Japanese debt watcher Rating and Investment Information Inc. (R&I) affirmed over the weekend the Philippines’ investment grade at “BBB,” a notch above the minimum, highlighting the country’s sound fundamentals, while urging the government to also pay attention to its international relations.
The BBB rating came with a “stable” outlook, indicating the likelihood that factors supporting the rating will be more or less firm over the medium term under the leadership of President Rodrigo Duterte.
“The Philippines’ economy remains solid. Risks are limited in terms of external and fiscal positions, and the financial system continues to be stable. Per capita income also keeps improving,” R&I said in a statement.
The credit watcher issued its Philippine assessment against a backdrop of ample foreign exchange reserves, as well as improving government debt ratios.
The country’s gross international reserves, at $86.1 billion as of end-September 2016, are enough to cover 10 months’ worth of imports of goods, as well as of payments of services and income, and provide sufficient buffer against external shocks.
GIR is now higher than the country’s total external debt, which had declined to $77.7 billion as of end-June, equivalent to only 26.2 percent of gross domestic product (GDP).
The credit watcher noted that general government debt as a percentage of GDP continued to fall, standing at 35.4 percent as of end-June 2016, compared with 36.3 percent as of end-December 2015.
Meanwhile, R&I also mentioned rising private consumption and investments, which support the Philippines’ official growth targets set at 6 percent 7 percent for this year and 6.5 percent to 7.5 percent for 2017.
In the first semester of 2016, real GDP growth averaged 6.9 percent, the highest among the major economies of the Association of Southeast Asian Nations.
At the same time, investor confidence in the country’s growth prospects has buoyed investment plans approved by the Board of Investments, which jumped 49 percent year-on-year to $6.1 billion in the first nine months of 2016.
Investor confidence has also led to sustained and rapid growth in actual net foreign direct investments (FDIs), which surged 71 percent year-on-year to $5.4 billion in the first eight months of 2016, it said.
A seal of good housekeeping that indicates a country’s (or a rated institution’s) capacity and willingness to pay debts as they fall due, a credit rating within the investment-grade scale helps attract investments.
R&I said that while economic policy management is not expected to change drastically under the new administration, attention should also be paid to growing uncertainty in international relations.
It said the government’s anti-drug measures and the signs of changes in diplomatic relations with the US and Asian countries warrant attention because investment could be potentially hampered if international confidence in the administration diminishes.
“R&I will keep an eye on future developments, particularly relating to its impact on the economy,” it added.
Vote of confidence
The country’s top economic officials welcomed R&I’s decision, which is a vote of confidence in the ability of the Philippines to stay on a robust growth path.
Finance Secretary Carlos Dominguez 3rd said the favorable credit perception of the Philippines comes on the back of efforts of the Duterte administration not only to maintain the economic gains of the past but to substantially build on those to achieve inclusive growth.
“By 2022, we aim to have a Philippines that will have become an upper middle-income economy as a result of further reforms that have decisively attacked poverty, attracted more investments, and created enough jobs for all Filipinos,” he said.
Dominguez added that soon after the elections and even before the inauguration of President Duterte and his Cabinet, the new administration already had announced its 10-point socioeconomic agenda.
“The Government is now crafting, in close consultation with development partners, private sector, academe, and other concerned stakeholders, the strategies, policies, plans, and projects that will support accelerated spending on infrastructure, human capital development, and social protection for the poorest of the poor,” he said.
“All these initiatives will be put together in a document, the 2017-2022 Philippine Development Plan, which we hope to complete by yearend,” he added.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the affirmation of the Philippines’ BBB rating by R&I is consistent with the projection of the central bank that the inflation outlook stays well anchored and demand conditions remain firm, which bode well for economic growth.
“Having said that, the BSP will continue to conduct sound and preemptive monetary policy and bank supervision to help ensure that the economic gains we enjoy will not be eroded but instead will further grow,” he said.
The BSP, which again kept policy settings unchanged at its Monetary Board meeting on Thursday, said it has ample monetary policy space to address financial shocks.