Last week, the newspapers carried a news item on rating agency Fitch stating that it is not likely to upgrade the Philippines’ sovereign credit rating anytime soon. The article stated that there were “lingering concerns on revenues coping with huge spending pressures…”
At present, Fitch’s credit rating for the Philippines’ long-term foreign currency issue is BB. This is 2 notches below investment grade which starts at the BBB minus level. Fitch’s rating is the highest, so far, from the major international rating agencies. Standard & Poor’s rates our sovereign debt 3 notches below investment grade while Moody’s rating is 4 notches below.
It is important to remember that ratings are forward-looking. Rating agencies will attempt to foresee how an entity’s creditworthiness will be years down the road. Considering that elections will be coming up in 2007, I guess the rating agencies will not expect much movement or much positive development on the economic front considering that when there are elections, everybody in government seems to be distracted by the political exercise.
We must also take note that rating agencies always look at each and every entity, not in isolation, but in comparison with other rated entities. Fitch, for example, is said to rate 98 countries. The Philippine government’s revenue as a ratio to GDP is said to be quite low and there are BB-rated sovereigns that look much much better than the Philippines. Thus, to move up the rating scale, the Philippines must not only look good compared to itself (from years ago) but also compared to other BB-rated countries.
From the way rating agencies operate, it will probably take some time (medium to long-term perhaps) for the Philippines to get a rating upgrade. It takes a lot to make a rating agency change its opinion.
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