Rapidly rising incomes in the Philippines should earn the country higher credit ratings, recognizing the economy’s strong performance in recent years, the central bank said this week.
This comes amid the common complaint among economic managers that international rating agencies have systemically failed to appreciate the strength of the country.
Moody’s Investor Service and Standard & Poor’s (S&P) currently rate the country’s sovereign credit at two notches above junk status, the highest grades in the Philippines’ history. Fitch Ratings, meanwhile, gave the country a grade one notch below its peers.
The Philippines’ main weakness, Fitch said, was the low gross domestic product (GDP) per capita relative to other “investment grade” countries.
“That’s a long-term issue … we also need to look at the trajectory, not just the level,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said late Wednesday.
“If you look at the trajectory, it’s very clear that it’s moving up,” he said on the sidelines of a forum hosted by Financial Times and First Metro Investments Corp. (FMIC).
Sovereign ratings are a measure of the Philippine government’s creditworthiness. And because the stability of the state’s finances is related to the country’s performance, credit ratings also serve as a proxy grade for the economy.
Higher ratings also mean the government can ask for lower rates when it borrows from investors. This can translate to lower interest rates for consumers and businesses borrowing from banks, which use state-issued IOUs as benchmarks for their loans.
The string of upgrades earned by the Philippines since 2010 came amid improvements in the country’s finances—a result of improved tax collections and more prudent spending.
“This kind of performance, I believe, is sustainable over the medium-term although they are also looking at further improvements in certain areas like infrastructure, which is something that we all agree with,” Tetangco said.