Philippine Debt Ratings May Be Lowered by Moody's as Tax Increases Held Up
Nov. 9 (Bloomberg) -- The Philippines' credit rating may be cut by Moody's Investors Service on concern President Gloria Arroyo will fail to get lawmakers to pass tax increases needed to narrow the nation's budget deficit.
The ratings are on review for possible downgrade ``due to concerns over the sustainability of the government's fiscal and debt positions,'' the company said in a statement released in Hong Kong. Moody's foreign- and local-currency ratings for the Philippines are Ba2, two levels below investment grade and on a par with Fiji and Bulgaria.
Arroyo is seeking to end a run of deficits since 1998 that bloated national debt to 3.54 trillion pesos ($63 billion) in June, 19 percent higher than a year earlier. Credit rating cuts have made it more expensive for the government to borrow and caused the peso to slump, making it harder to meet debt payments.
``This is the price we have to pay for the slow passage of needed tax reform,'' said Jun Mendoza, who helps manage about $1.3 billion at Banco de Oro, a Manila-based lender.
Arroyo, who won a May election, submitted an eight-part tax package to Congress in July, saying it would boost annual revenue by 80 billion pesos. A bill raising cigarette and liquor taxes by an estimated 7.6 billion pesos, less than the 19 billion pesos sought in the package, has been passed by the House of Representatives for approval in the Senate.
Stocks Drop
``Attempts by the government to pass into legislation urgently needed revenue measures are proving to be politically difficult,'' Moody's said in today's statement. The ratings company has had a negative outlook on all of the Philippines' long-term ratings since they were cut in January.
The Philippine key stock index posted its biggest drop in two weeks after today's announcement, sliding 1.3 percent to 1789.03 at the noon close in Manila.
The yield gap between the Philippines' 8.25 percent bond due in 2014 and similar-maturity U.S. Treasuries widened to 4.68 percentage points at 11:00 a.m. in Manila after the Moody's announcement, according to HSBC Treasury & Capital Markets. The spread was 4.61 points yesterday and narrowed to as little as 3.82 points in April.
Banco de Oro's Mendoza said he isn't buying the nation's 10- year dollar bonds, forecast the yield spread would widen 20 basis points more this week. A basis point is 0.01 percentage point.
``After months of wrangling, we still do not have clarity on if and when the tax measures will be passed or, if passed, whether they would be watered down.'' Said John Teng, a fixed- income analyst at Nomura International (Hong Kong) Ltd.
Lower Ratings
Standard & Poor's said on Oct. 7 it may lower the outlook on its debt rating for the Philippines unless tax increases are approved this year. Fitch Ratings may announce a change to the nation's BB debt rating this month, according to Brian Coulton, the company's Hong Kong-based head of sovereign ratings for Asia. Like Moody's both companies have Philippine ratings that are two rungs below investment grade.
``We are looking at the fiscal adjustments, whether we will see significant tax measures implemented in 2005,'' Coulton said. The government should approve increases in taxes on oil, cigarettes and beer, and raise value-added taxes, he said.
Finance Secretary Juanita Amatong, speaking from her car en route to a meeting with the Senate Ways and Means Committee, said the government expects to have some of its proposed tax changes approved this year.
Opposition
The legislators ``are double-timing but it is a democratic country, of course there will be opposition,'' she said. ``We are talking to the different stakeholders.''
Moody's review will take place in Manila and begin on Dec. 1, according to Corazon Guidote, the government's investor relations' officer. A rating cut may force the Philippines to borrow less than planned from abroad and increase domestic bond sales, Finance Undersecretary Eric Recto said.
The nation, which uses a third of government spending to pay interest, plans to borrow $3 billion to $3.1 billion abroad next year to fund the 2005 budget deficit and to lend to National Power Corp., the country's unprofitable state-owned power monopoly, Finance Undersecretary Eric Recto said.
``We will have to deal with it if a downgrade happens,'' he said.
The Philippine budget deficit was 141.9 billion pesos in the first nine months of the year, 72 percent of the government's full-year forecast. The shortfall reached a record 211 billion pesos in 2002 and the government, which said it doesn't expect a balanced budget before 2009, forecast a 198 billion pesos gap for this year.
The Philippines is the only Asian nation to have had its debt rating cut over the past two years. Ratings have been raised in eight other countries, including Malaysia, India and Indonesia.
To contact the reporter for this story:
Jun Ebias in Manila jebias@bloomberg.net
Nov. 9 (Bloomberg) -- The Philippines' credit rating may be cut by Moody's Investors Service on concern President Gloria Arroyo will fail to get lawmakers to pass tax increases needed to narrow the nation's budget deficit.
The ratings are on review for possible downgrade ``due to concerns over the sustainability of the government's fiscal and debt positions,'' the company said in a statement released in Hong Kong. Moody's foreign- and local-currency ratings for the Philippines are Ba2, two levels below investment grade and on a par with Fiji and Bulgaria.
Arroyo is seeking to end a run of deficits since 1998 that bloated national debt to 3.54 trillion pesos ($63 billion) in June, 19 percent higher than a year earlier. Credit rating cuts have made it more expensive for the government to borrow and caused the peso to slump, making it harder to meet debt payments.
``This is the price we have to pay for the slow passage of needed tax reform,'' said Jun Mendoza, who helps manage about $1.3 billion at Banco de Oro, a Manila-based lender.
Arroyo, who won a May election, submitted an eight-part tax package to Congress in July, saying it would boost annual revenue by 80 billion pesos. A bill raising cigarette and liquor taxes by an estimated 7.6 billion pesos, less than the 19 billion pesos sought in the package, has been passed by the House of Representatives for approval in the Senate.
Stocks Drop
``Attempts by the government to pass into legislation urgently needed revenue measures are proving to be politically difficult,'' Moody's said in today's statement. The ratings company has had a negative outlook on all of the Philippines' long-term ratings since they were cut in January.
The Philippine key stock index posted its biggest drop in two weeks after today's announcement, sliding 1.3 percent to 1789.03 at the noon close in Manila.
The yield gap between the Philippines' 8.25 percent bond due in 2014 and similar-maturity U.S. Treasuries widened to 4.68 percentage points at 11:00 a.m. in Manila after the Moody's announcement, according to HSBC Treasury & Capital Markets. The spread was 4.61 points yesterday and narrowed to as little as 3.82 points in April.
Banco de Oro's Mendoza said he isn't buying the nation's 10- year dollar bonds, forecast the yield spread would widen 20 basis points more this week. A basis point is 0.01 percentage point.
``After months of wrangling, we still do not have clarity on if and when the tax measures will be passed or, if passed, whether they would be watered down.'' Said John Teng, a fixed- income analyst at Nomura International (Hong Kong) Ltd.
Lower Ratings
Standard & Poor's said on Oct. 7 it may lower the outlook on its debt rating for the Philippines unless tax increases are approved this year. Fitch Ratings may announce a change to the nation's BB debt rating this month, according to Brian Coulton, the company's Hong Kong-based head of sovereign ratings for Asia. Like Moody's both companies have Philippine ratings that are two rungs below investment grade.
``We are looking at the fiscal adjustments, whether we will see significant tax measures implemented in 2005,'' Coulton said. The government should approve increases in taxes on oil, cigarettes and beer, and raise value-added taxes, he said.
Finance Secretary Juanita Amatong, speaking from her car en route to a meeting with the Senate Ways and Means Committee, said the government expects to have some of its proposed tax changes approved this year.
Opposition
The legislators ``are double-timing but it is a democratic country, of course there will be opposition,'' she said. ``We are talking to the different stakeholders.''
Moody's review will take place in Manila and begin on Dec. 1, according to Corazon Guidote, the government's investor relations' officer. A rating cut may force the Philippines to borrow less than planned from abroad and increase domestic bond sales, Finance Undersecretary Eric Recto said.
The nation, which uses a third of government spending to pay interest, plans to borrow $3 billion to $3.1 billion abroad next year to fund the 2005 budget deficit and to lend to National Power Corp., the country's unprofitable state-owned power monopoly, Finance Undersecretary Eric Recto said.
``We will have to deal with it if a downgrade happens,'' he said.
The Philippine budget deficit was 141.9 billion pesos in the first nine months of the year, 72 percent of the government's full-year forecast. The shortfall reached a record 211 billion pesos in 2002 and the government, which said it doesn't expect a balanced budget before 2009, forecast a 198 billion pesos gap for this year.
The Philippines is the only Asian nation to have had its debt rating cut over the past two years. Ratings have been raised in eight other countries, including Malaysia, India and Indonesia.
To contact the reporter for this story:
Jun Ebias in Manila jebias@bloomberg.net
No comments:
Post a Comment