MANILA (AFP) - A ratings boost last week is expected to drive forward the Philippine government's attempt to put together billions of dollars in funds to rebuild the country's decaying infrastructure, officials say.

Moody's Investors Service upgraded its outlook on the country's key ratings to "stable" from "negative", raising hopes that its credit rating would be raised and reduce its borrowing costs.

The outlook upgrade by Moody's, widely seen here as the most pessimistic among the major global credit rating agencies, has been portrayed by President Gloria Arroyo as a vote of confidence on the government's economic reforms.

In particular on the "tough decisions" she made to broaden the Philippines' narrow revenue base with a series of unpopular tax reform laws over the past two years.

Arroyo says the extra revenues will allow the government to balance the national budget by 2008 as well as splash out on an ambitious wish list of priority infrastructure projects including roads, airports, seaports, and rail systems that she outlined in her annual state of the nation address to Congress in July.

Government officials say poor infrastructure is a key hindrance to doing business in the Philippines.

"Infrastructure expands markets, which in turn, creates new opportunities for increasing the scale and scope of economic activities and expanding employment," Economic Planning Secretary Romulo Neri said in a statement.

He said the government priority was to improve strategic transport infrastructure, including roll-on, roll-off ports and attached highway systems to interconnect the Southeast Asian archipelago.

Others are roads and rail systems that will decongest Manila, the building and expansion of roads and airports to tourism hubs, and "affirmative action projects" for impoverished areas or areas wracked with insurgency, such as the southern region of Mindanao.

Budget Secretary Rolando Andaya has said the four-year infrastructure spending program would cost about 372 billion pesos (7.49 billion dollars).

Half of the funding would come from the 2007-2010 national budgets while the private sector would be asked to tender for 68.4 billion pesos' worth of projects, or 18.39 percent of the total.

The rest would be funded with development aid from foreign countries as well as state-run Philippine firms and the local governments.

However, Finance Secretary Magarito Teves warned against any spending spree, especially just ahead of congressional and local elections in May next year, when the temptation to dole out money to poor provinces to win votes will be strong.

"We need to take a close look at the expenditure side because they (Moody's officials) are concerned about the elections," he cautioned.

Moody's praised the Arroyo administration for reducing the country's reliance on foreign currency-denominated debt, as well as easing its debt burden overall.

However, the ratings outfit sees Manila continuing to face challenges in the form of political spending pressures ahead of the May 2007 mid-term elections.

For the Philippines' actual sovereign credit rating to move up, it said debt ratios would need to be reduced from their current high levels and closer to levels consistent with Ba-rated countries.

Philippine business has cheered the Moody's statement, with share prices at the Philippine Stock Exchange surging to nine-year highs and the peso pushing up below 50 to the dollar.

Analysts now expect the central bank to lower its policy rates, reducing the cost of money for investment.

Shortly before Moody's announced its decision on November 2, the central bank decided to maintain its key overnight borrowing rate at 7.50 percent but only for bank placements up to five billion pesos. It now charges lower rates for all placements in excess of five billion pesos.

Neri said the fiscal reforms needed a follow-through on the microeconomic level, including the liberalization of the airline industry, promoting private sector participation in the government's "nautical highway" projects, improving the regulatory environment in these industries, and enhancing power sector competition to reduce high energy costs.

"While we are doing well in our macroeconomic reforms particularly on fiscal and monetary policies, we need to follow through with microeconomic reforms to create more jobs, reduce unemployment, and poverty and hunger incidence," he added.