International analytics firm IHS Global Insight has upgraded its outlook on the Philippines to “positive” from “stable”, citing the country as the only sovereign entity in Asia with improving credit prospects.
The Philippines could also become a $1-trillion economy by 2030, IHS said in its “Sovereign Risk Review” report for the third quarter.
The improved outlook means that the country’s existing credit rating, set at the minimum investment grade of “BBB-,” could be raised in the near term.
Strong macroeconomic fundamentals combined with improvements in governance were said to be notable for the Philippines.
‘”[A]part from the clearly strengthened macro-financials over the last few years, the more recent upgrade to the Philippines’ outlook to positive in the third quarter rested on improved governance standards and reforms enhancing competitiveness under the Aquino administration,” IHS said.
The country was the only sovereign in Asia that received a positive action from IHS.
IHS recognized the Philippines’ comfortable liquidity, as evidenced by sustained surpluses in its current account, as well as continually improving manageability of debt.
The current account—fueled by remittances, revenues from the business process
outsourcing industry and tourism receipts, among others—posted a surplus of $4.7 billion during the first six months of 2015. It has been in surplus for 12 consecutive years.
General government debt as a percentage of gross domestic product (GDP), meanwhile, is on a downward trend. The ratio stood at 36.2 percent as of end-June 2015, consistently declining from a peak of 68.1 percent in 2003.
“The Philippines has been on a long ratings upgrade trajectory over the last few years. The key driver to these upgrades has been successively strong current account surplus generation with newfound sources of export earnings other than workers’ remittances and lower energy import bills,” said Jan Randolph, IHS director of sovereign risk, in a statement.
Rajiv Biswas, IHS chief economist for Asia-Pacific, estimated that the Philippines, with a gross domestic product of about $292 billion, had the potential to become a $695-billion economy by 2025 and over a $1-trillion economy by 2030.
“Two important growth drivers for the Philippines’ economy are the rapidly growing information technology-business process outsourcing (IT-BPO) sector and the strong flow of remittances from Filipino workers abroad,” Biswas said.
“The rapid growth of the IT-BPO industry is also creating positive transmission effects for the rest of the economy, including rapid growth in demand for commercial floor space, underpinning the development of existing and new office parks in urban centers,” he added.
Investor Relations Office Executive Director Editha Martin said IHS’ favorable views would further improve international perception of the Philippine economy.
“Although the Philippines now enjoys investment grade sovereign credit ratings from a wide list of international debt watchers, further building confidence on the economy is a never-ending task as we aim for sustainability of gains. The positive assessment of IHS on the Philippines is a welcome development,” Martin said.
She cited the concrete benefits of favorable credit ratings, including lower interest rates on loans as well as increased business confidence that helps boost investments and job creation.