MikeLigalig.com

By Joann Santiago

Investment house Barclays foresees an investment grade level for the Philippines in the next 12-18 months given the continued improvement in the economy’s fundamentals.

In a research note dated July 5, 2012, Barclays Research also projects an outlook upgrade from Fitch Ratings to ‘positive’ from ‘stable’ in the next three to six months following this week’s upgrade by Standard and Poor’s (S&P) of the country’s rating to ‘BB+’ from ‘BB-‘, which the research note said is “already expected.”

Amid the positive developments on the domestic economy, the research note cautioned that “it may take a little longer for it (the Philippines) to receive such a rating from two out of the three main agencies.”

Fitch mirror’s S&P’s ratings level for the country at ‘BB+’, a notch below investment grade, while Moody’s Investor’s Service rates the country two notches below investment grade at ‘Ba2’ with the outlook changed to ‘positive’ from ‘stable’ on May 29, 2012 on account of the continued improvement in the government’s revenue collection even without the introduction of new tax measures.

“We remain constructive on the medium-term outlook for the Philippines given its improving political stability, progress in public private partnerships, increasing FDI interest and structural improvements, such as passage of ‘sin’ taxes by congress and an anti-money laundering bill,” the research note said.

Relatively, the research note also cited the country’s manageable inflation rate and well-anchored inflation expectations.

The drop in commodity prices contains pressure from the faster-than-expected rise of the domestic economy in the first quarter at 6.4 percent, thus, Barclays now projects inflation to average at 3.2 percent from 3.5 percent earlier.

The Bangko Sentral ng Pilipinas (BSP) forecasts inflation to average at 3.1 percent this year and 3.4 percent for 2013.

And because of the manageable inflation rate to date, Barclays sees the central bank keeping its policy rates steady, with the overnight borrowing rate at record-low of four percent and the overnight lending rate at six percent, until year-end.

“In a worst-case scenario, we believe the policy response would lean towards fiscal support, through an acceleration of capex and PPP (Public-Private Partnership) programs,” it added.

Barclays projects a 5.5 percent growth, as measured by gross domestic product (GDP), for the Philippines this year and 5.2 percent next year. The government’s 2012 growth target is five to six percent.

Similarly, the research note projects the continued solid backdrop for the peso but noted that the central bank “may consider more measures to curb currency speculation,” citing recent statement by the central bank. - PNA

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