The country’s long wait for an investment grade may soon be over as credit agencies are seen to be giving in to pressure to align their ratings on the Philippines with the favorable assessment of the international capital market.
According to international financial services firm Australia and New Zealand Banking Group Ltd. (ANZ), there is a disconnect between the country’s actual credit ratings, as assigned by credit agencies, and the favorable interest rates on Philippine bonds assigned by investors in the international capital market.
In a paper on the Philippine economy, ANZ said rating firms should no longer ignore the fact that their ratings on the country are not being observed by the international capital market and, therefore, they must raise the country’s sovereign grade in the near term.
The Philippines is rated a notch below investment grade by Fitch Ratings, and two notches below investment grade by Moody’s Investors Service and Standard & Poor’s.
ANZ cited that the interest rates of bonds issued by the Philippine government are as low as those of debt instruments issued by countries with investment grade.
Based on ANZ’s estimates, interest rates on Philippine bonds are priced 200 basis points below the rates carried by bonds from countries with the same credit ratings as the Philippines.
“The market has been pricing the Philippines’ sovereign risk at investment grade for an extended period of time,” the foreign financial institution said.
“Barring unforeseen policy or political setbacks, we conclude that a near-term agency rerating is more likely than a prolonged disconnect between the Philippines’ risk spreads and its sovereign rating.”
The institution said the Philippines deserves better credit ratings, citing the significant reduction in the government’s debt burden and the substantial increase in its foreign exchange reserves.