Better-quality growth needed for PH to get investment grade—DBS

Cranes load ships with containers at the Manila South Harbor port in this 2009 file photo. Singapore-based DBS Group says the Philippines needs to show further improvements in economic growth. It cited in particular the gloomy outlook for Philippine exports contributing to growth figures for the rest of the year, which may be lower than the first-quarter performance. AFP/TED ALJIBE

MANILA, Philippines—Global credit watchers may not grant the Philippines an investment-grade rating “any time soon” as the country needs to show further improvements in economic growth, according to DBS Group.

This is the financial services provider’s latest assessment after having said in May that an upgrade was “not far-fetched.”

In its latest quarterly report on market strategies, the Singapore-based firm noted that Moody’s Investor Service and Standard & Poor’s debt ratings for the country are still two notches below the coveted level.

“Although Fitch Ratings’ is one step below investment grade, the agency wants sustained reforms that boost investments, accelerate growth and improve fiscal revenues,” DBS said.

“Put simply, there is a need to improve the quality of growth which is still too dependent on government spending,” it added. “This risks stoking inflation whenever monetary policy is deployed to offset the weakness in the external sector.”

DBS is referring to its gloomy outlook for Philippine exports, which it said would contribute to growth figures for the rest of the year being lower than the first-quarter performance.

For January to March the Philippines defied market projections of a first-quarter growth rate of below 5 percent when the government reported 6.4 percent.

Earlier this month, state economic officials, including Finance Secretary Cesar V. Purisima, went on a non-deal road show in key cities in the US following President Aquino’s official working visit to Washington.

Purisima and the other officials met with officials of banks, credit rating agencies, and investor groups to update them on the country’s economic situation.

Before leaving for the US, Purisima said he was to meet with credit rating agency officials in New York as part of a continuing dialogue.

“The Philippines has had 53 consecutive quarters of economic growth,” he said. “We are very happy to report to them that things are getting brighter for the Philippines, especially with third party and investors’ recognition.”

In a statement of support for the road show, William H. Strong—co-chief executive of Morgan Stanley Asia Pacific—said that at a time of global volatility, the investment bank views the Philippines as a bright spot.

“Investors and commentators have noted the ongoing structural reforms being implemented by President Aquino’s administration and the country’s economic growth,” Strong said.

“As noted by one of our senior emerging market portfolio managers, the government can hit its medium-term 7-8 percent growth target as long as the reform momentum continues,” he added.