An investment-grade credit rating for the Philippines won’t be far-fetched if fiscal reforms and the widening of the tax base continue, according to DBS Group.
The financial services provider said in a new research paper that rating agencies have taken notice of positive developments in the Philippine economy, particularly the continuing improvement in the country’s debt profile.
DBS noted the ratio of government debt to the size of the economy, which slimmed down to 49.5 percent in 2011 from as high as 74.4 percent in 2004.
“With a projected nominal GDP growth of 8.4 percent this year, the relative debt load will continue to fall,” the Singapore-based group said.
The group added that the government, taking advantage of lower yields, has also been successful in lengthening its debt maturity profile—short-term debt accounted for 5.3 percent of total debt in March this year compared to 18.2 percent in March 2009.
“If the government maintains progress on fiscal reforms and continues to widen the tax base, an investment-grade status would not be too far-fetched an idea,” DBS said.
Last year, Moody’s Investors Service upgraded the government’s foreign currency long-term rating to Ba2 or two notches below investment grade while Fitch Ratings raised its rating to BB+ or one notch below investment grade.
For its part, Standard and Poor’s put the country on positive watch last December while maintaining a rating of BB or two notches below investment grade.
Finance Secretary Cesar V. Purisima has repeatedly called on the agencies to “reflect market sentiment” in assessing the country’s creditworthiness, saying that the Philippines should already be enjoying an investment rating.
Also, DBS said the government’s target deficit of P279 billion for this year “should be comfortably met” following the release of data that show an increase of 12.1 percent year on year in April expenditures.