PH credit rating upgrade seen

The Philippines would likely move up to a credit rating higher than minimum investment grade after debt watcher S&P Global Ratings on Thursday raised its outlook to “positive,” citing improved fiscal management following the passage of the first tax reform package.

From “stable” previously, a “positive” credit outlook meant that the Philippines’ long-term sovereign credit ratings, affirmed at ‘BBB,’ may be raised over the next six months to two years.

At present, the credit ratings assigned to the Philippines by the three top debt watchers Fitch Ratings, Moody’s Investors Service and S&P were all a notch above investment grade.

In a report released Thursday night, S&P said that “the  ‘positive’ outlook reflects our view that improvements to the Philippines’ policymaking settings could support a track record of more sustainable public finances and balanced growth over the next 24 months.”

“We may raise the ratings if the government’s fiscal reform program leads to further achievements over the course of the next 24 months. This would support more sustainable public finances and balanced economic growth prospects while maintaining stable fiscal deficits and net general government indebtedness,” S&P said, mainly referring to the Duterte administration’s comprehensive tax reform program, the first package of which was enacted into law in December.

Republic Act No. 10963 or the Tax Reform of Acceleration and Inclusion (TRAIN) Act since Jan. 1 this year jacked up or slapped new excise taxes on cigarettes, oil, sugary drinks and vehicles, among other goods, to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.

“We may also raise the ratings if the government’s revenue enhancement measures lead to lower-than-expected deficits, which would have a knock-on effect on net general government indebtedness,” S&P added.

The Cabinet-level Development Budget Coordination Committee last Tuesday estimated additional revenues of P124.9 billion this year coming from the TRAIN Law.

The comprehensive tax reform program is expected to generate P215.8 billion in additional revenues in 2022.

The government had programmed a budget deficit cap equivalent to 3 percent of gross domestic product until 2022.