S&P raises PH growth forecast by 0.2 ppt to 6.6%

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DEBT watcher Standard & Poor’s (S&P) Global Ratings adjusted upward its growth forecast for the Philippine economy this year by 0.2 percentage point to 6.6 percent, citing encouraging economic conditions in the country and the government’s push for more development spending.

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S&P revised its projection for Philippine gross domestic product (GDP) expansion this year from an earlier projection of 6.4 percent.

“High household consumption, investment, and exports (mainly of electronics, commodities, and services) continue to support economic activity. These strengths will likely be underpinned by strong household and company balance sheets, sound growth in jobs and income, inward remittance flows and an adequately performing financial system,” it said.

The government estimates 2017 growth between 6.5 percent and 7.5 percent. The economy grew by 6.9 percent last year.

“Uncertain conditions in export markets and inadequate infrastructure, mainly in transportation and energy, are the main downside risks to our growth outlook,” S&P said.

Without closing infrastructure gaps and improving the business climate through greater political stability and regulatory reforms, the Philippines may experience challenges in maintaining its relatively robust rate of economic expansion over the medium to long term.

Years ahead

The Philippines will continue to register growth at 6.4 percent next year, 6.6 percent in 2019 and 6.3 percent in 2020, it said.

“We believe the Duterte administration will broadly continue with the fiscal and economic development policies of the previous administration, albeit with a more aggressive expenditure push,” it added.

The debt watcher expects per capita income hitting $2,950 this year and grow by an average of 4.9 percent through to 2020.

The country’s strong external payments position, boosted by dollar inflows in the form of remittances, business process outsourcing (BPO) revenue and tourism receipts.

The current account will likely stay in surplus at 0.6 percent of GDP this year, 1.0 percent next year, 1.2 percent in 2019 and 1.1 percent in 2020, S&P noted

The Philippines would remain a net external creditor to the rest of the world, with its net external debt likely to average -24.8 percent of GDP from 2017 to 2020. A negative figure indicates a net external creditor position.
The budget deficit would be at a prudent level of 2.8 percent of GDP from 2017 to 2020, and the net general government debt at a manageable 25 percent of GDP by 2022.

Affirms rating

Over the weekend, S&P affirmed the country’s “BBB” rating with a “stable” outlook. The rating is a notch above the minimum investment grade, and the outlook indicates the likelihood that it will stay the same at least over the next 12 to 18 months rating horizon.

An investment grade rating is a seal of good economic housekeeping that signals ability and willingness to pay debts as they fall due. It helps boost a country’s image before the international community, including foreign investors.

“The ratings on the Philippines reflect our assessment of its strong external position, which features ample foreign exchange reserves and low and declining external debt. This strength is balanced by the Philippines’ lower-middle income economy, and emerging policymaking settings,” S&P noted.

The new administration after the May 2016 general election has developed a “10-point plan” to reduce poverty, promote a law-abiding society, and achieve peace settlements with separatists in Mindanao.

However, President Rodrigo Duterte’s strong focus on improving law and order has given rise to concerns among some international observers, the credit watchdog noted.

“When combined with the president’s policy pronouncements elsewhere on foreign policy and national security, we believe the predictability of future policy responses is slightly diminished,” it pointed out.|

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. welcomed the latest S&P decision. “The favorable credit rating actions bestowed on the country over the years by major international credit watchdogs, including the latest affirmation by S&P of the country’s BBB/stable rating, is recognition in part of sound and calibrated monetary policy and banking supervision that have helped steer the economy to its enviable position of strength even amid a challenging external environment,” he said.

“The BSP, over the years, has institutionalized a host of reforms that serve crucial roles in maintaining price and financial stability. These reforms also have helped improve the country’s external profile, which S&P recognized as one of the major strengths of the Philippines.

“At the same time, the BSP has made it a point to be preemptive, exercising flexibility to introduce more reforms and to adjust policy levers, as deemed necessary, to guard against risks confronting the economy,” Tetangco added.

Finance Secretary Carlos Dominguez 3rd said the positive assessment of the Philippines is one more incentive for the government to “go ahead full throttle” on its “DuterteNomics” agenda to sustain the growth momentum and achieve economic inclusion in the medium term.

Dominguez hopes the debt watcher’s affirmation would “inspirit the Congress to act soon enough on the first package of the government’s CTRP (Comprehensive Tax Reform Program), which will help guarantee the financial sustainability of its aggressive expenditure program on infrastructure and human capital development meant to sharpen the country’s global competitiveness and grow its economy into upper middle-income status by 2022.

“S&P has confirmed what international and domestic financial institutions plus the business community and other sectors have been saying all along—that the policy environment on the Duterte watch remains conducive to sustained high economic growth,” he said.

“This affirmation is one more incentive for the government to go ahead full throttle on its ‘DuterteNomics’ agenda to sustain the growth momentum and achieve economic inclusion on the President’s watch,” he added.
Dominguez noted the concerns raised by S&P “are already being addressed by (1) President Duterte’s rebalancing of foreign policy with a focus on greater integration with our Southeast Asian neighbors and trading partners China, Japan, and South Korea, and our (2) ambitious plan to invest P8 trillion between now and 2022 in closing the country’s yawning infrastructure gap.”

The favorable assessments by S&P and, earlier, by Fitch Ratings—it had affirmed its ‘BBB-’ rating and positive outlook on the Philippines—illustrate that the political noise has failed to drown out the country’s growth story resulting from its strong macroeconomic performance and political stability amid the Duterte administration’s reform agenda and resolute policy against illicit drugs and other crimes, Dominguez said.

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