Dutch global banking giant ING Group expects the fiscal reforms set in place by the government such as the full implementation of the Reformed Value-Added Tax Law to earn it an outlook upgrade and eventually a ratings upgrade this year.
ING board member and global head of wholesale banking Eric Boyer said the implementation of the expanded VAT and the likelihood of the hike in VAT rate to 12 percent in February will likely lead to an outlook upgrade in the first half of the year.
He added that the improved performance of the economy and government’s fiscal health in the second half of 2006 will eventually lead to a ratings upgrade.
Boyer noted that the country’s ratings were downgraded by Fitch, Moody’s and Standard and Poor’s mainly because of the delay in the EVAT implementation.
He expects the Philippines to earn a credit rating of between BB and B+ or better than average BB credit in terms of inflation, gross domestic product growth and debt service ratio.
ING expects the Philippine economy to grow at a base of 5 percent this year in contrast with consensus forecast of 4.8 percent. However, this is lower than government projection of 5.7 percent to 6.3 percent.
Boyer said the country’s economy has proven to be resilient even with political issues and high energy costs. He said GDP growth could be higher than 5 percent if the government’s 2006 budget is approved by Congress and funds are allocated for infrastructure spending to pump prime the economy.
ING expects the 2006 economic growth to be driven by a recovery in farm output since the drought is over, increase fiscal spending on government programs, higher remittances and investment in mining, telecom, business process outsourcing, private construction and retail trade.
Boyer said government spending will rise with the higher allotment for local government units while capital expenditure outlays for infrastructure is programmed to rise by 28 percent.
ING also expects the peso to be stable between P52 to P53 to the dollar this year on the presumption that fiscal outperformance and reforms continue, remittances from overseas Filipinos is strong and the political environment remains generally steady.
Boyer stressed though that the hike in the VAT rate from 10 percent to 12 percent will be crucial for the Philippines.
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