South Korea-based National Information and Credit Evaluation (NICE) Ratings Inc. has lifted the Philippines’ long-term foreign-currency rating by a notch to the minimum investment grade of BBB-, the ratings agency said in a report.
Citing improvement in the country’s growth potential, fiscal profile, financial stability and governance, NICE granted investment status to the Philippines for the first time.
Prior to the upgrade, in February 2013 the South Korean ratings firm adjusted its outlook on the Philippines’ previous rating of BB+ from “stable” to “positive.”
The BBB- rating is assigned a “positive” outlook, which indicates a probability of another upgrade within the short term.
“The outlook is positive. It reflects the improved growth potential backed by institutional reforms and greater investment in infrastructure,” NICE Ratings said in its latest report on the Philippines.
The ratings firm said it believes that the growth trend for the country will continue for the rest of the year, following the 6 percent expansion in its gross domestic product (GDP) in the first semester.
“Though economic growth decelerated a little bit to 6 percent in the 1H, the slowdown is part of normal economic adjustment after some economic overheating. Its growth impetus will also be maintained,” it said.
Reconstruction or rebuilding projects to repair the damage inflicted by the recent natural disasters are likely to spur the economy, and the service and manufacturing industries will continue driving economic growth together, NICE said.
“In order to break away from the private consumption-led growth and pursue a new growth model jointly led by investment and consumption, the government promoted manufacturing while making it a priority to enhance public governance and infrastructure. These efforts have brought better economic stability,” it added.
In terms of fiscal profile, NICE Ratings said debt management in the country was sound, with the central government’s outstanding debt having declined from a peak ratio of 74.4 percent of grow domestic product (GDP) in 2004 to 49.2 percent last year.
In its assessment, NICE said the central bank is properly responding to those factors for inflation control with recent adjustments in monetary policy setting and new regulations to prevent price bubbles in the real estate sector.
It also highlighted the government’s infrastructure-development agenda, under which public spending for infrastructure is targeted to grow from an equivalent of 3 percent of GDP this year to 4 percent next year and 5 percent in 2016.
“Higher infrastructure spending will help not only enhance industrial competitiveness and productivity, but also improve national competitiveness and maintain growth trend in the long term,” it said.
With this ratings move, the South Korean institution joins major international ratings firms Fitch Ratings, Japan Credit Rating Agency, Moody’s Investors Service, R&I, and Standard & Poor’s in giving the Philippines an investment-worthy grade.
Reacting to the upgrade, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. and Finance Secretary Cesar Purisima said the upgrade shows that the country’s economic strengths have become difficult to ignore by the international community.
“As far as the BSP is concerned, the latest investment grade is another acknowledgment of efforts to maintain an inflation environment and a financial system conducive for business and supportive of sustainable growth,” Tetangco said.
“This vote of confidence acknowledges efforts to ensure the country is able to sustain improvements in the economy over the long haul,” Purisima added.