Beijing, August 17 (China Economic Net) - Dagong Global Credit Rating Co., Ltd. has decided to maintain the local and foreign currency sovereign credit ratings of the Republic of the Philippines (hereinafter referred to as the "Philippines") at B+, with a stable outlook. Dagong stated that while the change in the Philippine government since 2010 has led to certain shifts in domestic macroeconomic policies, the fundamental factors constraining the improvement of national governance capacity, steady and rapid economic development, and the fundamental improvement of fiscal conditions have not shown significant signs of improvement. Therefore, this rating remains appropriate in reflecting the Philippine government's medium-to-long-term debt repayment capacity.
The main reasons for maintaining the Philippine government's credit rating are as follows:
1. While various measures taken by the new government since taking office are temporarily conducive to easing social conflicts, the deep-seated problems that have long constrained the Philippines' development have not been improved. Although President Benigno Aquino III has vigorously promoted anti-corruption efforts since taking office and prioritized poverty reduction and inclusive growth in his medium-term development plan, the fundamental pattern of political and economic interest distribution among major domestic family groups has not changed. Deep-seated social problems that constrain the Philippines' political stability and healthy economic development persist, and the long-term significance of his reformist measures is not significant.
2. Affected by domestic fundamental factors and the global economic slowdown, future economic growth will decline. In the short term, the global economic slowdown will affect the growth of remittances from overseas workers, weakening the driving force of consumption on the economy. With monetary policy tightening, the attractiveness of the Public-Private Partnership (PPP) model to private investment will be limited. Insufficient domestic industrial competitiveness and weak external demand will further widen the trade deficit. It is estimated that the Philippines' real economic growth rate will fall from 7.3% in 2010 to 5.0% in 2011 and 4.9% in 2012. In the medium to long term, constrained by the slow improvement of fundamental factors, the Philippine economy will maintain a moderate growth rate.
3. The development level of the Philippine financial industry is relatively low. Although the banking sector was less affected by the financial crisis, inherent risks have existed for a long time. Philippine financial institutions are dominated by banks, and the scale of loans is small, failing to provide sufficient financial support for economic development. Due to extremely low exposure to external risks, the banking sector remained robust during the financial crisis; however, issues related to related-party lending and large holdings of securities assets mean that inherent risks persist.
4. The Philippine central government's debt burden is relatively heavy. The new government's measures to stabilize fiscal conditions will help narrow the deficit, and debt repayment capacity is basically stable. The new government will mainly consolidate fiscal conditions by strengthening tax collection, introducing private investment to replace government investment, and privatizing state-owned enterprises. It is estimated that the Philippine fiscal deficit ratio will be 3.3% and 2.6% in 2011 and 2012, respectively, and will be controlled within the 2% range from 2013 to 2016. Due to perennial fiscal deficits, the Philippine central government's debt burden ratio reached 55.4% in 2010, and the debt-to-fiscal revenue ratio was as high as 413.3%. Driven by economic growth and the narrowing of the deficit scale, it is expected that the central government's debt burden ratio will fall to 54.0% and 52.1% this year and next, respectively, and gradually converge to 42.7% by 2016.
5. The Philippines' external debt level is moderate, and debt repayment capacity is guaranteed to a certain extent in the medium to long term given relatively abundant foreign exchange reserves and the appreciation of the currency. In 2010, the Philippines' total external debt accounted for 30.1% of its GDP. Benefiting from long-term remittances from overseas workers, foreign exchange reserves rose to $62.9 billion, with coverage ratios for total external debt and short-term external debt at 1.05 times and 10 times, respectively, which are relatively abundant. At the same time, the peso appreciated by 5% against the US dollar in 2010. Due to the current account surplus, the appreciation trend will continue, which will help alleviate the external debt burden.
Given that the populist policies attempted by the new Philippine government are implemented without touching the fundamental interests of the major domestic family groups, the possibility of political turmoil in the short term is small. Gradual economic growth and slight improvements in fiscal conditions can be guaranteed, and the government's local and foreign currency debt repayment capacity will show a slight strengthening trend. Based on a comprehensive assessment, Dagong maintains a stable outlook for the Philippines' local and foreign currency sovereign credit ratings for the next 1-2 years.
