The country’s top monetary official is confident that the Philippines can attain a rating of a notch above investment grade.
BSP Governor Amando M. Tetangco Jr. said yields on government IOUs, which indicate how international investors view the risk situation in the Philippines, are still lower than its similarly rated peers.
Last week, Moody’s Investor Service raised the Philippine sovereign debt to “investment grade,” following similar moves by Fitch Ratings and Standard & Poor’s earlier this year.
“Potentials for upside are better than risks on the downside,” Tetangco told reporters late last Friday.
“What’s significant about the [Moody’s] upgrade is that the outlook is positive,” said Tetangco, referring to the rating firm’s hints that another upgrade for the Philippines may come in a year or two.
A higher rating for the country would mean lower borrowing costs for the government, freeing up more resources that can be spent on infrastructure and social services.
Tetangco attributed the upgrade to the government’s recent efforts to reduce its deficit and cut its external debt-to-gross domestic product (GDP) ratio.
As a ratio to GDP, the country’s external debt—that of the government and the private sector—declined to 22.8 percent in the first quarter from 26.9 percent in the same period last year.
Despite an increase in spending, the government’s budget shortfall is expected to top just 2 percent of GDP for the year—a level finance officials consider manageable.
These are on top of the country’s traditional sources of strength, namely its young population, steady inflows of remittances that support domestic demand, and dollar revenues from the business process outsourcing and tourism sectors.
Tetangco said the third major investment grade this year should also be taken in the context that most other countries in the region have either kept their ratings or been downgraded.
The central bank chief said spreads on Philippine credit default swaps are already lower than the spreads of similarly rated countries, showing that the market views the Philippines as a safer investment destination than its credit rating would suggest.