Fitch praises PHL monetary sector, cites fiscal side has to deliver

London-based Fitch Ratings is looking at the Philippine monetary sector with a nod of approval, but is at this point frowning upon the nation’s fiscal sector, saying it needs to deliver on budget and revenues. It has expressed apprehensions over revenue flows and budget discipline for 2011, with the Aquino administration targeting a budget deficit of P310 billion or 3.2 percent of gross domestic product (GDP). "Public finances remain the Philippines' key rating weakness, with the revenue-to-GDP ratio well below the median of 21 percent of 'BB' range countries," the rating agency said. The ratio, known as the revenue effort and an indicator of [a country’s] ability to collect tax as percent of GDP, is expected to improve to 16.3 percent next year from 15.6 percent this year — still missing the 21-percent mark reported by similarly rated countries, however. Fitch stressed the need for the Philippine government to "deliver its promise of raising revenues while maintaining fiscal discipline in its 2011 budget." A two-man team from Fitch is visiting the Philippines later this month, according a government official who requested anonymity because he was not allowed to speak on the matter. The team will meet with officials from revenue raising units of the Aquino administration starting March 28 to get a feel for government’s collection program and its prospects for the year. The Fitch team will look for ways to make the case for a new Philippine credit rating upgrade, the official said. Apart from talking to commissioners of the Bureau of Internal Revenue, Bureau of Customs, and Bureau of Treasury, the team will also meet with Budget Secretary Florencio Abad, Tourism Secretary Alberto Lim, Socio-economic Planning and National Economic Development Authority chief Cayetano Paderanga Jr., Finance Secretary Cesar Purisima, and the heads of the Philippine Economic Zone Authority and the public-private partnership initiative. Teams to boost case for an upgrade To boost the chances of an upgrade, even on the outlook side, the March 28 team will simply be a briefing team, or pre-visit team ahead of another two-man Fitch Ratings team that will start discussing things with government officials. Last August, Fitch awarded the Philippines with a "BB" rating for its long-term foreign currency obligations with a “stable" outlook indicating the need for more positive developments in the economy for the country to merit more credit upgrades toward the coveted investment grade. The upgrade could be another "BB" rating but a notch higher in terms of outlook from “stable to “positive," the official said. This would mean a few more notches toward the Triple “’B’ economy" status. Bangko Sentral ng Pilipinas Gov. Amando M. Tetangco Jr. earlier said the Philippines has achieved a number of credit positives on with the policy reforms instituted in the aftermath of the 1997 financial crisis. Such reforms, Tetangco said, shielded the economy from the crunch of the recent global recession. He cited the balance of payments surplus that was supported by remittance from overseas Filipino workers as well as the surge in foreign portfolio and direct investments, the recovery of the export sectors, and the growing receipts from business process outsourcing operation. These things happened against the backdrop of low and stable inflation and record low interest rates that boosted the GDP to grow at 7.3 percent last year, Tetangco said. — VS/PE, GMA News