DOF sees no compelling reason for PH downgrade


THERE is no compelling reason at this point for credit rating agencies to downgrade the Philippines from investment grade to junk despite the red flags raised over perceptions of sociopolitical uncertainties as a result of alleged extrajudicial killings linked to the Duterte administration’s campaign against illegal drugs.

The Philippines is currently enjoying the kind of status called the “Goldilocks economy,” Finance Secretary Carlos Dominguez 3rd told reporters late last week. He was referring to a country’s socioeconomic condition characterized by moderate and stable growth amid low interest rates, low inflation, and loose monetary policy.

All three major debt watchers – Fitch Ratings, Moody’s Investors Service and Standard & Poor’s (S&P) Global Ratings – have raised the the Philippines’s sovereign credit rating to investment grade.

Last week, S&P affirmed the investment grade rating on the back of a strong external position but warned that sociopolitical uncertainties area a risk factor that may reverse the gains over the last six years.

“You know they were worried that it would be on the economic end, Dominguez noted. “But I said we are less than 90 days in office. I mean when do you see any change in policy? There is no change, so how can you say that we are unstable?

“[A]s I said, there is no reason for it to go down. I said, number one, we are in a Goldilocks moment in our country,” he added.

The Cabinet official noted interest rates are relatively low around the world, and there is “very little” inflation in the country. The Philippine financial system is also full of excess liquidity, he said.

“The president said we will honor all our commitments,” he added.

A credit downgrade will be felt by investors and ordinary Filipinos, Dominguez noted. “What could possibly happen if they downgrade us? If they downgrade us, first of all, the interest rates we pay for our loans – our new loans—will go up.

“When interest rates for the government go up, that means … we have less budget to spend on our program.”

Eventually, it would lead to higher domestic interest rates that could hit companies and individuals, Dominguez said. “If the interest rate goes up domestically, of course the companies will be hard hit … Well, not hard hit. It depends on how much it will go up. But definitely, you know people, who buy cars or motorcycles on credit are going to pay a higher rate.”

Another consequence of a downgrade is the likelihood that foreign direct investments will go down, which means less jobs will be created, the Cabinet official noed.

“Investments in the stock market will go down. So our stock market prices won’t be so attractive,” he added.


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