SINGAPORE, Oct. 29 (UPI) -- Credit rating agency Standard & Poor's announced Tuesday that it had cut the Philippines outlook from stable to negative, while maintaining its long-term rating of BB. In light of the ballooning budget deficit, the move had been anticipated by the markets.
In its daily research note, Deutsche Bank said it was now expecting similar moves by rival rating agencies Fitch and Moody's by the end of the year.
The overshoot of the budget deficit target has been a constant burden to the Philippines government over the last few months, dampening investors' interest. For the Jan.-Sept. period, the government reported a fiscal deficit of U.S. $3.13 billion, well above the original target of $2.46 billion or 3.3 percent of gross domestic product, and even the revised target set in September of $2.93 billion or 4.0 percent of GDP.
"The change in outlook reflects diminishing prospects for the fiscal consolidation that is necessary to stabilize and reduce the government's high debt burden and sustain investor confidence," said sovereign analyst Joydeep Mukherji.
"Total government debt, including the central bank, is around 80 percent of GDP, already exceeding the level in most similarly rated sovereigns. Interim results during the current fiscal year indicate poor revenue collection, especially from the Bureau of Internal Revenue," he added. As a result, the fiscal deficit may approach 4.5 percent of GDP this year, S&P predicts.
S&P said the government's success in reigniting the structural reform agenda, especially in the energy sector, and in bringing more coherence to economic management, could be "jeopardized by its inability to meet revenue collection targets on a consistent basis."
"The delay in strengthening the Bureau of Internal Revenue creates uncertainty about the government's ability to meet its long-term fiscal objectives, which are key to sustaining the current level of creditworthiness," he noted.
As a result of the downgrade, analysts believe the Philippines may have to postpone this year's pre-funding of 2003 bond issuance.
Indeed, Philippine National Treasurer Sergio Edeza told local media that the Standard & Poor's downgrade may prompt the government to delay foreign borrowings for the rest of this year. Edeza added the government may also review the make up of domestic (44 percent) and foreign borrowings (56 percent) for next year.
