented by the high levels of government debt as a ratio of the GDP – averaging 56.8 percent – versus only 38 percent other countries in the region. There were also risks in the country’s low tax effort of only 12 percent of the GDP, while other countries in the region enjoy and average 16 percent in revenue collections, according to the IMF and the credit rating agencies. Plus, the Philippines has low investment numbers of only 14 percent of the GDP versus 30 percent for its peers. The low investment-to-GDP ratio is important, forming the bedrock for future growth, Beltran said. Still, Beltran said the analysts understood that reforms in both fiscal and monetary sectors take years to have an impact, and that continuing commitment to observe the international norms of other macroeconomic goals could boost the likelihood of a credit upgrade over the short- to medium-term. “The numbers in recent months help boost the likelihood of a change in credit standing for the Philippines," Beltran said. —VS, GMANews.TV