MANILA (Dow Jones) — Fitch Ratings isn’t as pessimistic as it has been on the Philippines’ sovereign rating and may remove its negative outlook on the rating as the government’s finances have stabilized, according to an analyst at the firm.
But the international ratings agency said it has no set timetable for altering the outlook or making any changes to the country’s ratings.
"It’s a dynamic process. We continue to look" at developments, Paul Rawkins, a senior director at Fitch, told Dow Jones Newswires in a telephone interview late Friday.
Fitch Ratings in December lowered the outlook for its BB rating on the Philippine government’s long-term foreign currency debt and BB+ long-term local currency rating to negative from stable, foreshadowing a cut that would put the sovereign further below investment grade.
At that time, the agency said the outlook revision reflected "increased concerns about prospects for fiscal policy adjustment" amid diminishing fiscal flexibility that leaves the public finances vulnerable to shocks.
But Rawkins said the fiscal situation in the Philippines has stabilized. Fitch Ratings is "not confident" with the negative outlook it earlier assigned to the country’s ratings, he said.
"The public finances have stopped deteriorating although it isn’t getting any better," Rawkins said. "The best" that the Philippines could achieve would be a change in the rating outlook given the tasks that the country still needs to accomplish.
"Tax reform will need to be pushed to make the budget much more resilient," said Rawkins. "At this point, more needs to be done."
Until such time as the Philippines has passed satisfactory fiscal reforms, the chance of a rating upgrade is small, he said.
President Gloria Macapagal Arroyo has set as her top priority tackling the nation’s budget deficit, which is a big worry for investors. The government hopes to pare the deficit from 3.9 percent of gross domestic product last year on the way to a balanced budget at the end of Arroyo’s term in 2010.
Arroyo, a US-trained economist who won a sixyear mandate in elections last May, has proposed a package of measures that are expected to yield additional revenue of
P80 billion a year.
Congress has so far approved two tax reform measures: an increase in the tax rate on alcohol and cigarettes and a system of rewards and penalties to improve the efficiency of tax-collecting agencies.
Over the past few months, the government has made progress in reducing its budget deficit. Latest official data showed that the budget gap for the first two months reached P40.053 billion, roughly half the P77.8 billion deficit ceiling set for the first quarter.
The government is pushing lawmakers to pass other bills that will further reduce the deficit so that the government can reduce its dependence on borrowings and stave off risks of debt default.
Lawmakers continue to deliberate on value added tax bills — the biggest revenue-generating measure in the tax reform package. The Senate on Friday ended a three-day special session without passing its version of the VAT measure. The upper chamber is expected to continue discussions on the measure when it resumes its regular session April 11. Once the Senate passes the VAT bill, the bill will be merged with the version already approved by the lower chamber, the House of Representatives, before being signed into law.
Rating agencies in the past few months had indicated that the pace of reform hasn’t been fast enough. Standard & Poor’s on Jan. 17 lowered its long-term foreign-currency credit rating on the Philippines by one notch to BB-.
Moody’s Investor Service similarly slashed its credit ratings on the country on Feb. 16 by a largerthan-expected two notches.
Thomas Byrne, a vice president and senior analyst at Moody’s, said last week that the agency won’t take further action on its ratings until the Philippines has passed key reform measures.
Since the beginning of the year, local financial markets have been boosted by portfolio investors who are cashing in on the passage of the badly-needed reforms. Such enthusiasm, however, has lately ebbed as some expressed concerns that the reform efforts may be losing steam.
