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S&P upgrades Philippines, peso firms up

MANILA, Nov 12 (Reuters) - Standard & Poor's Ratings Services (S&P) raised the Philippines' foreign currency credit rating on Friday and kept a stable outlook, citing an improved balance of payments position. But widespread tax evasion that has kept state revenues weak remains a worry, the credit rating firm said, adding measures imposed by the new government of President Benigno Aquino to lift revenues need to be supported by "structural transformation." S&P now rates the Philippines' foreign currency sovereign credit rating at BB from BB minus with a stable outlook, skipping the usual route of adjusting the outlook to positive before upgrade. Its rating, at two notches below investment grade, is now at par with that given by Fitch Ratings. Moody's Investor Service rates the Southeast Asian country at Ba3 or three rungs below. The Philippine peso firmed to 43.69 per dollar after the S&P upgrade, from 43.9 in morning trades. It closed at 43.76. Local bonds traded within a tight range right after the S&P move, with the upgrade already priced in and banks focused on the huge market liquidity.

The yield on 5-year benchmark bonds was at 4.315 percent from 4.3 percent. "We have upgraded the Philippines based on its steadily improving external liquidity profile and the underlying strengths of its external accounts, which increasingly mitigate the vulnerabilities posed by still high public and external debt, and provide buffer against adverse shifts in terms of trade or investor sentiment," S&P credit analyst Agost Benard said in a statement. The central bank said last month it expects the country's balance of payments surplus to hit $8.2 billion this year, more than double an earlier estimate of $3.7 billion, on strong exports, remittances from Filipinos overseas and fund inflows. The BOP surplus in the first nine months of the year reached $6.54 billion. VOTE OF CONFIDENCE Philippine officials welcomed the ratings upgrade, saying it was a recognition of the country's strong economic growth and the government's efforts to put its fiscal house in order. "This is a vote of confidence in the commitment of the Aquino administration in seeing through the fiscal and economic reforms that it had committed to undertake in the medium-term," Finance Secretary Cesar Purisima said in an email to reporters. Purisima said the government was confident of meeting this year's budget deficit target of 3.9 percent of GDP, or 325 billion pesos ($7.4 billion), via expenditure discipline and revenue enhancement measures. Central bank governor Amando Tetangco said in a text message to reporters: "It is a recognition of the fundamental strengths of the Philippine economy that saw us through the worst crises in decades." The Philippine government has said it expects to end the year with an annual growth of more than 6 percent, supported by a recovery in trade and robust remittances from Filipinos working and living overseas. (Reporting by Karen Lema and Rosemarie Francisco; Editing by Sanjeev Miglani_ ((rosemarie.francisco@thomsonreuters.com; +63 2 841-8937; Reuters Messaging: rosemarie.francisco.reuters.com@reuters.net)) Keywords: PHILIPPINES ECONOMY/S&P (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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