S&P affirms some Philippines ratings

Standard & Poor's said it affirmed its long-term foreign currency sovereign credit rating on the Republic of the Philippines at BB. At the same time, S&P lowered its long-term local currency rating to BBB- from BBB and affirmed the B short-term foreign currency and the short-term local currency rating of A-3.

The outlook on the long-term ratings is stable.

The affirmation of the long-term foreign currency rating takes into account the country's satisfactory external liquidity position, which is underpinned by the stable inflow of overseas remittances.

"The Philippines' short-term liquidity risk is moderate and compares favorably with its peers," said S&P credit analyst Agost Benard. The country's reserves provide short-term debt coverage of about 270%, and the ratio of gross financing requirement (current account, short-term debt, and amortization) to reserves is projected at 54% this year.

"The downgrade in the local currency rating reflects the elevated risk of the large general government debt limiting fiscal flexibility, given the possible rise in interest rates, and the country's shallow capital markets, which have a limited capacity to absorb more debt," Benard said. "This also implies an increased risk of crowding out private sector investment, which has been struggling to regain momentum since the 1997 Asian financial crisis, and a consequent impairment of future growth prospects."

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