Debt watcher KEEPS PH investment grade rating

A Korean credit-monitoring firm has maintained its investment grade rating on the Philippines, citing the country’s “ability to weather external headwinds and the government’s prudent tax and spending policies,” the government said on Monday.

The Philippines’ Investor Relations Office said NICE Investors Service kept the country’s sovereign debt rating at “BBB” after its most recent review of the local economy.

The existing rating, a notch above the minimum investment grade, was also assigned a “stable” outlook, given perceived absence of factors that could materially affect the country’s creditworthiness over the short term.

“The policy direction of the Duterte administration [that is] set to increase government expenditure through expanding [the] tax base is deemed appropriate, given the need for infrastructure investment,” NICE said in its report on the Philippines issued on Oct. 31.

An investment grade rating on the country’s sovereign debt allows the government to borrow more cheaply from overseas and also improves access of private sector borrowers to the domestic and international credit markets.

“The government’s tax reform and infrastructure investment acceleration are already showing tangible effects in 2018,” NICE added.

Noting the volatility in the foreign exchange market globally as a result of the US-China trade war and interest rate increases in advanced economies, NICE said the impact would be appropriately managed, “given the country’s response capability in terms of foreign exchange liquidity.”

In response, Finance Secretary Carlos Dominguez III credited the country’s “decisive leadership that implements game-changing reforms in policy-making, tax administration, and infrastructure modernization in pursuit of high and inclusive growth.”

“The government’s Comprehensive Tax Reform Program and the ‘Build, Build, Build’ infrastructure initiative are expected to sustain the country’s growth momentum, achieve financial inclusion and propel the Philippines into an upper-middle income economy by 2022,” he said. “We thank NICE Investors Service for recognizing the scope and purpose of the Duterte Administration’s policy directives.”

Meanwhile, Bangko Sentral ng Pilipinas Governor Nestor Espenilla, Jr. said the Philippine economy had sufficient buffers against external shocks.

“With gross international reserves equivalent to about seven months of imports, a steady source of foreign exchange inflows led by remittances, business process outsourcing industry revenues and tourism receipts, a flexible exchange rate policy and overall prudent management of the country’s external accounts, the economy shall remain resilient amid global volatilities,” he said.

NICE projected that the local economy would grow by 6.3 percent this year, noting that while this marked a slowdown from last year’s 6.7 percent, the Philippines would still remain one of the fastest-growing economies in the region.

NICE also said elevated inflation this year was not expected to undermine the country’s short-term macroeconomic stability.