Fitch affirms the Philippines

Fitch Ratings said it affirmed the Republic of the Philippines' long-term foreign- and local-currency issuer default ratings at BB and BB+, respectively, the short-term issuer default rating at B and the country ceiling at BB+.

The agency said there has been a major fiscal adjustment in the Philippines in recent years: an extended period of restrained spending and the successful implementation of the VAT in 2006 demonstrated the government's clear commitment to fiscal prudence, the primary surplus increased to an estimated 4.1% of GDP in 2006 from 0.6% of GDP in 2003 and over the same period, consolidated general government debt fell by nearly 14% to 58% of GDP and national government debt fell by a similar amount to 65% of GDP.

Despite the improvement in public finances, Fitch said there were several factors that preclude positive rating actions at this time: Philippine fiscal gains could be at risk without further significant improvements in tax collection to match new spending; fiscal flexibility in the Philippines remains severely constrained, as interest payments alone account for 30% of government revenue; and the Philippine government debt burden, while declining, still compares unfavorably with those of its rating peer group.

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