Guarded hopes on rating upgrade
The Philippines’ credit rating has been upgraded to BBB+, its highest ever, by international credit rating company Standard & Poor’s.
This grade is two notches short of the much coveted “AAA” rating, which means its recipient has extremely strong capacity to meet its financial commitments and therefore is an excellent area for investment or credit.
With the BBB+ rating, the Philippines is considered as having adequate capacity to meet its financial obligations even if some external factors may adversely affect that capability.
Under ordinary circumstances, this assessment should result in foreign investors having more confidence in doing business in the Philippines, and creditors offering lower borrowing costs to the government and the private sector.
The government’s economic managers have attributed this upgrade to President Duterte’s strong leadership and sound economic programs.
It’s the same refrain, but with a different name, that was heard in the past whenever the Philippines’ credit rating was upgraded by any of the international ratings service companies. A positive spin was always given to any improvement.
Laudable the BBB+ may be, the administration’s drum beaters should exercise restraint in announcing the expected gains from it, especially that the midyear elections are just around the corner.
This is not to rain on the government’s parade, but the upgrade will not immediately make foreign investors and creditors call on government offices or private businesses for possible investment or financing opportunities.
Credit rating is only one of several factors that investors and creditors take into account in deciding where to put their money for the long haul.
Consistency in the implementation of government policies, ease of doing business, stable labor relations and a credible judicial system, among others, weigh heavily in the decision-making process of strategic investors and creditors.
These items, aside from favorable credit rating, account for the attractiveness of Indonesia, Singapore, Malaysia and Vietnam for foreign investments.
Sadly, there is much to be desired from the Philippines as far as those factors are concerned.
And even if the credit rating upgrade translates to additional foreign investments or less borrowing costs, it would take months, if not years, before such investments or credit facilities bear fruit.
A classic example of the length of time it takes to firm up investment or credit transactions is that of China-funded infrastructure projects.
It is only this year, three years after Mr. Duterte unabashedly declared his “love” for China, that two of the projects broke ground. And even those are in danger of being derailed because of questions about the legality of their underlying loans.
For minimum wage earners who constitute the majority of the country’s labor force, the credit rating upgrade is nothing but business jargon linked to people who do not have to worry about their next meal.
Until the upgrade results in the upward adjustment of wages or increase in the peso’s purchasing power, the reduction of borrowing costs or entry of foreign investments in the country is meaningless to them.
It may even raise false hopes about better job opportunities or improved living conditions in the coming months, only to be frustrated if nothing concrete is gained from that rating upgrade.
Under these circumstances, it’s best the benefits, if any, from the credit rating upgrade, speak for themselves rather than be hyped in advance.
