What's so special about Moody's rating?

It's all over in the major dailies! Business World reports: "Moody's lifts RP outlook to stable from negative". Business Mirror's headlines reads: "Moody's tag on RP credit now "stable". Not to be outdone, Inquirer, the country's most widely circulated newspaper posts in its Nation-Headlines: "RP credit outlook gets upgrade". But the most flattering of all the news on the credit upgrade is the one posted over the gov.ph website: "Moody's upgrade a vote of confidence for govt. economic reforms - PGMA".

To borrow a line from the rock opera, Jesus Christ superstar: "what's the buzz, tell me what's happening, what's the buzz". For one, the U.S-based Moody's Investor Service, a global debt watchdog is considered the most pessimistic about the Philippines among credit rating outfits - which includes the likes of Standard & Poor's and Fitch. The last two agencies have upgraded their ratings on the Philippines earlier this year to stable ("BB-" and "BB", respectively).

Thus, Moody's "B1" rating is some sort of a vindication or as the President puts it, a vote of confidence. It's positive effect on the economy can be summed up: (a) expected to boost financial market's confidence on Philippine stocks; (b) result in lower borrowing cost for both government and private companies; (c) strengthen the peso even more.

Why the upgrade? In a statement from Singapore, Moody's Vice President Mr. Thomas Bryne said "Based on fiscal performance through the first three quarters of 2006, it seems likely that the government will readily meet its deficit reduction target for the year as a whole".

The Moody's report also cited certain challenges that the country is confronted with, thus: "the economic necessity of trying to lure investors by way of putting up infrastructure would place additional pressures on the government's budget"; the Philippine remains highly indebted compared with other countries; and political will and strong support form Congress are necessary to sustain recent accomplishment.

Will the credit rating further improve? Moody's prescribes that "there needs to be a continued significant deficit reduction and decreased reliance on external financing by the public sector".