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Check out sovereign risk factors affecting business in Philippines.
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Sovereign Risk in Philippines

Sovereign risk is a legal or political risk that an investment in another country will become worthless because of political turmoil that causes the business environment to collapse or prompts another government to take over and seize foreign assets. A lack of a strong and fair judicial system to enforce contracts and the risk that a government might prevent or limit money from being transferred out of the country to the businesses home country are other examples of sovereign risks. Another type of sovereign risk occurs when a foreign government defaults on debt that it owes to foreign banks or governmental-sponsored agencies such as the International Monetary Fund.
 
A relatively high degree of resiliency has been exhibited by both Philippines financial system and external payments position in face of the global financial and economic crises. International reserves of the central bank are at a historical high and exceptional policy measures have not been required to shield the banking system from global shocks.
 
The re-opening of global credit markets has also been opportunistically exploited by the Philippines in its effort to minimize both a crowding-out of the domestic markets and a rise in government bond yields.
 
The Philippines' larger budget deficit is mainly a result of the collapse in economic activity, a pattern that is evident in other regional and global economies. Experts believe that economic growth will be gradually restored and, along with that, some pick-up in the government's fiscal revenue performance will help contain the abnormally large deficit.
 
Furthermore, the government's intention to tighten fiscal policy next year and return to a path of fiscal consolidation over the medium term will be crucial for supporting the country's credit fundamentals and for reducing the government's debt overhang.
 
Experts  believe that the country's long-term fiscal outlook would improve with more progress in shoring up government revenues, both through tightened administration and the introduction of new tax measures, several of which are pending before Congress. In addition, while expenditure control has improved in recent years and Treasury debt management has been skilful, these measures alone will not ensure fiscal sustainability.
 
A stable peso is crucial for containing budgetary debt service payments, about half of public-sector debt is denominated in foreign currencies and so allow for budgetary resources to be channeled into infrastructure programs and fiscal stimulus measures. The absence of volatility in the peso reflects the resiliency of the balance-of-payments to the global crisis.
 
In addition, the current steady deceleration in and the likely containment of inflation within Bangko Sentral's 2.5-4.5% formal targeting range should help ease pressure on the exchange rate this year, and so provide the central bank with scope to maintain an accommodative monetary policy to cushion the effects of the global recession.
 
In the current environment, a key concern will be the resiliency of exports of both manufactures and services, as well as inflows of overseas worker remittances. In Philippines earlier concerns that remittance inflows would collapse have not played out. To the contrary, such inflows may eke out a small gain this year from last year's level which amounted to about 20% of current account receipts and 10% of Gross Domestic Product (GDP).


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