Moody’s Investor Service on Thursday granted the country investment status with a positive outlook.
Moody’s followed Fitch, Standard & Poor’s, Japan Credit Rating Agency Ltd. and Ratings and Investment Information, Inc. (R&I Ratings) who earlier upgraded the country’s credit rating to investment grade.
The agency said the country’s economic performance has entered a “structural shift” to higher growth, accompanied by low inflation.
It said the 6.8 percent growth in 2012 and 7.6 percent year-on-year growth in the first half of 2013 were among the fastest rates of growth in Asia-Pacific and across emerging markets globally.
Inflation meanwhile is below the 3 percent to 5 percent target of the Bangko Sentral ng Pilipinas (BSP) this year.
“The new growth path is being reinforced in part by improved fiscal management. Revenue growth has accommodated sizeable increases in infrastructure and social spending, although revenue generation remains weak when compared with investment-grade countries overall,” Moody’s said.
It added that a shift in the government’s funding strategy has cushioned it against external financial shocks. While the government is the largest sovereign issuer of US dollar-denominated securities in Asia-Pacific based on total debt outstanding, it is now much more reliant on domestic sources of financing.
“The government’s improved ability to fund itself onshore reflects both the country’s healthy external payments position and the ample liquidity in its banking system, which is also the only system worldwide deemed by Moody’s to have a positive outlook,” it said.
Moody’s said improvements in the country’s main debt metrics and growth dynamics will lead to further upgrades.
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.”
It said sustained political stability “points to better prospects for reform over the second half of the current presidential administration.”
Moody’s also upgraded the government’s foreign currency shelf rating to (P) Baa3 and the ratings for the liabilities of the BSP, to Baa3. These were also assigned a positive outlook.
“The BSP is pleased that Moody’s has recognized the country’s strong prospects and potentials as evident in its investment grade rating and positive outlook that it assigned to the Philippines,” BSP Governor Amando Tetangco Jr. said.
Tetangco said the new rating is an “affirmation” of the steady and responsible macroeconomic stewardship and purposeful structural reform agenda of the country.
He added that Moody’s has acknowledged that with a strong economy, the country can ride out the volatilities in global financial markets.
“The BSP shall continue to be attentive to challenges and risks in the operating environment. We will continue to ensure that the economy’s resilience and flexibility are safeguarded through prudent monetary and financial policies,’ Tetangco said.
Strategic Communications Secretary Ramon Carandang said the Moody’s upgrade reflected sustained “international confidence” in the country.
“It is a continuation of the confidence that the international community has in the fiscal management of President Aquino and his team. What this shows us is that the last of the ‘Big 3’ credit ratings agencies has given us investment grade, so there’s no question about our country’s credit rating anymore. The pleasant surprise was that we were also given a positive outlook; meaning, the prospects of another upgrade are quite positive as well,” Carandang said.
Finance Secretary Cesar Purisima said the Philippines’ sound fiscal and monetary policy have been validated by the upgrade.
“We are now investment grade in all 3 major ratings agencies.
Despite this, we are still among the most underrated countries since the market rates us at least two notches above investments grade,” Purisima said in his Facebook account.