Standard & Poor’s has upgraded its outlook on the credit rating of the Philippines from “stable” to “positive,” further triggering expectations that the country will finally be rewarded an investment grade in 2013.
A positive outlook indicates that a country’s credit rating will likely be upgraded within the short term if existing favorable conditions continue.
S&P currently assigns the Philippines a rating of BB+, which is just a notch below investment grade.
The country’s economic officials are pitching for an investment grade, which they believe will help boost job-generating foreign direct investments (FDIs) that the country sorely lacks.
In a statement released Thursday, S&P said the decision to improve the outlook on the rating of the Philippines was based on the assessment of a favorable political situation in the country as evidenced by the ability of the Aquino administration to push for and implement vital reforms.
The announcement of the upgraded outlook came hours after President Aquino signed the Sin Tax Reform Act of 2012, which was 16 years in the making due to tough debates for and against it in Congress. In its first year of implementation alone, the law raising excise tax rates on cigarettes and alcohol is estimated to generate P34 billion in additional revenues for the government.
“We revised the outlook to positive to reflect our reappraisal of the political and institutional factors underlying the ratings,” Agost Benard, credit analyst of S&P for the Philippines, said in the statement.
“In our view, the current administration possesses a level of legitimacy, support and stability that reduces political uncertainty and allows for improved legislative efficiency. This conducive political setting enables the administration to focus on its key policy objectives of fiscal consolidation, increased infrastructure provision, and poverty reduction,” he added.
S&P said it may decide to raise the country’s credit rating to investment status next year if favorable indicators are sustained. These include improving revenue collection, declining reliance on borrowings from foreign creditors, and falling debt burden of the government.
The government’s outstanding debt is now estimated to be nearing 50 percent of the county’s gross domestic product (GDP) from a high of over 70 percent in the mid-2000s.
In a statement, Finance Secretary Cesar V. Purisima thanked the credit rating firm “for recognizing the continued improvement of the country’s fundamentals.”
With this action, he said, “we are now only half a step towards formally gaining investment grade, which the market has already given us by rating the Philippines at least two notches above investment grade.”—Michelle V. Remo and Ronnel Domingo