The Philippine economy has enough macroeconomic fundamentals that would support the positive outlook of Moody’s Investors Service on the country’s investments grade status, according to the Bangko Sentral ng Pilipinas (BSP).
Credit-rating agency Moody’s recently granted the country an investment grade status with a positive outlook, saying that improvements in the country’s main debt metrics and growth dynamics will lead to further upgrades.
However, it noted that the country’s rating would slip again if “macroeconomic instability leads to a substantial deterioration in fiscal/debt metrics, a rise in debt-servicing costs, and/or an erosion of the country’s external payments position.”
“The potentials for upside [rating]are greater than the risks on the downside for the Philippines economy,” BSP Governor Amando Tetangco Jr. said in an interview with the reporters over the weekend.
Tetangco said that the 7.6-percent growth of the country’s gross domestic product (GDP) in the first half of 2013, and the declining debt metrics of the government would support the Moody’s positive outlook for the Philippines.
He explained that the county’s debt metrics involves a declining debt-to-GDP ratio, public debt-to-GDP, as well as external debt-to-GDP.
The BSP governor noted that the country now has reduced foreign borrowings because it is getting a lot of foreign exchange from other sources such as portfolio investments, direct investments, business process outsourcing and remittances.
“So without having to borrow, we are witnessing a positive balance in various external accounts. So we are getting more foreign exchange receipts than we are spending,” he said.
Furthermore, Tetangco mentioned that what is significant about the investment grade rating action of Moody’s to the country is that its outlook was also positive, which means that there could be a possible upgrade within the next 12 to 24 months.
“Another significant factor we have to take is on the context that the Philippines has been one of the very few countries that have been upgraded in this period of global financial volatility,” he said.
With this development, the BSP governor said that the financial markets reacted further which resulted in the appreciation of the Philippine peso and the improvement of the stock market.
The local currency on Friday closed at P43.05 to a dollar from P43.08 to a dollar the previous day, while the Philippine Stock Exchange index closed the trading week 0.04 percent higher, or 2.83 points to 6,390.48, while the broader all-shares barometer went up 0.31 percent, or 12.04 points to 3,854.36.
“Prior to the announcement, there is already an effect because of the expectation of an upgrade. But when the upgrade was announced there was further reaction. What happened is that peso appreciated and the stock market went up,” he said.