Upgrade pushes country closer to goal of ‘A’ rating
Manila – Japan-based Rating and Investment Information Inc. (R&I) has upgraded the Philippines’ credit rating by a notch, from “BBB” to “BBB+,” bolstering the country’s momentum toward the Republic’s goal of securing single “A” rating by 2022.
The “BBB+” rating is just a step away from the minimum score within the sought-after “A” scale. The new rating was also assigned a “stable” outlook, which indicates the absence of factors that may cause the rating to change within the short term.
Favorable assessment from Japanese credit rating agencies like R&I has become more important for the Philippines in recent years, given the government’s successive issuances of Samurai bonds in the Japanese market as part of the strategy to diversify sources of financing.
Two of the country’s top economic officials responded favorably to the rating upgrade.
Finance Secretary Carlos Dominguez III said, “We welcome the credit rating upgrade from R&I that, in our view, was overdue in light of the positive trends under the Duterte administration that have deepened investor confidence in the Philippine economy.”
“Declining poverty incidence and a lower unemployment rate, massive investments in infrastructure and human capital development have resulted in consistently high growth and more jobs. A series of socioeconomic reforms in Congress intended to achieve greater economic inclusion have impressed upon the international business community the unwavering commitment of President Duterte to sustain the growth momentum and improve the lives of our people.”
Given that a sovereign credit rating is an assessment of a country’s ability and willingness to pay debts on time and in full, Dominguez said, “the Philippines’ strong macroeconomic fundamentals plus the Duterte administration’s aggressive investment strategy, while maintaining fiscal discipline, show that we deserve the higher rating.”
Dominguez added that “credit rating upgrades will not only benefit the government and private sector investors through lower borrowing rates when they invest in projects for economic expansion, but will also mean ordinary Filipinos will subsequently pay lower interest rates on their loans. All of these will translate into larger investments and more opportunities for Filipino workers.”
“Higher credit ratings also upgrade everyone’s life,” he added.
For his part, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the upgrade from R&I keeps the Philippines on course toward the “Road to A” agenda, a government interagency initiative for which the BSP’s Investor Relations Office serves as Secretariat.
“Given significant improvements in the country’s macroeconomic conditions, which are made possible in part by a favorable inflation environment and a sound financial system, hitting an A-scale rating from R&I and the other debt watchers within the next two years is achievable. But of course, we can never be complacent. This is an all-of-government undertaking. On the part of the BSP, we will continue to adhere to the sound conduct of monetary policy and banking supervision. We will also vigorously pursue our additional mandates of supervising the country’s payments and settlements system and spearhead efforts to ensure a stable financial system.”
Diokno said securing an “A” rating is not an end in itself, emphasizing that the overarching objective is a stronger, stable, and a truly inclusive economy. Even so, Diokno said securing an “A” rating provides significant benefits.
“For the government, an ‘A’ rating will translate to lower borrowing cost for the government. For ordinary citizens, this means that the government’s ‘savings’ from reduced borrowing cost may be used to fund more roads, urban transport, mass housing, education and health services, and social welfare. Over time, interest rates on loans may also decline, thus benefiting individuals and firms securing loans for consumption and investments,” the BSP Governor said.
In a report released Friday, R&I said the upgrade was based on its assessment of the Philippines’ positive growth performance and prospects on the back of the government’s infrastructure development drive, as well as the government’s ability to keep its fiscal condition healthy.
R&I also recognized the improving socioeconomic climate in the Philippines.
“The Philippines’ economy continues to grow, driven by aggressive public investment under President Rodrigo Duterte’s administration,” R&I said, adding that the government “keeps its commitment to fiscal discipline and is confident of achieving the downward trend of the debt ratio” even as public investments rise.
“While the unemployment and poverty rates are falling, per capita gross national income is rising at a solid pace,” it added.
The Philippines’ unemployment rate dropped to 5.1 percent in 2019, the lowest since 1981.
Also, poverty incidence declined to 16.6 percent in 2018 from 23.3 percent in 2015, translating to 5.9 million Filipinos lifted out of poverty over the three-year period. The government aims to reduce the poverty incidence to 14 percent by 2022.
Besides R&I, other credit rating firms that assign a “BBB+” rating to the Philippines are Japan Credit Rating Agency (JCR) and Standard & Poor’s Global.
On the other hand, Fitch Ratings and Korea-based NICE Investors Service assign the Philippines a rating of “BBB”, while Moody’s Investors Service assigns a rating of Baa2 (which is equivalent to “BBB”). Both ratings are one notch lower than BBB+ and one notch higher than the minimum investment grade.
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