Philippine finance secretary Margarito Teves, seeking to reduce payments on his country’s $76 billion debt mountain, vowed to step up pressure on credit ratings companies to reassess the nation’s status. “We can continue to improve our fiscal measures to bring down our debt to GDP ratio but we’re coming from a very high level; if they [rating agencies] are going to wait for us to bring the ratio down to the normal level it could take a long time,” Teves told Emerging Markets yesterday in an interview. He will meet Moody’s, the only one of the three major ratings agencies to have a negative outlook on Philippine debt, in Hyderabad to reiterate his message and follow up on discussions last month with all three. Teves argues that Moody’s, Standard & Poor’s and Fitch should pay less attention to a legacy of accumulated debt and reward the government for the implementation of an ambitious public finance framework. In an effort to bolster its fiscal position, the government in February raised the value-added tax rate to 12% from 10%, after expanding the VAT coverage to include oil products and electricity in November. The strongest challenge to the government’s strategy is likely to come from soaring oil prices. With a daily import requirement of almost 330,000 barrels, the rising cost of energy is an intense strain on the economy and public pressure for protection from spiraling prices is growing. Teves last month resisted widespread calls to scrap the higher tax on crude, instead offering the concession of what he promises will be “revenue neutral” reductions in a 3% oil import duty. A sliding scale of reductions would eliminate the duty completely at $72 a barrel. Should prices climb much higher than that Teves acknowledged he would need to act further to protect the poorest citizens; “We would have to think of other means outside of that, it could be a combination of tariff adjustments” and direct aid, he said. Moody’s suggested in its most recent report that it won’t be possible to remove the negative outlook on the Philippines B1-rated debt until it becomes clear whether 2006 targets for tax collection will be hit. “The achievement of expanded value-added tax revenue targets for 2006, the overall outturn of the 2006 budget, [and] the reasonable assurance that current policies will be maintained into the future will be important considerations,” noted analyst Tom Byrne in the February report. Teves stressed yesterday that the first quarter budgetary outcome was ahead of expectations and renewed a pledge to balance the budget by 2008. The Philippines public sector debt to GDP ratio is 91.3%, compared with an average government debt of 59%, according to Moody’s. Fitch gives the Philippines a BB foreign and BB+ local rating with a stable outlook, S&P puts the country stably at BB- (foreign) and BB+ (local).
Philippines fights ratings battle