Moody’s wants clear econ, fiscal policies from Aquino

Benigno Aquino III, the leading contender in the May 10 polls, and his administration need to lay down clear cut economic and fiscal policies in the next few months, New York-based credit rating agency Moody's Investors Service said Wednesday, commenting on the recently concluded Philippine elections. Aquino's apparent and unambiguous victory in the Philippine presidential elections sets a favorable tone for the country’s credit fundamentals, Moody's senior vice president Thomas Byrne said in a special comment entitled Philippines Election Commitment. A clear-cut triumph would remove the undercurrents of political legitimacy that accompanied the incumbent administration of President Gloria Macapagal-Arroyo and hamstrung its policy agenda, Byrne said. However, he criticized Aquino’s campaign platform. "Aquino ran on a platform of transformational leadership that was heavy on rhetoric, but light on substance. The incoming administration will thus need to remove ambiguity on its economic and fiscal policies in the months ahead to shore up further the government’s credit fundamentals," Byrne said. Moody’s is also concerned with the Philippine government’s debt which remains vulnerable to swings in interest and exchange rates, and shocks against shifts business and political confidence. The Philippines hopes to consolidate its fiscal numbers by trimming the budget deficit to P293 billion or 3.5 percent of gross domestic product (GDP) this year from a record P298.5 billion or 3.9 percent of GDP last year. Surprised by the global financial crisis, the Arroyo administration abandoned its commitment to balance the country's budget this year under the Medium Term Philippine Development Plan (MTPDP). In fact, the government undertook fiscal consolidation measures to accelerate the achievement of a balanced budget in 2008 but was derailed due to the worldwide economic meltdown. The Philippine GDP grew 0.9 percent last year from 3.8 percent in 2008. This year the Cabinet-level Development Budget Coordinating Committee projected the GDP growing between 2.6 percent and 3.6 percent. Moody's said the country's sovereign rating outlook was last upgraded to Ba3 from B1 July, based on its external payments position and resilient banking system that bucked the global financial turmoil. A Ba3 rating is three notches below investment grade, with a stable outlook. B1 is four notches below investment grade. "Our upgrade of the Philippines’s rating in July 2009 was prompted by country’s strong external payments position and stability in the banking sector. We expect both of these factors to continue to provide support to the Philippines’ rating," Byrne said. According to him, the new government should keep in check the decline in revenue collections that was spurred by a slower domestic output. "Our concerns continue to center on whether the new administration can arrest the trend slippage in revenue performance, which was exacerbated by the downturn in macroeconomic conditions during the global crisis, stalled reform measures, and the passage of revenue-eroding ones," he said. Moody's sees the country's budget shortfall hitting 3.9 percent of GDP this year, with the new government returning to the fiscal consolidation path. "…Signs that the new administration has the will and the means to get back on a path of gradual fiscal consolidation would be a positive credit development," the Moody's official said. Moody's, Standard and Poors, and Fitch Ratings are closely watching the economic and fiscal developments in Southeast Asian nation. While Moody’s upgraded the country’s credit rating outlook to positive and S&P and Fitch retained a stable outlook, the rating agencies continued to place the country’s sovereign bonds below investment grade. Like Moody’s, S&P gave Philippine debt three notches below investment grade and Fitch Ratings a minus two. —VS, GMANews.TV