S&P raises Philippines' hopes of first investment grade rating

MANILA - Credit rating agency Standard & Poor's raised its rating outlook for the Philippines to positive from stable and said it could be awarded investment grade status for the first time if it follows through on reforms to improve revenues and boost growth.

S&P affirmed its BB+ rating on long-term Philippine sovereign debt. All three major international credit rating agencies currently place the Southeast Asian country a notch below investment grade, but S&P is the first to switch its outlook to positive, and its move comes just six months after last upgrade.

"We may raise the ratings next year on an improved government revenue structure, a continued diminished reliance on foreign currency government debt financing, or a lower government debt burden," S&P said in a statement.

"We may also raise the ratings if institutional and structural reforms lead to improved investment environment, and thus better growth potential."

The S&P announcement came on the same day President Benigno Aquino signed into law his administration's first tax reform measure aimed at increasing taxes on cigarettes and tobacco.

"We revised the outlook to positive to reflect our reappraisal of the political and institutional factors underlying the ratings," said S&P credit analyst Agost Benard.

"In our view, the current administration possesses a level of legitimacy, support, and stability that reduces political uncertainty and allows for improved legislative efficiency. This conducive political setting enables the administration to focus on its key policy objectives of fiscal consolidation, increased infrastructure provision, and poverty reduction."

Much of the enthusiasm for the Philippines - not so long ago considered the "sick man of Asia" - reflects Aquino's efforts to curb corruption, reduce the budget deficit and increase spending on infrastructure.

Helped by lower borrowing costs, improved public spending efficiency and higher revenues, the government is on track to undershoot its 279 billion pesos budget deficit target in 2012.

Its budget deficit is forecast to narrow to 2 per cent of GDP next year from a projected 2.6 per cent this year under the government's 2013 budget.

Manila said it will frontload spending of its 2.01 trillion pesos (S$60 billion) budget next year on infrastructure projects to ensure growth will top that of 2012.

The government is targeting a economic growth of 6 to 7 per cent next year from this year's 5 to 6 per cent goal.

Fitch Ratings gave the Philippines a rating just below invesment grade more than a year earlier than S&P.

Moody's Investor Service upgraded the Philippines' rating in October.