JUST a few years after the Philippines has been lifted out of the junk status and placed into the investment-grade category, the country is now aiming to be in the upper-medium grade in the next years, economic officials said, after an international credit watcher affirmed the country’s rating anew.
Further upgrades are seen to be “achievable for the country” over the medium term, Finance Secretary Cesar V. Purisima and Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said in their reaction statement, following the Standard & Poor’s (S&P) move to affirm the Philippines’s “BBB” rating—which is one notch above the minimum investment-grade rating.
The “BBB” rating was assigned in May last year, and is still given a stable outlook—which means that the country will likely be able to sustain this in the next 12 to 18 months.
While it lauded the country’s strong external position—with a rising foreign-exchange reserve and a low debt burden, S&P warned of downside risks on the Philippines’s low-income level and a “developing institutional and governance framework that hampers policy responsiveness.”
In particular, S&P forecasts gross domestic product per capita to average at 4.4 percent over 2016 to 2019, reflecting the modest outlooks for the Philippines’s trading partners.
Also, S&P said that uncertain conditions in export markets and inadequate infrastructure, mainly in transportation and energy, are the main factors that add to downside risks to their growth outlook.
“We may raise the ratings if further institutional and structural reforms boost investment and economic growth prospects, or if changes in governance and the policy environment lead us to a better assessment of institutional and governance effectiveness. We consider this scenario unlikely over the next year, however,” S&P said.
“We may lower the ratings if the administration’s reform agenda stalls or if a successor administration reverses recent gains in the Philippines’s fiscal or external positions,” the credit watcher added.
The country’s economic managers still remain optimistic on the country’s sovereign ratings, saying that their next goal is to secure a category “A” rating over the medium term.
“Fundamentals of the Philippines significantly improved over the last few years. With the trend staying positive, additional upgrades in the credit ratings over the medium term should be achievable,” Tetangco said.
“On the part of the BSP, efforts to further improve the regulatory environment for financial institutions, maintain price stability, and strengthen external payments position would be its contributions to placing the economy on an even higher gear,” he added.
Purisima also said a credit rating in the “A” category should be attainable, especially since the Philippines still remains underrated if one would compare the country’s credit ratings with how the market prices Philippine debt papers.
“If compared with those of other emerging markets, fundamentals of the Philippines are one of the strongest. And with continually improving major credit indicators, including debt manageability, credit ratings, ideally, should adjust accordingly,” Purisima said in a statement.
For S&P, the minimum rating within the “A” category is “A-”. This is just two notches away from the Philippines’s current rating of “BBB.”
At the moment, the Philippines is rated a notch above the minimum by both S&P and Moody’s at “BBB” and “Baa2,” respectively. The economy has the minimum investment grade of “BBB-” with Fitch.
The Philippines has just completed its ascent to the investment-grade rating category for the first time in the country’s history in 2013 after being stuck in the junk status.