Moody’s assured of reforms

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The government has assured officials of credit rater Moody’s Investors Service that the former will continue to undertake measures to improve the country’s finances and business environment, a central bank official said Friday.

“We emphasized to them (the Moody’s team) that the reforms on fiscal consolidation continue to be institutionalized, among others through zero-based budgeting, the establishment of the GCG (Governance Commission for Government-Owned and -Controlled Corporations) for oversight of GOCCs and stricter project oversight,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. said in a text message, when asked what central bank officials discussed with visiting Moody’s officials during their meeting last week.

“We also emphasized to them that the government is working to ensure the changes that have been introduced to guard fiscal space and eliminate rent-seeking behavior will continue to be in place beyond this administration,” Mr. Tetangco added.

Last week, government officials met with a four-man team of Moody’s officials led by Christian de Guzman, Moody’s vice-president and senior analyst.

The team conducted due diligence in the country and are expected to come up with a report in the coming weeks.

The visit was held a few days after the debt watcher announced that the country’s Ba1 foreign and local currency long-term issuer and bond ratings were under review for a possible upgrade, given improved government finances, continually robust economic growth and political stability, among other things.

The zero-based budget approach is a method used by the Budget department to assess whether the government should continue to make allotments for specific projects against the government’s spending priorities.

The GCG, established under the GOCC Governance Act of 2011 (Republic Act 10149), is mandated to oversee state firms.

Finance Secretary Cesar V. Purisima has stressed that fiscal consolidation, which includes improving the country’s financial management and maintaining the budget deficit at 2% of the country’s gross domestic product, will remain a priority of the administration.

The country’s budget gap stood at P51.3 billion as of the first semester, well-below the government’s P238 billion ceiling or 2% of the GDP set for the year.

As of the first quarter, the country’s debt-to gross domestic product ratio this year stood at 48.9%, slightly above the government’s 48% target for the year, but lower than last year’s 51.5%.

Debt as a percentage of GDP is a measure used by many debt watchers to assess the credit worthiness of a sovereign. A lower ratio indicates that a country has more than enough resources to settle its liabilities.

Mr. Tetangco said talks were fruitful with Moody’s officials as the latter were impressed with the reforms implemented by the government so far.

“The meeting went well. It reinforced their positive views on the gains we have so far achieved, based on the reforms we have put in place,” he said.

“Of the items they continued to view positively, a number are directly under the purview of BSP such as current stable inflation environment and outlook, the healthy external liquidity position and the stable banking system,” Mr. Tetangco further said.

Inflation eased to 2.5% in July, near the low end of the central bank’s 2.2-3.1% target for the month and lower than the revised 2.7% average posted in May.

The figure brought the average rise in consumer prices to 2.86%, below the central bank’s 3-5% target for the year and 3.3% forecast.

Reserves continue to be healthy at $81.64 billion, as of end-June 2013, and already 93.84% of the BSP’s $87-billion target for the year.

The capital adequacy ratio of universal and commercial banks rose to 17.83% as of end-2012 from 17.28% the year before, over and beyond the 10% required by the BSP and the international norm of 8%. (Business World Online)