‘A’ credit rating seen to offset PH’s higher borrowing rates

MANILA, Philippines — In line with the goal to secure an “A” credit rating before President Rodrigo Duterte steps down in 2022, the economic team was watching over its borrowings and aiming to further hike revenue collection even as it speeds-up the rollout of big-ticket infrastructure projects while cheap money was still available to the Philippines.

Socioeconomic Planning Secretary Ernesto M. Pernia said Friday that the ambitious “Build, Build, Build” infrastructure program was “now accelerating considerably, given that we’re going to be [an] upper-middle-income country next year.”

“We really have to fast-track the approval of the projects, especially in terms of funding, so we can avail of concessional rates. We have only up to 2022 or 2023 to do that, so that’s one motivation we have in terms of rushing, having more ICC meetings to get projects going,” Pernia said after the National Economic and Development Authority’s Investment Coordination Committee-Cabinet Committee (Neda ICC-CabCom) meeting where Duterte’s economic and infrastructure teams approved 12 big-ticket projects worth a total of P626.1 billion.

When the Philippines becomes an upper-middle-income country – defined by the World Bank as having per capita income above $3,956 – next year, the country would lose by 2022 the access to preferential interest rates it was currently enjoying whenever it borrows from its bilateral partners and multilateral institutions.

As such, Finance Secretary Carlos G. Dominguez III said the government had come up with a roadmap to achieve “A” credit ratings within the next two to three years so that the country can continue borrowing at cheaper rates, especially to bankroll massive infrastructure projects.

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

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.

The Philippines current enjoys investment grade credit ratings from the top three debt watchers, namely Fitch Ratings, Moody’s Investors Service, and S&P Global Ratings.

Dominguez said the roadmap was being worked on by the Bangko Sentral ng Pilipinas, Department of Finance, Bureau of the Treasury, and Neda.

“We really mean to address the need for us to improve our credit rating because we’re going to lose our special interest rates since we will be graduating already to upper-middle-income country status. So we have to make sure that the differentials in the interest rates will be lessened with the credit upgrade,” Dominguez said.

To achieve the “A” credit rating goal, Dominguez said it was crucial to have the Duterte administration’s comprehensive tax reform program passed “in order to increase our tax revenue as a percentage of GDP [gross domestic product] – that’s a very important factor.”

“That’s why our tax reform is so important, and we’re very happy that the legislature is seeing their way to supporting us,” Dominguez said.

The roadmap will also “make sure that our GDP is growing faster than our loans, so we don’t reach 42-percent debt-to-GDP ratio,” Dominguez added, referring to the government’s target to further keep the share of borrowings to the economy at manageable levels in the medium term.

Dominguez said the economic team was “working hard” to achieve “A” credit ratings “so that it mitigates the jump in borrowing costs.”

While the government ramps-up availment of cheaper borrowings in the next two years, it was also important to speed-up the actual implementation of projects, presidential adviser for flagship programs and projects Vivencio B. Dizon said.

“It’s important to note that since the Neda [Board] approved the new list, we’ve already approved a total of 14 projects,” Dizon said, referring to the expanded “Build, Build, Build” pipeline now comprised of 100 projects, including up to 30 to be built using the public-private partnership (PPP) mode.

“So you can see that we’re really accelerating the approvals in order for the implementing agencies to already begin, within six to eight months, projects on the ground. When we say begin, we mean heavy equipment and boots on the ground already – that’s the goal. And we’re happy with the progress, but we want to accelerate it further,” added Dizon, who is also president and chief executive of the state-run Bases Conversion and Development Authority (BCDA).

Public Works Secretary Mark Villar said implementing agencies such as the Department of Public Works and Highways (DPWH) were ready to build the publicly funded projects despite a barrage in approvals.

Villar said the DPWH was able to disburse P590 billion or 80 percent of its over P700-billion budget last year, which he claimed was the highest disbursement value at the highest efficiency rate for the agency.

As of November this year, the agency already spent P580 billion – “that’s almost the same as last year with one month to go, so we’re ahead definitely in terms of capability,” Villar said. “We’re well-prepared to handle the volume of projects.”