Moody's lowers Philippines view to negative

Moody's Investors Service said it changed to negative from stable the outlook on the Philippines' B1 long-term foreign- and local-currency government bond ratings, the foreign-currency country ceiling for bonds and the foreign-currency bank deposit ceiling owing to concerns that the political turmoil that has beset the Arroyo administration might have negative consequences on the budget and external payments position.

The local currency country guideline remains unchanged at Ba1, the agency said.

Moody's noted in its most recent rating action in February that the Philippines' large build-up in public-sector debt and total external debt introduces heightened vulnerability to shocks.

The agency said the uncertainty following the forced resignation of the economic team in the administration, including not only the finance secretary but also the budget secretary, the Bureau of Internal Revenue commissioner and the Customs commissioner, casts doubt on the ability of the administration to preserve recent improvement in the government's fiscal performance, upon which Moody's stable outlook was premised.

The rating agency noted that the Philippines's external payments position is currently bolstered by the rise in gross international reserves to a record level in excess of $17 billion. Moody's said it recognizes that the independence and prudent management of the country's international reserves and exchange rate by the Bangko ng Sentral, the central bank, have provided stability to the Philippines's external performance so far this year.

Nevertheless, Moody's said it believes that there is a significant degree of uncertainty about the stability of the country's fiscal and external payments positions under the unsettled political environment in the Philippines.

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