Standard & Poor’s (S&P) upgrade of the Philippines’ credit rating to “investment grade” this week may result in the influx of more foreign funds, as investors start to reconsider the country as one of Asia’s most lucrative destinations.
Trade and Industry Secretary Gregory L. Domingo on Friday said many large foreign funds abroad are prevented from investing in countries that hold “junk” ratings from major credit agencies.
“A lot of funds are restricted in investing in non-investment grade countries. All those funds will be able to invest in the Philippines now,” Domingo said, noting that the recent upgrade by S&P adds to the growing list of the Aquino administration’s economic achievements.
Domingo said investments, both in the form of portfolio placements and fixed investments, may grow by 10 percent as a result of the rating upgrades.
He said portfolio flows in local stocks and government securities, often referred to as “hot money,” are already being felt in the country’s financial markets, leading to higher equity values and low interest rates.
Fixed investments, however, will take more time as these involve more long-term placements.
On Thursday, S&P raised the country’s credit rating by a notch from BB+ to BBB—the minimum investment grade—citing the country’s rosy macroeconomic fundamentals amid a sluggish global economy.
Fitch Ratings made a similar move last March. Moody’s Investor Service, another major international credit agency, still sees the Philippines below investment-grade status.
Administration officials said the upgrades were a result of reforms implemented by the Aquino government—particularly in the areas of good governance and in cutting the deficit.
The Bangko Sentral ng Pilipinas (BSP) was also praised for keeping inflation low and for ensuring the strength of the local banking system.
Both rating firms said the previous administration under former President Arroyo should share some of the credit for stabilizing the government’s fiscal position.
Domingo admitted that the challenges in attracting investments were still present, in the form of high electricity rates, rising labor costs, and poor infrastructure.
“But all things being constant, will a higher investment rating lead to higher investments? Of course it will,” he said.
Domingo said the Trade and Industry department would conduct a road-show in Europe and send delegations to the United States to further drum up interest in the Philippines among foreign investors.
The BSP expects net foreign direct investments to reach $2.2 billion in 2013, up from $2.03 billion last year.