Tokyo-based Ratings and Investment Information Inc. (R&I Ratings) on Thursday affirmed its investment grade rating on the Philippines at “BBB” with a stable outlook.
“The Philippine economy continues to grow at a solid pace of over 6 percent. In addition to private consumption, which has been the primary driver of the economy, brisk investment has contributed to growth in the past couple of years,” it said.
R&I, however, noted that although increasing, the share of investment in gross domestic product (GDP) has remained the lowest among neighboring countries at about 22 percent since it was first reached in 2014.
The ratings firm added that per capita income levels also remained low compared with those of other major members of the Association of Southeast Asian Nations (Asean), but noted that if the Philippines sustains solid growth and makes steady progress in raising per capita income, it is likely to have a positive impact on its creditworthiness.
R&I said nevertheless, the country’s strong economic trend, stability in prices and the financial system have created a favorable macroeconomic environment, pointing out that in terms of both fiscal and external positions, risks are limited.
The ratings agency stressed that since the Philippine government is committed to prudent fiscal management, fiscal risks continue to subside.
With the ratio of outstanding debt to gross domestic product (GDP) declining, the lower interest burden has allowed the government to rein in deficits and increase expenditures for key policies, it said.
“Given the goal of increasing infrastructure investments to at least 5 percent of GDP by 2016, however, eyes should continue to be kept on its capability to expand revenue sources and execute policies efficiently,” it stated.
To withstand external shocks
This year, capital flows are projected to be affected somewhat by an interest rate hike in the United States, but R&I said it does not believe that Philippine economic fundamentals will deteriorate significantly.
“The economy is seen withstanding challenges from potential external shocks,” it said.
The ratings firm pointed out that the country’s current account balance has remained in surplus. This is supported by a large surplus in the secondary income balance, mainly comprised of remittances by overseas Filipinos and a service trade surplus from the business process outsourcing industry, which it views as an area of strength for the local economy.
Foreign reserves are enough to cover 11.4 months’ worth of imports of goods and services.
The net international investment position has also improved, with the excess of foreign liabilities over foreign assets at only 14.3 percent of GDP as of end-2014, it noted.
In addition, R&I said improvement has been seen in public safety, corruption eradication measures and some other problems, which have been an obstacle to foreign direct investment inflows under the current administration.
“The Mindanao peace process is going through a final complicated phase, but once the peace deal is achieved, it can be a great positive factor for economic sentiment. Nevertheless, the peace process is still in progress,” it said.
Lastly, the ratings agency said while the presidential election in May 2016 is causing concern over policy uncertainties, a new administration is expected to maintain and even develop the reform momentum further.
Govt sees PH underrated
For its part, the government welcomed the current rating action of R&I, but reiterated that the country remains underrated.
In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the Philippines remains in a desired convergence point of rapid growth and low inflation, with sufficient buffers against external shocks, as well as a sound and stable banking sector.
“The credit rating agencies recognize these. We all need to ensure that the Philippines keeps its hard-earned investment grade sovereign credit ratings beyond 2016,” he said.
Tetangco gave his assurance that the BSP will continue to implement policies to preserve the prevailing low and stable inflation environment that enables the economy to sustain rapid growth.
“We will continue to put in place regulatory standards and safeguards to further strengthen the banking system,” he added.
Finance Secretary Cesar Purisima said the R&I upheld the country’s seal of good housekeeping. “However, we believe that the country’s rating should be higher,” he said, noting that since 2010, the government has proven that “good governance is good economics.”
Purisima said the country’s economic prospects remain one of the best within the emerging markets sphere.
“We have institutionalized a host of economic and fiscal reforms to ensure that these gains will be sustained. The “A” category is in sight: we ought to remain ste adfast in our commitment to good governance and sound economic policies,” he concluded.