MANILA (AFP) -- While the Philippine economy may be showing signs of improved health some analysts are taking a more cautious view with their prognosis.

Revised credit ratings and some favorable reports from foreign investment banks have given a much needed morale boost to the government which has limped from one political crisis to another over the last eight months.

The major boost to sentiment came recently when credit rating agencies Fitch and Standard and Poor's revised their outlooks on the country's currency ratings from negative to stable.

Both agencies believe the government has shown fiscal resolve in raising the value added tax to 12 percent from 10 percent in February which is expected to raise 80 billion pesos (1.5 billion dollars) this year.

They also cited the 146.5 billion pesos budget deficit last year -- down from a projected 180 billion pesos -- as another sign the government is on the right track.

Much of this is based on a series of assumptions such as political stability, revenues can be collected and whether government debt, which stands at around 75 percent of gross domestic product (GDP), can be brought down. However, Ben Diokno, an economist with the Philippine University's School of Economics and a former budget secretary, believes much of what is being witnessed is "window dressing -- playing with numbers."

"The fact is no one is addressing the real issues of structural reform," he told AFP.

"This country has averaged an economic growth rate of around 3.4 percent annually for the past 10 years," he said. "That is one of the lowest in Asia. Last year we spent 0.73 percent of our GDP on infrastructure, 2.4 percent on education and 0.19 percent on health." -----Tax collection falls "Tax collection has fallen from 17 percent of GDP in 1997 to 12.4 percent in 2004 although it is expected to show some improvement when figures are released for 2005."

"For every 100 pesos the government earned in revenue last year, 47.60 pesos went to interest payments alone, almost double what it was in 1999.

"Whatever the government says about improving infrastructure, building schools and other essential services the fact is it just simply doesn't have the money," said Diokno. "Servicing public debt alone last year (interest and amortization) ate up 95 percent of total revenues."

Some economists have said the Philippines would need to grow at between six to seven percent annually for the next 10 years to be where Thailand is today. Diokno said foreign investors no longer look at the Philippines as a place to invest, "because when it comes to governance we are virtually at the bottom of the pile."

According to World Bank governance indicators the Philippines is one of the worst performers among the Association of South East Asian Nations (ASEAN) in political stability, government effectiveness, regulatory quality, rule of law and control of corruption.

Diokno said the main source of revenue that keeps the government alive are the remittances from overseas workers who last year sent a record 10.7 billion dollars back home.

"But don't expect that to last forever," he said. "As people leave and make new homes overseas their families will follow and the need to send money back to the Philippines will diminish."

Of the three major credit agencies Moody's Investors Services was the odd man out preferring to remain on the fence for the time being. While it acknowledged that the government had made progress in reducing its deficit it pointed to the country's "exceptionally high public-sector debt."

According to figures released by the department of finance recently public sector debt at the end of September last year stood at 5.5 trillion pesos which is higher than the country's economic output.

Finance Secretary, Gary Teves, told AFP that he was "cautiously optimistic" following the recent credit upgrades. But he added: "We still have a long way to go. The path to sustainable economic growth will not be easy. It will be tough and very challenging for all of us."

U.S. investment bank Lehman Brothers said in a research note recently that the country has the potential to grow by five to seven percent, but added that the biggest obstacle to reform and growth is complacency.