Rating upgrade only a ‘seal of good housekeeping’

MANILA, Philippines—Standard & Poor’s (S&P) recent credit-rating upgrade for the Philippines should be taken as a “seal of good housekeeping” for the Aquino administration.

However, the government is not out of the woods yet and much work still needs to be done to attract lasting investments that would translate to more jobs for Filipinos, a state-funded independent think-tank said.

“There is a lot of work to do, in particular, in making the Philippines a good place to do business in,” the Philippine Institute for Development Studies (PIDS) said in a new policy paper.

S&P now rates the Philippines’ long-term peso and dollar debt at one notch above the firm’s minimum investment grade or two notches above “junk” status. This is the highest rating the country has ever received from any of the three major credit agencies.

“Whether a good credit rating leads to inclusive growth or not remains to be seen,” the report said.

The immediate effect of S&P’s new credit rating for the Philippines would be a notable increase in short-term portfolio investments in local stocks, bonds and deposit certificates.

PIDS said that while these investments could serve as “harbingers of confidence” in times of plenty, these flows could just as quickly reverse at the first sign of danger.

The government’s goal, the paper said, should be attracting more lasting foreign direct investments (FDI) that have a more solid link to job creation.

While the Philippines has posted significant gains in improving the various ease-of-doing-business and competitiveness rankings since the start of President Aquino’s term, the country still trails more than half of the world. For instance, in the World Bank’s annual Ease of Doing Business report, where the Philippines jumped 30 spots last year alone, the country still ranked 100th out of 189 nations covered.  In the region, the country ranked 6th out of 10.

“It will take time before the goodwill earned by the Philippines in the financial world translates to the real economy,” the PIDS report said.

“The government would do well to sustain the reform momentum by further widening the fiscal space through improved tax collection and the introduction of new tax measures such as the rationalization of investment incentives,” it said.

Despite outperforming the rest of Southeast Asia in terms of economic growth in 2012 and 2013, unemployment remains stubbornly high in the Philippines.

Latest data showed that at the end of January, the country’s unemployment rate stood at 7.5 percent, higher than the 7.3-percent rate in January 2013. In a statement last week, the National Economic and Development Authority (Neda) said the government was targeting an economic growth rate of 6.5 to 6.7 percent by 2016. The government is also working toward an improvement in the quality of employment. By the end of Aquino’s term, the underemployment rate should be brought down from the current 20 percent to about 17 percent.