PH gets another upgrade from Moody’s

The country on Thursday secured its second major credit upgrade, bringing the government’s sovereign rating with Moody’s Investor Service to two notches above junk status.

The outlook has been brought down to “stable,” which means the rating will stay the same for at least a year.

“The upgrade is an acknowledgment of the sound management of the economy,” Finance Secretary Cesar Purisima said in a statement following the announcement.

“There should be no turning back as far as good governance is concerned. The only direction we should see for the Philippine economy is forward,” said Purisima, who heads the Cabinet’s economic cluster.

With the new rating of “Baa2,” the Philippines now stands on the same level as Brazil, Colombia, and Italy. Also, the Philippines is now ahead of India and Indonesia, both of which are rated “Baa3.”

Sovereign credit ratings, which are indications of a government’s credit-worthiness, are used by investors to gauge the strength and stability of an economy because strong domestic output translates to, among others, higher tax collections.

From 12.1 percent in 2010, the country’s tax effort, or the amount of taxes collected relative to the size of the economy, has improved to 14.08 percent in the first three quarters of 2014.

Higher ratings usually translate to lower borrowing costs for the government, which lets the state raise cheaper cash to finance infrastructure and social welfare projects. Interest rates on loans extended by banks to businesses and households are also expected to decline.

This comes more than a year after Moody’s gave the Philippines a “positive” outlook, which is usually a prelude to a credit upgrade. Earlier this year, Standard & Poor’s gave the Philippines a similar grade of two notches above junk status.

Fitch Ratings, the third of the three major rating agencies, still has the Philippines at the minimum “investment grade.”

“While we expect other measures related to the country’s public indebtedness and debt affordability to improve over the next two years, the corresponding peer medians continue to erode,” Moody’s said.

From a peak of 68.1 percent in 2003, the general government debt, as a percentage of GDP, had consistently dropped to hit 37.3 percent as of end-June this year.

Moody’s likewise recognized rising private sector investments that bode well for the economy’s sustained growth and minimize its vulnerability to external risks.

“In particular, the resilience of private investment portends the sustainability of higher overall growth relative to peers over the next two years,” Moody’s said.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. welcomed the news, saying that the upgrade came even as ratings of other economies were kept steady, while some were even lowered.

“The latest credit rating upgrade is a recognition of our efforts to keep the Philippine economy resilient amid constant challenges posed by the external environment,” Tetangco said in a separate statement.