MANILA, Philippines – The Philippines’ credit-worthiness may improve as long as it sustains its trade and financial surplus and minimize the global recession’s “adverse effects" on its finances, a ratings agency said.

The country’s financial system “has avoided the types of stress evident in many other systems regionally and globally," said Moody’s Investors Service, which affirmed its B1 rating for government foreign and local currency bonds in February.

The country’s balance of payments position, the resulting figure after trade and financial imports are subtracted from exports — is stronger than a year earlier, thanks to a flexible exchange rate policy and continuing large inflows of remittances from overseas Filipino workers (OFW), Moody’s said in a report released Thursday.

"Furthermore, the dollar credit crunch has had little impact, given ample liquidity in the domestic market with top grade corporates issuing bonds, even through the last quarter of 2008, and robust double-digit bank loan growth," said Moody’s Senior Vice President Tom Byrne. "And the central bank has not had to resort to blanket bank deposit or external loan guarantees."

While the economy slowed down in the fourth quarter, remittances kept it afloat as
investments and exports weakened due to the global recession.

The contagion effects on the domestic economy "will become increasingly evident" this year, Byrne said.

As a result, Moody’s forecasts real gross domestic product (GDP) growth to fall to around two percent lower than government expectations of 3.7 to 4.4 percent.

Exports will fall steeply between 20 and 30 percent in 2009, Byrne said.

"The scale of the Philippines’ $160 billion economy is mid-range among rated countries but its per capita income level of $2,800 is relatively very low. The situation, along with rather low capital formation levels and the uncertain prospects of a sustained pick-up in investment, impairs the country’s long-term economic strength. Much of the impetus for domestic growth, especially in household consumption and increasingly in residential investment, has come from factor income transfers from the rest of the world," he said.

In February, the agency also its kept its positive outlook on Ba3/Not Prime foreign currency country ceiling and the B1/Not Prime foreign currency bank deposit ceiling during the same period.

Bonds issued by the Philippines and its corporations have been scored within the Ba2-B1 range, since this “reflects the large overhang in public sector debt and strained government finances," Moody’s earlier said.

- GMA News

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