The Philippine peso and stocks rallied on Friday on the back of a surge in investor confidence after Standard and Poor’s upgraded the country’s long-term sovereign credit rating by a notch, with a stable outlook.
Analysts view the country’s rating upgrade to BBB from BBB- as an affirmation of the country’s strong macroeconomic fundamentals.
“The rating upgrade is a signal that the country’s overall economy is doing well,” First Grade Finance Managing Director and economist Astro del Castillo told The Manila Times.
“This will attract more investors and fund institutions to take another look at the Philippines given that S&P already affirmed our capacity to pay our debts,” he added.
Economist Cid Terosa from the University of Asia and the Pacific said the upgrade should help boost the country’s investment credibility.
“At the same time, we can get lower interest rates for our loans. In short, it will heighten our business and investment prospects,” Terosa added.
The government of President Benigno Aquino boasts its 18th positive rating action from a credit rating agency and the fourth from S&P.
Budget Secretary Florencio Abad said S&P’s BBB rating with a stable outlook is the highest rating ever given to the Philippines—“another welcome affirmation of the country’s strong economic fundamentals. At the same time, it validates the progress and expected sustainability of the Aquino Administration’s governance reforms.
On Friday, the day after the announcement of the upgrade, the peso gained further strength against the US dollar to P43.65. The Philippine currency already hit its highest level in nearly five months the day before, strengthening by 3 centavos to P44.19 from Wednesday’s P44.22. That was the peso’s strongest since it closed at P44.15 on December 16, 2013.
“The improvement in the Philippine peso has been expected as the S&P upgrade puts the Philippines on a win-win [position from the investors’]view,” del Castillo said.
On the Philippine stock exchange, shares advanced to push the benchmark index past the 6,800-point psychological barrier on Friday, hitting its highest level in nearly 11 months, with sentiment buoyed by the S&P rating upgrade. The benchmark PSEi finished the day’s trade up 82.05 points or 1.21 percent at 6,847. This is the main index’s highest closing level since June 10 last year, when it closed at 6,875.60.
S&P expects sustained reform
As announced late Thursday, the S&P raised the Philippines’ long-term sovereign credit rating to BBB from BBB-, citing the country’s strong external liquidity and effective monetary policy that has sustained low inflation and interest rates.
In raising the ratings on the Philippines, S&P said: “We expect ongoing reforms on a broad range of structural, administrative, institutional, and governance issues to endure beyond the term of the current administration.”
S&P also expressed optimism that the gains in revenue generation, spending efficiency and improvements in public debt profile, as well as the investment environment, will be sustained under the next administration.
Government boasts major feat
“We are very pleased that S&P has recognized the Philippines’ remarkable economic comeback,” Finance Secretary Cesar Purisima said.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said: “The BSP welcomes the decision of S&P to upgrade the Philippines’ long-term sovereign credit rating by one notch.”
He pointed out it was a major feat “as S&P did a straight upgrade. They no longer assigned a positive outlook before upgrading the rating.”
Tetangco stressed that the latest upgrade from S&P “is further affirmation of the country’s strong macroeconomic fundamentals. Since S&P raised the Philippines’ credit rating to investment grade in May 2013, the Philippines proved that it is able to sustain high economic growth despite external volatility.”
The central bank chief added that the rating upgrade “is a recognition that the structural reforms that we have put in place continue to gain traction, as demonstrated by the significant improvements in the country’s position in international governance and competitiveness surveys.”
“The BSP will continue to support sustained and inclusive economic growth amid a low-inflation environment. We stand ready to adjust our monetary policy stance and adopt macroprudential measures, as appropriate, to guard against risks that would unsettle inflation expectations and threaten the soundness of our financial system. We will also continue to craft external sector policies that will help keep our external liquidity position strong.”
Abad cited S&P’s recognition of the gains brought about by the public financial management reforms instituted by the government.
“We are on the right track in terms of continuously improving our public spending efficiency primarily in ramping up investments for infrastructure projects, among other key priority and substantial programs and projects.
“Moreover, this vote of confidence from international investment analysts also raises our international competitiveness and further increases our attractiveness to foreign investors. The positive outlook on our investment position will, in turn, significantly aid our ability to generate more jobs and livelihood opportunities.
“S&P’s upgrade also serves as a reminder for us to remain committed to continuity and ensure the sustainability of our reforms. Our main agenda will always be to advance rapid, sustained and inclusive growth—one that aims to make substantial strides against our longstanding struggle against poverty—through honest and effective governance.”
In terms of foreign direct investment (FDI), del Castillo said it may take some time before bigger FDI inflow due to the latest upgrade could become apparent, given the remaining improvements that need to be done by the government.
“The Philippines have to earn it [FDI]. The government should, somehow, continue with the reforms. Improve infrastructure, peace and order issues, and the power crisis we’re facing. There’s still really a lot of things that the government should do before it could attract more FDI,” he added.
Economist and Former Finance Secretary Benjamin Diokno said he believes the rating upgrade from S&P will have very little impact on the lives of the common man.
“It’s another indication that the risk of lending to the Philippines has improved. But the whole world knows that already. It’s reflected in the spread on RP (Philippine) bonds. There’s no need for rating agencies to validate that. Given our current economic realities, getting even higher ratings should be the least of our priorities,” Diokno said in a text message to The Times.
The government should be more concerned with creating jobs for the 3 million unemployed, 7.5 million underemployed and the 1.1 million new workers who join the labor force every year.
“For them, the BBB-rating is practically irrelevant if not alien,” Diokno added.
WITH RAADEE SAUSA