Fitch rating upgrade seen to augur well for upcoming dollar bond sale

National Treasurer Rosalia de Leon (INQUIRER FILE PHOTO)

The latest credit rating upgrade from debt watcher Fitch Ratings will provide a boost to the government’s dollar bond sale slated early next year, the Department of Finance (DOF) said Friday.

“We welcome this latest favorable action from Fitch, which is a resounding testament to the country’s sustained strong economic fundamentals and favorable growth trajectory. This augurs well for our next global bond offering even as the market has priced our bonds much tighter than our ratings,” National Treasurer Rosalia V. de Leon was quoted by the DOF as saying in a statement.

Last Monday, Fitch raised the Philippines’ credit rating to ‘BBB’ from ‘BBB-‘ with a “stable” outlook, citing that “strong and consistent macroeconomic performance has continued, underpinned by sound policies that are supporting high and sustainable growth rates.”

With the upgrade, Fitch’s rating on the Philippines, kept the same for four years, is now at the same level as those of Moody’s Investors Service as well as Standard & Poor’s, at one notch above minimum investment grade.

Credit ratings are a measure of a government’s creditworthiness. As the stability of state finances is also related to a country’s performance, credit scores serve as a proxy grade for the economy.

Also, improved ratings would allow the government to demand lower rates when it borrows from lenders, which could translate to lower interest rates for consumers and businesses borrowing from banks using government-issued debt paper as benchmarks for their loans.

Last week, DOF officials said the government plans to raise $1 billion in new money from its upcoming offshore bond issuance to finance its higher infrastructure spending requirements.

Deputy Treasurer Erwin D. Sta. Ana had said that the higher amount of new money being eyed for next year’s global bond sale, which is more than the usual $500 million, was in line with the higher 2018 financing program.

The Treasury is already securing approvals from here and abroad, including the US Securities and Exchange Commission, for the upcoming transaction, Sta. Ana had said.

Of the P888.2-billion gross borrowings programmed by the government for 2018, 20 percent or P176.3 billion will be borrowed from external sources.

For his part, Finance Undersecretary and chief economist Gil S. Beltran was quoted by the DOF as saying that the upgrade from Fitch was “the result of a stronger public sector finance outlook for the Philippines brought about by improved tax administration and the expected passage of tax reforms, along with a prudent monetary policy in the face of global financial volatility.”

“Also, we have unveiled a ‘Build, Build, Build’ infrastructure program, sectoral reforms and a list of ease of doing business programs that will enhance the competitiveness of domestic industries and boost GDP (gross domestic product) growth to 7-8 percent in the medium term,” Beltran added.

Finance Secretary Carlos G. Dominguez III had said that the new money to be raised from the global bond issuance will be spent mostly on infrastructure development.

The Duterte administration earlier unveiled the ambitious “Build, Build, Build” program aimed at ushering in “the golden age of infrastructure” after years of neglect.

Under “Build, Build, Build,” the government would rollout 75 flagship, “game-changing” infrastructure projects, with about half targeted to be finished within President Duterte’s term, alongside plans to spend a total of up to P9 trillion on hard and modern infrastructure until 2022. /jpv