Gov’t warned against backtracking on reforms

Life may get harder for Filipinos after 2016 if President Aquino’s successor backtracks on reforms of the past five years, credit rating firm Standard & Poor’s (S&P) said this week.

S&P said pursuing policies that lead to improvements in the quality of governance should be the state’s main focus in the coming years. Reforms that were put in place since 2010, the firm said, had given the country a better image in the international community.

As a result of these reforms, the Philippines’ sovereign debt grade has been upgraded several times by international credit rating agencies, helping bring down the cost of money in the country.

“We may lower the ratings if the administration’s reform agenda stalls, or if a successor administration reverses recent gains in the Philippines’ fiscal and external positions,” S&P said in its mid-year sovereign ratings outlook for Asia Pacific.

The Philippines is currently rated at BBB by S&P or two notches above “junk” status. Prior to 2010, the Philippines’ condition was the exact reverse, rated at least two notches below “investment grade.”

“The stable outlook balances the Philippines’ strong external position, which features its rising foreign exchange reserves and low external debt, against its low income and developing institutional and governance framework over the next 18 months,” S&P said.

Upgrades by S&P and peers’ Moody’s Investor Service and Fitch Ratings, which also see the country at “investment grade,” are a reflection of improvements in economic performance and the government’s fiscal condition.

Sovereign credit ratings are grades given to countries based on their perceived ability to meet obligations. These also serve as proxies for the health of economies because tax revenues, which are governments’ main source of cash, are closely linked to domestic output.

The Aquino administration has been largely successful in keeping yearly budget deficits in check, while increasing spending on infrastructure and social welfare projects. Taxes, with the exception of an increase for alcohol and tobacco products, have also been kept steady.

As a result of these better ratings, borrowing costs in the Philippines have gone down to record levels. This allows businesses to borrow more money to fund the expansion of operations—creating more jobs in the process.