BSP sees investment grade for PH under Moody’s formula

Despite recent favorable developments in the country’s credit ratings, the Philippines remains the most underrated economy in the world.

This was the view of the Bangko Sentral ng Pilipinas, which argued that with the existing economic indicators of the country, the Philippines should already be enjoying either the minimum investment grade or a rating that is a notch above the minimum.

BSP Deputy Governor Diwa Guinigundo cited a formula used by Moody’s Investors Service in determining the appropriate credit score for a country.

“They [Moody’s] have a formula incorporating factors like inflation, growth sustainability, fiscal position of the government, strength of the financial system, etc. Based on their own formula, they came out with a finding that there is a big difference between our [Philippines’] actual credit rating and the country’s supposed credit rating,” Guinigundo said.

The Philippines is rated Ba2, or two notches below investment grade, by Moody’s Investors Service. Moody’s raised the rating from three notches below investment grade last year, citing improvements in the country’s economic indicators.

Guinigundo presented to reporters a chart from Moody’s itself showing that the Philippines’ “bond-implied rating” is Baa2, or four notches higher than the actual credit rating that it assigns to the country.

A “bond-implied rating,” which reflects how the financial markets perceive the creditworthiness of a bond issuer, is calculated using the trading prices of bonds of the issuer versus prices of bonds of issuers in the same credit-rating category.

Guinigundo said the bond-implied rating showed that financial markets perceived the Philippines to be much creditworthy than other countries with the same credit rating. Alternatively, he said, creditworthiness of the Philippines was perceived by the markets to be the same as that of countries that were assigned investment grades.

“The market has recognized the potential of the [Philippine] economy to gear up its growth engines. It also reflects the market’s view that the Philippine economy is less risk-prone and more flexible against shocks—external and otherwise—that could come its way,” Guinigundo said.

Meantime, Standard & Poor’s last week raised the Philippines’ credit rating from two to just a notch below investment grade. S&P’s rating for the Philippines is now the same as that assigned by Fitch Ratings.

While the country’s economic officials are happy with the development, they continued to pitch for better credit ratings. Officials believed that an investment grade for the Philippines would help the country attract much-needed foreign direct investments (FDIs).

Credit-rating firms, however, are agreed that the Philippines needs to do more to deserve an investment grade. They said that while some indicators might be favorable, others still needed improvement.

Commonly cited factors that dampen the country’s creditworthiness are low per-capita income, high poverty incidence and governance structures that are discouraging to business.