Philippines Economy Sees Positive Ratings Action Amid Stronger External Payments Position

Strategic Insights -

The Philippines' economy is experiencing a boost from positive ratings actions from international agencies, driven by the government's efforts to improve revenue collection and strengthen its fiscal position. The upgrades are expected to attract more foreign investments to the country, which is facing a weak recovery in the US economy and the debt crisis in Europe. President Benigno Aquino III's administration has implemented measures to improve revenue collection, resulting in a record-high budget surplus and a significant decrease in the country's deficit.

Key Takeaways:

  • Fitch Ratings upgraded the Philippines' long-term foreign currency issuer default rating (IDR) to BB+ from BB-, making the country a notch away from investment grade.
  • The upgrade reflects the government's fiscal consolidation efforts, strong external position, and broadly favorable economic prospects.
  • The country's current account surplus has risen steadily since 2003, underpinning its external finances.
  • The Bangko Sentral ng Pilipinas (BSP) reported a current account surplus of US$933 million in the first three months of this year, accounting for 1.8% of GDP.
  • The country's gross international reserves (GIR) rose to a record-high of US$68.8 billion in the first five months of this year, covering 10.6 months of imports and 10.9 times the country's short-term external debt.
  • The BSP projects GIR to hit US$70 billion this year and US$75 billion in 2012.
  • The country's balance of payments (BOP) position registered a US$4.8 billion surplus in May, a 78% expansion from the year-ago surplus.
  • Analysts forecast the local unit to continue rising on back of positive developments on-shore and the questionable path of recovery of major economies.

Statistics:

  • US$933 million: Current account surplus in the first three months of this year, accounting for 1.8% of GDP.
  • US$68.8 billion: Record-high gross international reserves (GIR) in the first five months of this year.
  • 10.6 months: Coverage of imports and payments of services and income by dollar reserves.
  • 10.9 times: Equivalent to the country's short-term external debt based on original maturity.
  • US$4.8 billion: Balance of payments (BOP) position in May, a 78% expansion from the year-ago surplus.
  • US$70 billion: Projected GIR for this year.
  • US$75 billion: Projected GIR for 2012.

Sources:

  • Fitch Ratings
  • Bangko Sentral ng Pilipinas (BSP)
  • Manila Standard
  • Philippine News Agency (PNA)