Standard & Poor’s Ratings Services has assigned its ‘BB’ debt rating to the Republic of the Philippines ‘ (local currency BBB/Stable/A-3; foreign currency BB/Stable/B) US$500mn global bonds, due
The sovereign credit ratings on the Philippine government is supported by the country’s adequate external liquidity, with total debt service (including short-term debt) as a share of current account receipts projected at 38%, similar to the median level for rated peers. Total external debt is projected at 131% of current account receipts this year, the same as the median level.
“The central government deficit is likely to remain high at about 5% of GDP by government’s definition this year, compared with 5.4% in 2002, due largely to weak tax collection,” says Takahira Ogawa, credit analyst at Standard & Poor’s. “General government debt, excluding amounts guaranteed by the government and lent to public-sector corporations, is approaching 90% of GDP this year, compared with the median level of 51% for similarly rated sovereigns.” The interest payments are likely to consume about 37% of central government revenue, up substantially from 22% in 1999. The weak fiscal profile and shallow domestic capital markets force continuing dependence on external capital to accelerate economic growth, raising the vulnerability of Philippine financial markets to adverse external developments, and constraining macroeconomic stability.
According to Ogawa, the Philippines ‘ narrow tax base contributes to weak public finances. Tax revenues have fallen by more than three percentage points as a share of GDP since 1997, due largely to shortfalls in collections by the Bureau of Internal Revenue.
Furthermore, there is an increasing risk of the government assuming contingent liabilities in the utility sectors. “The growing difficulty in implementing ambitious structural reforms in the energy sector, as well as delays in restructuring some public sector enterprises, such as Napocor, raises the likelihood of the government assuming more of these entities’ debt in coming years,” Ogawa notes.