Fitch in town to assess fiscal, monetary targets

By Ruben Hortelano

04/14/2009

A team from Fitch Ratings is arriving today to review fiscal and monetary targets, primarily the level of revenue collections of the Bureau of Internal Revenue (BIR) the Bureau of Customs, both of which have consistently missed goals the past few years.

The visit is expected to last for two days and the results of which will be the basis of action on the country’s credit rating and outlook.

The government expects credit rating firms to be more lenient on the government’s recent decision to relax fiscal targets due to the effects of the global turmoil on the local economy.

A Finance department official said the review to be conducted by the representatives of Fitch will cover fiscal and monetary issues including dialogs with heads of both the BIR and the Customs bureau.

These agencies failed to deliver their respective goals last year and caused tax revenues to fall behind target by P44.2 billion.

The Fitch review will mainly involve the level of stability in the fiscal sector after the government widened the budget deficit goal to 2.2 percent of GDP to P177.2 billion from an original one percent of GDP or P102 billion.

On the monetary sector, Fitch’s interests center on levels of liquidity in the system, the quality of assets held by the various economic agents, the supply and demand of credit, interbank transactions, soured loans incidence among banks and most of their individual and collective exposure to the global markets.

Key to the discussions are current issues affecting the balance of payments given the slowdown in export activities, developments affecting prices or inflation presently on a downtrend and policy options the BSP still has given the uncertainty of the length of the ongoing global financial crisis.

Finance Undersecretary Gil Beltran, meanwhile, expressed elation over international credit rating agency Moody’s Investors Service’s reports on the resiliency of the Philippines’ credit fundamentals in the midst of the current global economic stress.

Moody’s earlier said that the positive outlook on government bonds was held up through the turmoil while the country’s external payments position was stronger year-on-year due to, among others, the exchange rate policy in the country and the continued strong inflows of remittances by overseas Filipino workers.

“Moreover, the domestic financial system has not posed risks, as it has avoided the types of stress evident in many other systems regionally and globally,” Moody’s senior vice president Tom Byrne said.

Byrne, who authored the report on the country, also noted that “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.”

“And the central bank has not had to resort to blanket bank deposit or external loan guarantees,” he said.

The latest Moody’s report stated the country’s economic strength as “low,” Institutional Strength as “moderate,” Government Financial Strength as “low” and Susceptibility to Event Risk as “low.”

The report said growth of the domestic economy slowed last year but noted that it did not collapse like the major economies due largely to OFW remittances.

It, however, noted that “investment and exports faltered in the fourth quarter of 2008, suggesting that contagion effects from the global recession on domestic economic activity will become increasingly evident in 2009.”

The government’s decision to delay its balanced budget goal and instead increase the deficit of up to P75 billion last year and P177.2 billion this year “would not necessarily reverse the progress made in recent years in placing its debt metrics on an improving trend,” it said.

Moody’s said stronger tax revenue performance was needed for a long-term fiscal sustainability. It noted, however, that “adept management of debt and controls on expenditure alone cannot ensure such sustainability.”

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