Moody's: Philippines vulnerable due to high public-sector debt

Moody's Investors Service said it in an annual report on the Philippines that its B1 ratings and negative outlook recognize the progress made in fiscal reforms, but it noted that the Philippines' exceptionally high public-sector debt leaves it vulnerable to shocks.

Importantly, the Moody's report also recognized that the country's strengthened external payments position provides a buffer to transitory shocks or policy missteps, allowing time for fiscal consolidation to become more entrenched.

Still, even assuming a best-case scenario for fiscal reform this year, the ratio of national government and non-financial public sector debt to revenue will likely stand around 400% of GDP at the end of 2006, a level that is well above that of similarly rated countries, the agency said.

"A fundamental strengthening of both the fiscal and external payments positions would be necessary to improve the rating," said Moody's vice president Thomas Byrne.

"Specifically, the achievement of the 2006 budget targets for 75 billion pesos in additional value-added tax revenues and the reduction of the national government deficit to around 2.1 percent of GDP would lead Moody's to consider changing in the outlook to stable from negative."

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