Philippines seen getting investment-grade rating in 2 years

The Philippines could achieve investment-grade credit rating within a year or two if reforms that have so far yielded positive results are kept up, according to DBS Group.

The financial services provider issued the statement following last week’s move by Standard and Poor’s to raise the Philippines’ international debt rating to one notch below investment grade, mainly due to the government’s stronger financial position.

“Notably, this puts the Philippines in the same rating as Indonesia,” DBS said in a new research note.

“This does not come as a surprise as we have been highlighting that the Philippines has a significantly stronger fiscal and debt profile compared to just a few years ago,” it added.

Last month, the Bureau of Treasury reported a budget deficit of P22.8 billion in the five months to May, which was just one-fifth of the P109.34 billion that the government intends to spend on top of national budget for the first semester.

DBS notes that, in comparison, the average five-month deficit in the past five years was P67.3 billion.

“Moreover, the government still ran a primary surplus [the budget profile without interest expenses] amounting to P108 billion as of May,” the Singapore-based group said.

DBS said that with a gross domestic product growth of 6.4 percent year on year recorded in the first quarter, and “even after accounting for a slowdown in the second semester, the government’s growth target of 5 percent to 6 percent appears to be realistic.”

The group’s own forecast for full-year GDP growth is currently pegged at 5.3 percent—an upgrade from its previous projection of 4.2 percent.

Further, DBS maintains its expectations for the Philippines to post a current account surplus of $6.2 billion in 2012, down from $7.1 billion in 2011.

Current account refers to the balance of the inflow and outflow of goods, services, and other funds such as income, donations and debt payments.

It is a main component of a country’s balance of payment, which is a record of all monetary transactions between itself and the rest of the world.

“Remittances growth, although slowing, have proven to be resilient, while services exports (especially through business process outsourcing) have been expanding strongly,” DBS said.

“An investment-grade rating within the next one to two years is a definite possibility if the reform pace is maintained,” DBS added.