After debt watcher Fitch Ratings upgraded its Philippine outlook to “positive,” economic managers see the much coveted “A” credit rating within easier reach.
The change in Fitch’s outlook from “stable” previously meant a possible upgrade in rating within the next 12-18 months from “BBB” at present to “BBB+” or just one notch from “A.”
“The Philippines looks forward to the further alignment of its credit ratings to its level of creditworthiness as indicated by a decreasing debt-to-GDP (gross domestic product) ratio and positive economic prospects from record investment levels in infrastructure and human capital,” Finance Secretary Carlos Dominguez III told reporters on Tuesday night.
Last year, the Philippines’ debt-to-GDP ratio improved to 41.6 percent, below the 2019 program of 41.7 percent and 2018’s 41.9 percent.
“For over three years, the Duterte administration has further improved our country’s macroeconomic fundamentals. We have pursued an aggressive investment program while maintaining fiscal discipline. The upgrades in our ratings reflect an exciting inclusive narrative anchored on robust growth despite headwinds and a declining poverty incidence. President Duterte has exercised bold leadership in carrying out game-changing reforms, such as tax reform to sustain high growth and improve the living standards of our people,” Dominguez said.
“A higher credit rating is crucial to the quest for a more inclusive growth because it will lower borrowing costs for the government and private sector investors, and eventually lower interest rates for the loans of ordinary Filipinos. Both will spur greater investments, which, in turn, will mean faster growth and more jobs,” Dominguez added.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the Philippines deserved a better credit standing with international debt watchers, and the latest move by Fitch Ratings to assign a “positive” outlook on the country’s economic prospects was a step toward that end.
He said the government was focused on implementing the structural reforms needed for the Philippines to earn the never-before-achieved “A.”
The central bank chief said the Duterte administration’s economic team was also meticulously tracking how the economy was progressing in terms of achieving a wide array of metrics that would solidify its position as an A-lister.
“An ‘A’ scale rating is not an end itself, with the overarching objective being maintaining macroeconomic stability and making growth truly inclusive,” he said. To reach this credit rating, Diokno said the passage of structural reforms was critical within the next two years, as this would enhance the country’s institutional strength to manage the economy—a key indicator looked into by credit rating agencies.
The Philippines aims to achieve the “A” in the next two to three years so that it could continue borrowing at cheaper rates to bankroll big-ticket infrastructure projects.
When the Philippines becomes an upper middle-income country—defined by the World Bank as having a per capita income above $3,956, the country would lose by 2022 access to preferential interest rates it is currently enjoying from its bilateral partners and multilateral institutions. The country will gun for the upper middle-income tag this year.
“The Philippines is actively paving the way toward its next stages of economic development, and the gains should be acknowledged by credit rating agencies like Fitch. Over the last few years, we have posted notable strides in making our economic growth more inclusive, as evidenced by the significant declines in the unemployment rate and poverty incidence,” Socioeconomic Planning Secretary Ernesto Pernia added.
Credit ratings measure the government’s creditworthiness.
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 currently enjoys investment-grade credit ratings from the top three debt watchers, namely Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.