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Philippines finance secretary sees GDP up 6pct this year

The Philippine economy will keep accelerating despite global headwinds, and the "underrated" sovereign credit is due for an upgrade as the government makes progress cutting its budget deficit, Finance Secretary Cesar Purisima said.

"Growth this year should come in around 6%," the top of the official 5%-6% target, Mr. Purisima told The Wall Street Journal this week.

Manila's "aspiration," he said, is to ramp growth up to 7%-8% for the Southeast Asian economy, which grew 3.7% last year. "That's where we want to be and we are designing our programs -- fiscal policies, infrastructure -- towards this goal," Mr. Purisima said on the sidelines of the International Monetary Fund and World Bank annual fall meetings in Tokyo.

His upbeat assessment comes even as the euro-zone crisis, weak growth in big advanced economies and a sharp slowdown in China cast a pall over the global economy. The IMF this week said the world is in danger of slipping back into recession and while Asia should remain robust, there's a growing chance the region could relapse to the slow growth it experienced during the global financial crisis.

The Philippines is in a relatively sturdy position because although it relies on exports, notably electronics, the economy is growing faster than expected on strong domestic demand, aided by a booming call-center industry and steadily increasing remittances from Filipinos working abroad.

Mr. Purisima said 7%-8% growth is achievable as the economy gets a boost from the country's rich mineral reserves -- once the government completes work on revenue-sharing and regulatory changes -- and as tourism enjoys a peace dividend thanks to this week's agreement meant to end more than four decades of secessionist conflict. Mindanao, the country's resource-rich but impoverished southern region, is now "a whole new area of opportunity and a growth gear."

Given its strong performance, the Philippines deserves to have the credit rating on its government debt lifted, Mr. Purisima said.

"An upgrade is overdue especially from the rating agency that has us two notches below investment grade," he said. Moody's Investors Service rates the country two notches into "junk" territory, while Standard & Poor's Ratings Services and Fitch Ratings put it one rank below investment grade. The three companies all have stable outlooks on the ratings.

"The Philippines is three to four notches underrated, probably making it the most underrated country in the world," the official said. "So certainly expect an upgrade this year."

Government revenue is running well ahead of overall economic growth, and the government is making progress in attacking the corruption and inefficiencies that have long hampered tax collection, he said. The budget deficit shrank 37% last year.

"We have created fiscal space, aided by lower interest rates. The environment is very helpful and the improved market confidence has allowed us to reduce interest costs and lengthen our maturities," Mr. Purisima said. Last year alone, "we saved about a billion dollars in interest cost."

He said Manila may tap local debt investors a bit more relative to the global bond market, "given the availability and liquidity of local market." The current breakdown of 75% local to 25% foreign issuance may shift to 80%-20% this year, he said. Recent meetings in Hong Kong with bond investors by the government, a frequent global-bond seller, was "a non-deal exercise" meant simply to "brief investors on what's happening in the Philippines," he added.

The country has almost $82 billion of foreign reserves, versus foreign debt of just above $60 billion, he said. Central bank governor Amando Tetangco told The Wall Street Journal this week that the bank is seeking to diversify some of those reserve holdings out of U.S. Treasurys and into higher-yielding assets.

Mr. Purisima, who sits on the bank's policy board, expressed a willingness to invest more with the IMF. Bangko Sentral ng Pilipinas this year lent the IMF $1 billion to help stabilize the global economy amid the euro-zone crisis.

"Clearly the IMF is a good investment," Mr. Purisima said. "It's proven to be a good credit." But he said there's been no fresh request from the IMF for funding.

He said he hopes the Philippine Congress will revise the country's "sin tax" on cigarettes and alcohol to raise more money. He expressed disappointment that a Senate committee version of the bill would generate just 15 billion pesos ($360 million) in additional revenue -- half of the PHP31 billion under the version of the House of Representatives and a quarter of the Finance Department's proposal.

Mr. Purisima urged "Congress to reach reasonable compromise" on the tax. 

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Economy, Philippines